OAKWOOD HOMES CORP
10-Q, 2000-02-14
MOBILE HOMES
Previous: OAKWOOD HOMES CORP, SC 13G/A, 2000-02-14
Next: OCEANIC EXPLORATION CO, 8-K, 2000-02-14


                       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, 1999 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)

                                       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, 2000.

       Common Stock, Par Value $.50 Per Share . . . . . . . . .47,124,562

                                       1
<PAGE>


PART I. FINANCIAL INFORMATION

         Item 1. Financial Statements

         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 audited 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 OPERATIONS (UNAUDITED)
                      (in thousands except per share data)

                                                       Three months ended
                                                           December 31,
                                                           ------------
                                                       1999           1998
                                                       ----           ----
 Revenues
      Net sales                                     $ 297,494      $ 359,814
      Financial services
         Consumer finance, net of impairment and
            valuation provisions                        7,016         15,906
         Insurance                                     15,836         11,604
                                                   -----------     ----------
                                                       22,852         27,510
      Other income                                      3,106          2,060
                                                   -----------     ----------
            Total revenues                            323,452        389,384
                                                   -----------     ----------
 Costs and expenses
      Cost of sales                                   236,249        255,181
      Selling, general and administrative expenses     77,561         90,693
      Financial services operating expenses
         Consumer finance                              11,291          7,568
         Insurance                                      8,716          8,378
                                                   -----------     ----------
                                                       20,007         15,946
      Provision for losses on credit sales                760            650
      Interest expense                                 12,830          8,129
                                                   -----------     ----------
            Total costs and expenses                  347,407        370,599
                                                   -----------     ----------
 Income (loss) before income taxes                    (23,955)        18,785
 Provision for income taxes                            (9,103)         7,326
                                                   -----------     ----------
 Net income (loss)                                  $ (14,852)      $ 11,459
                                                   ===========     ==========
 Earnings (loss) per share
         Basic                                        $ (0.32)         $ .25
         Diluted                                      $ (0.32)         $ .24

 Dividends per share                                    $ .01          $ .01

 Weighted average number of
      common shares outstanding
         Basic                                         46,555         46,411
         Diluted                                       46,555         46,938


See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

        OAKWOOD HOMES CORPORATION AND SUBSIDIARIES

      CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
           (in thousands except per share data)

                                                  Three months ended
                                                     December 31,
                                                     ------------
                                                   1999         1998
                                                   ----         ----
Net income (loss)                               $ (14,852)    $ 11,459
     Unrealized gains (losses) on securities
        available for sale, net of tax             (2,268)           -
                                                ---------     --------
Comprehensive income (loss)                     $ (17,120)    $ 11,459
                                                =========     ========

See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>
                   OAKWOOD HOMES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (UNAUDITED)
                 (in thousands except share and per share data)

                                                      December 31, September 30,
 ASSETS                                                   1999          1999
                                                          ----          ----
 Cash and cash equivalents                              $ 29,430     $ 26,939
 Loans and investments                                   384,820      430,865
 Other receivables                                        77,408       98,317
 Inventories
         Manufactured homes                              341,930      382,817
         Work-in-process, materials and supplies          43,025       46,463
         Land/homes under development                     14,775       14,318
                                                     ------------ -----------
                                                         399,730      443,598
 Properties and facilities                               251,380      251,069
 Deferred income taxes                                    25,379       30,712
 Other assets                                            155,688      156,347
                                                     ------------ -----------
                                                     $ 1,323,835  $ 1,437,847
                                                     ============ ===========
 LIABILITIES AND SHAREHOLDERS' EQUITY

 Short-term borrowings                                 $ 156,089    $ 199,800
 Notes and bonds payable                                 347,980      352,164
 Accounts payable and accrued liabilities                208,037      243,525
 Insurance reserves and unearned premiums                 75,960       89,404
 Other long-term obligations                              26,846       26,962

