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
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(Exact name of registrant as specified in its charter)
North Carolina 56-0985879
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(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, 2000.
Common Stock, Par Value $.50 Per Share . . . . . . . . .47,124,562
1
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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
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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
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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
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20,007 15,946
Provision for losses on credit sales 760 650
Interest expense 12,830 8,129
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Total costs and expenses 347,407 370,599
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Income (loss) before income taxes (23,955) 18,785
Provision for income taxes (9,103) 7,326
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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
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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
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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
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399,730 443,598
Properties and facilities 251,380 251,069
Deferred income taxes 25,379 30,712
Other assets 155,688 156,347
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$ 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 $3,781 4,753 7,021
Unearned compensation (2,027) (2,593)
------------ -----------
508,923 525,992
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$ 1,323,835 $ 1,437,847
============ ===========
See accompanying notes to the consolidated financial statements.
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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
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Cash provided (used) by operating activities 55,337 (180,090)
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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)
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Cash (used) by investing activities (4,718) (3,153)
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</TABLE>
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<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
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Cash provided (used) by financing activities (48,128) 183,559
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Net increase in cash and cash equivalents 2,491 316
Cash and cash equivalents
Beginning of period 26,939 28,971
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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)
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Total loans receivable 268,775 324,910
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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
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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.
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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)
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Denominator for basic EPS 46,555 46,411
Dilutive effect of stock options and
restricted shares computed using
the treasury stock method - 527
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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.
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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
============ ============
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Capital expenditures
Retail $ 2,696 $ 7,034
Manufacturing 2,378 7,152
Consumer finance 963 375
Eliminations/other 1,212 2,410
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$ 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.
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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
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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
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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
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<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
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
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