 Shareholders' equity
     Common stock, $.50 par value; 100,000,000
        shares authorized; 47,125,000 and 47,107,000
        shares issued and outstanding                     23,562       23,554
     Additional paid-in capital                          171,133      171,185
     Retained earnings                                   311,502      326,825
                                                     ------------ -----------
                                                         506,197      521,564
     Accumulated other comprehensive income, net of
        income taxes of $2,559 and $3,781                  4,753        7,021
     Unearned compensation                                (2,027)      (2,593)
                                                     ------------ -----------
                                                         508,923      525,992
                                                     ------------ -----------
                                                     $ 1,323,835  $ 1,437,847
                                                     ============ ===========

See accompanying notes to the consolidated financial statements.

                                       5
<PAGE>
                   OAKWOOD HOMES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   Three months ended
                                                                       December 31,
                                                                       ------------
                                                                    1999         1998
                                                                    ----         ----
<S>                                                              <C>          <C>
 Operating activities
      Net income (loss)                                          $ (14,852)   $ 11,459
      Adjustments to reconcile net income to cash provided (used)
         by operating activities
         Depreciation and amortization                              13,556       9,290
         Deferred income taxes                                       6,555       1,082
         Provision for losses on credit sales                          760         650
         Loss on sale of loans                                       3,059       1,447
         Impairment and valuation provisions                         8,692           -
         Excess of cash received over REMIC residual income
            recognized                                               6,510       6,181
         Other                                                         252       2,316
         Changes in assets and liabilities
            Other receivables                                       20,603         924
            Inventories                                             43,868     (64,791)
            Deferred insurance policy acquisition costs                367      (1,166)
            Other assets                                            (6,192)     (7,999)
            Accounts payable and accrued liabilities               (35,516)    (28,625)
            Insurance reserves and unearned premiums               (13,444)      5,663
            Other long-term obligations                               (116)        (66)
                                                                 ----------  ----------
                Cash provided (used) by operations                  34,102     (63,635)
            Loans originated                                      (237,673)   (311,138)
            Purchase of loans and securities                             -    (108,600)
            Sale of loans                                          253,882     293,642
            Principal receipts on loans                              5,026       9,641
                                                                 ----------  ----------
                Cash provided (used) by operating activities        55,337    (180,090)
                                                                 ----------  ----------
 Investing activities
         Acquisition of properties and facilities                   (7,249)    (16,971)
         Investment in and advances to joint venture                     -      22,150
         Other                                                       2,531      (8,332)
                                                                 ----------  ----------
               Cash (used) by investing activities                  (4,718)     (3,153)
                                                                 ----------  ----------
</TABLE>

                                       6
<PAGE>


<TABLE>
<CAPTION>
<S>                                                              <C>          <C>
Financing activities
         Net borrowings (repayments) on short-term credit
           facilities                                              (43,711)    176,482
         Proceeds from issuance of notes and bonds payable               -       9,200
         Payments on notes and bonds                                (3,976)     (1,708)
         Cash dividends                                               (471)       (466)
         Proceeds from exercise of stock options                        30          51
                                                                 ----------  ----------
                Cash provided (used) by financing activities       (48,128)    183,559
                                                                 ----------  ----------

 Net increase in cash and cash equivalents                           2,491         316

 Cash and cash equivalents
         Beginning of period                                        26,939      28,971
                                                                 ----------  ----------
         End of period                                            $ 29,430    $ 29,287
                                                                 ==========  ==========
</TABLE>

                                       7

See accompanying notes to the consolidated financial statements.

<PAGE>

                   OAKWOOD HOMES CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   The consolidated financial statements reflect all adjustments, which
     include 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.  The components of loans and investments are as follows:

                                                     December 31,  September 30,
                                                        1999           1999
                                                        ----           ----
 (in thousands)

 Loans held for sale, net of valuation
      allowances of $8,692 and $3,662                 $ 227,792       $ 279,927
 Loans held for investment                               44,331          48,015
 Less:  reserve for uncollectible receivables            (3,348)         (3,032)
                                                      ----------      ----------
                Total loans receivable                  268,775         324,910
                                                      ----------      ----------

 Retained interests in REMIC securitizations,
      exclusive of loan servicing assets and
      liabilities, at fair value
         Regular interests                               84,380          69,325
         Residual interests                              31,665          36,630
                                                      ----------      ----------
             Total retained REMIC interests, at fair
               value (cost of $108,733 and $95,153)     116,045         105,955
                                                      ----------      ----------
                                                      $ 384,820       $ 430,865
                                                      ==========      ==========

3.   During the fourth quarter of 1999 the Company recorded restructuring
     charges of approximately $25.9 million, related primarily to the closing of
     four manufacturing lines, temporarily idling five others and the closing of
     approximately 40 sales centers, and recorded charges against the resulting
     restructuring reserve of $13.0 million. During the quarter ended December
     31, 1999 the Company recorded additional charges against the restructuring
     reserve of $3.6 million, leaving a reserve balance at December 31, 1999 of
     $9.3 million.

                                       8
<PAGE>

4.   The following table displays the derivation of the weighted average number
     of shares outstanding used in the computation of basic and diluted earnings
     per share ("EPS"):

                                                     Three months ended
                                                         December 31,
                                                     1999          1998
                                                     ----          ----
 (in thousands, except per share data)

 Numerator for basic and diluted
      EPS - Net income (loss)                     $ (14,852)     $ 11,459

 Denominator:
      Weighted average number of
         common shares outstanding                   46,565        46,467
      Unearned shares                                   (10)          (56)
                                                  ----------     ---------
      Denominator for basic EPS                      46,555        46,411
      Dilutive effect of stock options and
         restricted shares computed using
         the treasury stock method                        -           527
                                                  ----------     ---------
      Denominator for diluted EPS                    46,555        46,938
                                                  ==========     =========

      Earnings (loss) per common share - basic      $ (0.32)        $ .25
                                                  ==========     =========
      Earnings (loss) per common share - diluted    $ (0.32)        $ .24
                                                  ==========     =========

     Options to purchase 5,118,250 shares of common stock and 550,903 shares of
     unearned restricted stock were not included in the computation of diluted
     earnings per share for the quarter ended December 31, 1999 because their
     inclusion would have been antidilutive. Options to purchase 2,839,486
     shares of common stock were not included in the computation of diluted EPS
     for quarter ended December 31, 1998 because their inclusion would have been
     antidilutive.

5.   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"). In June 1999 a
     consolidated amended complaint was filed in the United States Middle
     District Court in Guilford County, North Carolina. The amended complaint,
     which seeks class action certification, alleges violations of federal
     securities law based on alleged fraudulent acts, false and misleading
     financial statements, reports filed by the Company and other
     representations during the Class Period and seeks the loss of value in
     class members' stockholdings. The Company has filed motion to dismiss the
     amended complaint which has not yet been ruled upon by the court. The
     Company intends to defend such lawsuit vigorously.

     In addition, the Company is subject to legal proceedings and claims which
     have arisen in the ordinary course of its business and have not been
     finally adjudicated. In management's opinion, the ultimate resolution of
     these matters should have no material effect on the Company's results of
     operations or financial condition.

                                       9
<PAGE>

     The Company is contingently liable as guarantor of loans sold to third
     parties on a recourse basis. The amount of this contingent liability was
     approximately $22 million at December 31, 1999. The Company is also
     contingently liable as guarantor on subordinated securities issued by REMIC
     trusts in the aggregate principal amount of $123 million at December 31,
     1999. The Company is also 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 payments by the retailer. The risk of loss under these
     agreements is spread over the numerous retailers and is further reduced by
     the resale value of repurchased homes. The Company estimated maximum
     potential obligation under such repurchase agreements approximated $180
     million at December 31, 1999. Losses under these repurchase agreements have
     not been significant in the past.

6.   The Company operates in four major business segments: retail,
     manufacturing, consumer finance and insurance. The following table
     summarizes information with respect to the Company's business segments:

                                                 Three months ended
                                                    December 31,
                                                    ------------
(in thousands)                                1999               1998
                                              ----               ----
Revenues
      Retail                                $ 185,534         $ 243,424
      Manufacturing                           244,889           267,051
      Consumer finance                          7,016            15,906
      Insurance                                15,836            11,604
      Eliminations/other                     (129,823)         (148,601)
                                          ------------      ------------
                                            $ 323,452         $ 389,384
                                          ============      ============

Income (loss) before interest expense,
    investment income and income taxes
      Retail                                $ (12,539)          $ 4,070
      Manufacturing                            35,817            24,251
      Consumer finance                         (5,035)            7,688
      Insurance                                 7,120             3,226
      Eliminations/other                      (36,664)          (12,451)
                                          ------------      ------------
                                              (11,301)           26,784
Interest expense                              (12,830)           (8,129)
Investment income                                 176               130
                                          ------------      ------------
Income (loss) before income taxes           $ (23,955)         $ 18,785
                                          ============      ============

Depreciation and amortization
      Retail                                  $ 2,424           $ 1,960
      Manufacturing                             4,092             4,137
      Consumer finance                          5,020             1,238
      Eliminations/other                        2,020             1,955
                                          ------------      ------------
                                             $ 13,556           $ 9,290
                                          ============      ============

                                       10
<PAGE>

Capital expenditures
      Retail                                  $ 2,696           $ 7,034
      Manufacturing                             2,378             7,152
      Consumer finance                            963               375
      Eliminations/other                        1,212             2,410
                                          ------------      ------------
                                              $ 7,249          $ 16,971
                                          ============      ============

                                          December 31,      September 30,
                                              1999              1999
                                              ----              ----
Identifiable assets
      Retail                                $ 533,552         $ 560,253
      Manufacturing                           645,678         1,038,673
      Consumer finance                        623,916           491,585
      Insurance                               117,784           132,691
      Eliminations/other                     (597,095)         (785,355)
                                          ------------      ------------
                                          $ 1,323,835       $ 1,437,847
                                          ============      ============


                                       11
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

                              RESULTS OF OPERATIONS


Three months ended December 31, 1999 compared to three months ended December 31,
1998

         The following table summarizes certain statistics for the quarters
ended December 31, 1999 and 1998 :
                                                        1999          1998
                                                        ----          ----

Retail sales (in millions)                             $  182.6     $  241.6
Wholesale sales (in millions)                          $  114.9     $  118.2
Total sales (in millions)                              $  297.5     $  359.8
Gross profit % - integrated operations                     25.2%        34.6%
Gross profit % - wholesale operations                      13.2%        17.8%
New single-section homes sold - retail                    1,071        1,896
New multi-section homes sold - retail                     2,619        3,073
Used homes sold - retail                                    426          593
New single-section homes sold - wholesale                   856          732
New multi-section homes sold - wholesale                  2,498        2,608
Average new single-section sales price - retail         $31,100      $33,100
Average new multi-section sales price - retail          $55,600      $56,300
Average new single-section sales price - wholesale      $20,100      $21,600
Average new multi-section sales price - wholesale       $38,500      $39,000
Weighted average retail sales centers
  open during the period                                    400          361


NET SALES

The Company's sales volume was adversely affected by competitive industry
conditions in the quarter ended December 31, 1999. Retail sales dollar volume
decreased 24%, reflecting a 26% decrease in new unit volume and decreases of 6%
and 1% in the average new unit sales prices of single-section and multi-section
homes, respectively. These decreases were partially offset by a shift in product
mix toward multi-section homes, which have higher average selling prices than
single-section homes. Average retail sales prices declined as a result of
various programs targeted at moving older inventory models. Multi-section homes
accounted for 71% of retail new unit sales compared to 62% in the quarter ended
December 31, 1998.

During the quarter ended December 31, 1999 the Company opened two new sales
centers compared to four sales centers during the quarter ended December 31,
1998. The Company also closed 41 underperforming sales centers during the
quarter ended December 31, 1999 as part of its previously announced
restructuring plans compared to one closing during the quarter ended December
31, 1998. Total new retail sales dollars at sales centers open more than one
year decreased 37% during the quarter ended December 31, 1999.

                                       12
<PAGE>

Wholesale sales dollar volume decreased 3% due to a higher percentage of
single-section sales, which have lower average selling prices than multi-section
homes, and lower average sales prices. Single-section sales accounted for 26% of
wholesale unit sales compared to 22% in the quarter ended December 31, 1998. The
average new unit sales prices of single-section and multi-section homes
decreased 7% and 1%, respectively. The decrease in average new unit sales prices
of single-section homes and in the multi-section mix was primarily due to the
Company's Schult operations representing a lower percent of wholesale sales
during the quarter ended December 31, 1999 compared to the quarter ended
December 31, 1998. Schult, whose average sales prices and multi-section mix are
higher than those of the Company's other wholesale operations, represented 69%
of wholesale unit sales in the quarter ended December 31, 1999 compared to 82%
in the quarter ended December 31, 1998.

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
decreased from 34.6% in the quarter ended December 31, 1998 to 25.2% in the
quarter ended December 31, 1999 primarily as a result of competitive pricing and
unfavorable manufacturing variances caused by reduced production schedules
experienced during the first quarter of fiscal 2000.

Wholesale gross profit margins decreased from 17.8% in the quarter ended
December 31, 1998 to 13.2% in the quarter ended December 31, 1999 as a result of
competitive pricing and unfavorable manufacturing variances caused by reduced
production schedules experienced during the first quarter of fiscal 2000.

The Company has significantly reduced its manufacturing production rates in
order to reduce the level of inventories held for retail sale. The Company plans
to reduce further its inventory levels from those at December 31, 1999 and,
based on management's current expectation of retail sales, expects that
continued reduced levels of production will be required to achieve its planned
inventory levels. Accordingly, the Company expects gross margins to continue to
be adversely affected by unfavorable manufacturing variances for the foreseeable
future, particularly in the March 2000 quarter. In addition, competitive
conditions in retail and wholesale distribution are expected to continue and are
likely to adversely affect year over year gross margin comparisons for the
remainder of fiscal 2000.

FINANCIAL SERVICES INCOME

Financial services income for the quarter ended December 31, 1999 includes a
lower of cost or market charge of $8.7 million (approximately $5.4 million after
tax, or $.12 per share) relating to loans held for sale. The charge resulted
primarily from rising treasury rates that caused a decline in the spread between
the yield on loans originated and the expected cost of funds when the loans are
securitized.

For the quarter ended December 31, 1999 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 1.26% on an annualized basis of the
average principal balance of the related loans, compared to approximately 1.60%
on an annualized basis 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, 1999 the Company had a total of 2,874 unsold
properties in repossession or foreclosure (approximately


                                       13
<PAGE>

2.36% of the total number of Oakwood originated serviced assets) compared to
2,417, 1,776 and 1,430 at September 30, 1999, December 31, 1998 and September
30, 1998, respectively (approximately 1.97%, 1.55% and 1.28%, respectively, of
the total number of Oakwood originated serviced assets). Of the total number of
unsold properties in repossession or foreclosure, 410, 417, 323 and 295 relate
to loans originated on behalf of Deutsche Financial Capital ("DFC"), the
Company's former consumer finance joint venture, at December 31, 1999, September
30, 1999, December 31, 1998 and September 30, 1998, respectively.

At December 31, 1999 the delinquency rate on Company originated loans, excluding
loans originated on behalf of DFC, was 5.1%, compared to 4.2% at December 31,
1998. Increased delinquency rates ultimately may result in increased
repossessions and foreclosures and an increase in credit losses.

Financial services revenues include losses on the sale of asset-backed
securities of $3.1 million, or $.04 per share, after tax, in the quarter ended
December 31, 1999, compared to losses in the quarter ended December 31, 1998 of
$1.4 million, or $.02 per share, after tax. The increase in securitization
losses reflects principally a significant decline in the spread between the
yield on loans originated by the Company and the cost of funds obtained when the
loans were securitized. The decline in spread reflects lower loan yields
resulting from both a shift in product mix toward multi-section loans and loans
involving land, both of which generally carry lower coupons than single-section
and non-land loans, and from generally lower interest rates prevailing in the
marketplace when the loans were originated as compared to when they were
securitized.

REMIC residual income increased from $1.9 million in the quarter ended December
31, 1998 to $4.4 million in the quarter ended December 31, 1999. The increase in
residual income primarily reflects higher yields on the carrying value of
residual interests which have been significantly reduced by impairment charges
since the second quarter of fiscal 1998.

Interest income decreased from $10.6 million during the quarter ended December
31, 1998 to $9.0 million in the quarter ended December 31, 1999. The decrease
primarily reflects lower average outstanding balances of loans held for sale
prior to securitization due to decreased origination volume and the timing of
securitizations. The decrease also reflects lower interest income on loans held
for investment, the principal balance of which is declining as these loans are
liquidated. These decreases were partially offset by incremental interest income
on retained regular REMIC interests from certain of the Company's post-1997
securitizations.

Loan servicing fees, which are reported net of amortization of servicing assets,
decreased from $6.4 million during the quarter ended December 31, 1998 to $4.9
million in the quarter ended December 31, 1999. Servicing fees fell despite the
growth of the Company's securitized loan portfolio primarily due to increased
amortization of loan servicing assets.

Insurance revenues from the Company's captive reinsurance business increased 36%
to $15.8 million in the quarter ended December 31, 1999 from $11.6 million in
the quarter ended December 31, 1998. The increase is primarily due to the
increased size of the Company's portfolio.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to 26.1% of net sales in
the quarter ended December 31, 1999 from 25.2% of net sales in the quarter ended
December 31, 1998 primarily as a result of a lower sales base over which to
spread the Company's fixed distribution costs. Management believes that the
increase in selling, general


                                       14
<PAGE>

and administrative expenses as a percent of sales largely was mitigated by cost
reduction actions, particularly at retail, taken in the fourth quarter of fiscal
1999.

FINANCIAL SERVICES OPERATING EXPENSES

Consumer finance operating expenses rose $3.7 million, or 49%, during the
quarter ended December 31, 1999. Of the total dollar increase, approximately
$1.0 million represents higher compensation costs, including headcount additions
in the loan servicing functions in order to improve the performance of the loan
servicing portfolio over the long term and approximately $1.7 million represents
other increases in servicing related costs. In addition, allocations of parent
company costs, principally occupancy and telecommunications, increased by
approximately $0.4 million.

Insurance operating costs increased 4% during the quarter ended December 31,
1999 principally due to higher claims costs associated with the increased size
of the business. Insurance operating costs did not increase commensurately with
the increase in insurance revenues primarily due to a larger percentage of
insurance revenues being derived from credit life and home buyer protection
policies, which have lower loss ratios than property damage policies, in the
quarter ended December 31, 1999 as compared to the quarter ended December 31,
1998. 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.

INTEREST EXPENSE

Interest expense increased $4.7 million, or 58%, during the quarter ended
December 31, 1999 due principally to interest expense associated with the
Company's March 1999 $300 million senior note offering. A portion of the
proceeds from the senior note offering was used to retire $100 million of debt
incurred in connection with the April 1, 1998 Schult acquisition. Interest costs
on short-term line of credit borrowings approximated that incurred in the
quarter ended December 31, 1998 due to the net effect of lower average balances
outstanding and higher interest rates. The increase associated with the senior
note offering 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 38.0% in the quarter ended December
31, 1999 compared to 39.0% in the quarter ended December 31, 1998. The decrease
reflects primarily limited state income tax benefits associated with certain
losses and charges.

YEAR 2000

To date, there have been no significant disruptions to the Company's business
resulting from failures of the Company's or its critical suppliers' and business
partners' processes or systems as a result of the Year 2000 issue. Although the
Company believes that it successfully avoided any significant disruption from
the century rollover, it will continue to monitor all critical systems for the
appearance of delayed complications or disruptions, most particularly any
month-end, quarter-end and year-end processing that has yet to be executed in a
production environment. In addition, the Company intends to continue to monitor
problems, if any, relating to the leap year and problems, if any, encountered by
suppliers or other third parties with whom the Company


                                       15
<PAGE>

deals. The costs incurred by the Company for the assessment and conversion of
systems related to Year 2000 readiness, which have been charged to expense, have
not been material.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended December 31, 1999, the Company decreased inventories by
$44 million as a result of inventory reduction measures implemented during the
quarter ended September 30, 1999.

The decrease in loans and investments from September 30, 1999 principally
reflects a decrease in loans held for sale from $280 million at September 30,
1999 to $228 million at December 31, 1999. The Company originates loans and
warehouses them until sufficient receivables have been accumulated for a
securitization.

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. Beginning in 1994, the Company generally
sold to investors securities having a principal balance approximately equal to
the principal balance of the loans securitized, and accordingly was not required
to seek the permanent capital required to fund its finance business outside of
the asset-backed securities market. During the last 18 months, demand for
subordinated securities, particularly securities rated BBB and below, has
decreased dramatically. As a consequence of decreased demand, the Company has
not sold any asset-backed securities rated less than single-A since its May 1999
loan securitization. The aggregate principal balance of the securities rated
below single-A (including any initial overcollateralization of securitizations)
represents approximately 13% of the aggregate principal balance of the loans
securitized in transactions subsequent to May 1999.

At December 31, 1999 the Company owned subordinate asset-backed securities
having a carrying value of approximately $75.7 million associated with certain
of the Company's 1998, 1999 and 2000 securitizations, as well as subordinate
asset-backed securities having a carrying value of approximately $8.7 million
retained from securitization transactions prior to 1994. The Company considers
these securities to be available for sale, and would consider opportunities to
liquidate these securities based upon market conditions. Continued decreased
demand for subordinate asset-backed securities at prices acceptable to the
Company would require the Company to seek alternative sources of financing for
the loans originated by the consumer finance business, or require the Company to
seek alternative long-term financing for subordinate asset-backed securities.
There can be no assurance that such alternative financing can be obtained.

The Company estimates that during the remainder of fiscal 2000 capital
expenditures will approximate $30 million.

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 $125 million revolving credit facility
with a group of banks which is available to fund additional working capital
needs. The Company believes that these facilities should be adequate to meet the
Company's short-term liquidity needs.

                                       16
<PAGE>


FORWARD LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements and information based
on beliefs of the Company's management as well as assumptions made by, and
information currently available to, the Company's management. These statements
include, among others, statements relating to: our ability to reduce our
inventory levels; our anticipated capital expenditures for the remainder of
fiscal 2000; and the adequacy of our existing credit facilities to meet our
short-term liquidity needs. Words like "believe," "expect," "should" and similar
expressions used in this Form 10-Q are intended to identify other such
forward-looking statements.

These forward-looking statements reflect the current views of the Company with
respect to future events and are subject to a number of risks, including, among
others, the following: competitive industry conditions could further adversely
affect our sales and profitability; we may be unable to access sufficient
capital to fund our retail finance activities; we may recognize special charges
or experience increased costs in connection with our securitization or other
financing activities; adverse changes in governmental regulations applicable to
our business could negatively impact our business; we could suffer losses
resulting from litigation (including shareholder class actions or other class
action suits); our captive Bermuda reinsurance subsidiary could experience
significant losses; we could experience increased credit losses or higher
delinquency rates on loans that we originate; negative changes in general
economic conditions in our markets could adversely impact us; we could lose the
services of our key management personnel; and any other factors that generally
affect companies in our lines of business could also adversely impact us. Should
our underlying assumptions prove incorrect or should one or more of the risks
and uncertainties materialize, actual events or results may vary materially and
adversely from those described herein as anticipated, expected, believed or
estimated.


                                       17
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

              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"). In June 1999 a consolidated amended
complaint was filed in the United States Middle District Court in Guilford
County, North Carolina. The amended complaint, which seeks class action
certification, alleges violations of federal securities law based on alleged
fraudulent acts, false and misleading financial statements, reports filed by the
Company and other representations during the Class Period and seeks the loss of
value in class members' stockholdings. The Company has filed a motion to dismiss
the amended complaint which has not yet been ruled upon by the court. The
Company intends to defend such lawsuit vigorously.

              In addition, the Company is subject to legal proceedings and
claims which have arisen in the ordinary course of its business and have not
been finally adjudicated. In management's opinion, the ultimate resolution of
these matters should have no material effect on the Company's results of
operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

              At the Substitute Annual Meeting of Shareholders of the Registrant
held on February 9, 2000, the shareholders elected Kermit G. Phillips, II, H.
Michael Weaver and Francis T. Vincent, Jr. as directors and approved the
selection of PricewaterhouseCoopers LLP as independent accountants. The
following table sets forth the votes on each such matter:


                                 FOR       AGAINST    ABSTAIN     NOT VOTED
                                 ----      -------    -------     ---------
Election of Directors
(by nominee)
Kermit G. Phillips, II        39,854,144     --      2,672,144    4,598,274
H. Michael Weaver             39,858,290     --      2,667,998    4,598,274
Francis T. Vincent, Jr.       39,828,127     --      2,698,161    4,598,274


Approval of selection of
PricewaterhouseCoopers LLP as
Independent Accountants
                              40,734,076  1,651,245   140,967     4,598,274


                                       18
<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


        b)      Reports on Form 8-K

                No reports on Form 8-K were filed for the quarter
                ended December 31, 1999.

        Items 2, 3, 4 and 5 are inapplicable and are omitted.


                                       19
<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 14, 2000


                                            OAKWOOD HOMES CORPORATION


                                            BY:  /s/  Robert A. Smith
                                                 -------------------------
                                                 Robert A. Smith
                                                 Executive Vice President
                                                 (Chief Financial Officer)
                                                 (Duly Authorized Officer)


                                       20
<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, 1999                                  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


                                       21

                                                                       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
                                       22

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED DECEMBER
31, 1999 FILED AS PART OF THE REGISTRANTS FORM 10-Q FOR THE QUARTER ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>  U.S. Dollars

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          SEP-30-2000
<PERIOD-START>                             OCT-01-1999
<PERIOD-END>                               DEC-31-1999
<EXCHANGE-RATE>                            1.000
<CASH>                                          29,430
<SECURITIES>                                         0
<RECEIVABLES>                                  465,576
<ALLOWANCES>                                     3,348
<INVENTORY>                                    399,730
<CURRENT-ASSETS>                                     0
<PP&E>                                         345,698
<DEPRECIATION>                                  94,318
<TOTAL-ASSETS>                               1,323,835
<CURRENT-LIABILITIES>                          364,126
<BONDS>                                        347,980
                                0
                                          0
<COMMON>                                        23,562
<OTHER-SE>                                     485,361
<TOTAL-LIABILITY-AND-EQUITY>                 1,323,835
<SALES>                                        297,494
<TOTAL-REVENUES>                               323,452
<CGS>                                          236,249
<TOTAL-COSTS>                                  333,817
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                   760
<INTEREST-EXPENSE>                              12,830
<INCOME-PRETAX>                               (23,955)
<INCOME-TAX>                                   (9,103)
<INCOME-CONTINUING>                           (14,852)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (14,852)
<EPS-BASIC>                                      (.32)
<EPS-DILUTED>                                    (.32)


</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission