-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, THbd9v9vvI0+gS3X7XJBjVPjnOibbQiEcPiqubEISdbPddpjtXlBNRWj/BaTBu0y D5boDvytVD7CdVZjnRcRWQ== /in/edgar/work/20000814/0000950168-00-001884/0000950168-00-001884.txt : 20000921 0000950168-00-001884.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950168-00-001884 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OAKWOOD HOMES CORP CENTRAL INDEX KEY: 0000073609 STANDARD INDUSTRIAL CLASSIFICATION: [2451 ] IRS NUMBER: 560985879 STATE OF INCORPORATION: NC FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07444 FILM NUMBER: 698740 BUSINESS ADDRESS: STREET 1: 7800 MCCLOUD RD CITY: GREENSBORO STATE: NC ZIP: 27409-9634 BUSINESS PHONE: 9198552400 MAIL ADDRESS: STREET 1: 7800 MCCLOUD RD CITY: GREENSBORO STATE: NC ZIP: 27409-9634 10-Q 1 0001.txt OAKWOOD HOMES CORPORATION 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 June 30, 2000 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 July 31, 2000. Common Stock, Par Value $.50 Per Share . . . . . . . . .47,124,562 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 OAKWOOD HOMES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (in thousands except per share data) Three months ended June 30, ------------------------- 2000 1999 ---- ---- Revenues Net sales $ 310,558 $ 404,346 Financial services Consumer finance, net of impairment and valuation provisions 10,391 17,746 Insurance 13,087 13,676 ---------- ---------- 23,478 31,422 Other income 2,353 5,505 ---------- ---------- Total revenues 336,389 441,273 ---------- ---------- Costs and expenses Cost of sales 236,516 287,806 Selling, general and administrative expenses 87,449 110,601 Financial services operating expenses Consumer finance 11,106 8,829 Insurance 7,708 8,495 ---------- ---------- 18,814 17,324 Reversal of restructuring charges (1,280) - Provision for losses on credit sales 750 400 Interest expense 12,083 12,266 ---------- ---------- Total costs and expenses 354,332 428,397 ---------- ---------- Income (loss) before income taxes (17,943) 12,876 Provision for income taxes (6,818) 5,022 ---------- ---------- Net income (loss) $ (11,125) $ 7,854 ========== ========== Earnings (loss) per share Basic $ (0.24) $ .17 Diluted $ (0.24) $ .17 Dividends per share $ .01 $ .01 Weighted average number of common shares outstanding Basic 46,574 46,473 Diluted 46,574 47,168 See accompanying notes to the consolidated financial statements. 3 OAKWOOD HOMES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (in thousands except per share data)
Nine months ended June 30, -------------------------- 2000 1999 ---- ---- Revenues Net sales $ 879,401 $ 1,131,255 Financial services revenues Consumer finance, net of impairment and valuation provisions 31,995 48,156 Insurance 43,518 37,229 ---------- ------------ 75,513 85,385 Other income 7,731 10,365 ---------- ------------ Total revenues 962,645 1,227,005 ---------- ------------ Costs and expenses Cost of sales 688,276 802,991 Selling, general and administrative expenses 243,652 294,954 Financial services operating expenses Consumer finance 32,758 25,514 Insurance 24,645 24,085 ---------- ------------ 57,403 49,599 Reversal of restructuring charges (5,631) - Provision for losses on credit sales 2,250 2,361 Interest expense 37,908 29,581 ---------- ------------ Total costs and expenses 1,023,858 1,179,486 ---------- ------------ Income (loss) before income taxes (61,213) 47,519 Provision for income taxes (23,260) 18,533 ---------- ------------ Net income (loss) $ (37,953) $ 28,986 ========== ============ Earnings (loss) per share Basic $ (0.82) $ .62 Diluted $ (0.82) $ .62 Dividends per share $ .03 $ .03 Weighted average number of common shares outstanding Basic 46,568 46,439 Diluted 46,568 47,093
See accompanying notes to the consolidated financial statements. 4 OAKWOOD HOMES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands)
Three months ended Nine months ended June 30, June 30, --------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) $ (11,125) $ 7,854 $(37,953) $ 28,986 Unrealized gains (losses) on securities available for sale, net of tax (1,409) - 2,011 - --------- ------- -------- -------- Comprehensive income (loss) $ (12,534) $ 7,854 $(35,942) $ 28,986 ========== ======== ========= ========
See accompanying notes to the consolidated financial statements. 5 OAKWOOD HOMES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) (in thousands except share and per share data)
June 30, September 30, ASSETS 2000 1999 ---- ---- Cash and cash equivalents $ 31,252 $ 26,939 Loans and investments 300,191 430,865 Other receivables 80,473 98,317 Inventories Manufactured homes 300,842 382,817 Work-in-process, materials and supplies 39,404 46,463 Land/homes under development 14,072 14,318 ------------ ------------ 354,318 443,598 Properties and facilities 246,154 251,069 Deferred income taxes 40,236 30,712 Other assets 145,193 156,347 ------------ ------------ $ 1,197,817 $ 1,437,847 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings $ 53,000 $ 199,800 Notes and bonds payable 338,739 352,164 Accounts payable and accrued liabilities 228,625 243,525 Insurance reserves and unearned premiums 56,912 89,404 Other long-term obligations 30,471 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 170,957 171,185 Retained earnings 287,460 326,825 ------------ ------------ 481,979 521,564 Accumulated other comprehensive income, net of income taxes of $4,863 and $3,781 9,032 7,021 Unearned compensation (941) (2,593) ------------ ------------ 490,070 525,992 ------------ ------------ $ 1,197,817 $ 1,437,847 ============ ============
See accompanying notes to the consolidated financial statements. 6 OAKWOOD HOMES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (in thousands)
Nine months ended June 30, -------- 2000 1999 ---- ---- Operating activities Net income (loss) $ (37,953) $ 28,986 Adjustments to reconcile net income (loss) to cash provided (used) by operating activities Depreciation and amortization 36,917 33,474 Deferred income taxes (10,605) (2,305) Provision for losses on credit sales 2,250 2,361 Losses on loans sold or held for sale 17,712 3,153 Losses on sale of securities 4,461 - Impairment and valuation provisions 6,083 6,618 Excess of cash received over REMIC residual income recognized 6,546 19,992 Reversal of restructuring charges (5,631) - Other 8,962 1,482 Changes in assets and liabilities Other receivables 2,540 (31,091) Inventories 89,280 (173,237) Deferred insurance policy acquisition costs 6,004 (2,763) Other assets (12,606) (18,346) Accounts payable and accrued liabilities (11,932) 6,550 Insurance reserves and unearned premiums (32,492) 15,399 Other long-term obligations (517) 24 --------- -------- Cash provided (used) by operations 69,019 (109,703) Loans originated (741,519) (1,036,455) Purchase of loans and securities - (108,297) Sale of loans 825,118 1,205,435 Principal receipts on loans 18,283 27,577 --------- -------- Cash provided (used) by operating activities 170,901 (21,443) --------- -------- Investing activities Acquisition of properties and facilities (16,671) (34,491) Investment in and advances to joint venture - 22,150 Other 11,548 (7,885) --------- -------- Cash (used) by investing activities (5,123) (20,226) --------- --------
7
Financing activities Net (repayments) on short-term credit facilities (146,800) (246,422) Proceeds from issuance of notes and bonds payable - 307,878 Payments on notes and bonds (13,282) (13,635) Cash dividends (1,413) (1,408) Proceeds from exercise of stock options 30 378 --------- --------- Cash provided (used) by financing activities (161,465) 46,791 --------- --------- Net increase in cash and cash equivalents 4,313 5,122 Cash and cash equivalents Beginning of period 26,939 28,971 --------- --------- End of period $ 31,252 $ 34,093 ========= =========
See accompanying notes to the consolidated financial statements. 8 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:
June 30, September 30, 2000 1999 ---- ---- (in thousands) Loans held for sale, net of valuation allowances of $696 and $3,662 $ 167,076 $ 279,927 Loans held for investment 30,452 48,015 Less: reserve for uncollectible receivables (3,748) (3,032) -------------- ------------ Total loans receivable 193,780 324,910 -------------- ------------ Retained interests in REMIC securitizations available for sale, exclusive of loan servicing assets and liabilities, at fair value Regular interests 71,423 69,325 Residual interests 34,988 36,630 -------------- ------------ Total retained REMIC interests, at fair value (amortized cost of $92,516 and $95,153) 106,411 105,955 -------------- ------------ $ 300,191 $ 430,865 ============== ============
3. During the fourth quarter of fiscal 1999 the Company recorded restructuring charges of approximately $25.9 million, related primarily to the closing of four manufacturing lines, the temporary idling of 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 June 30, 2000 and the nine months ended June 30, 2000 the Company recorded additional charges against the restructuring reserve of $0.4 million and $5.7 million, respectively. In addition, during the quarter ended June 30, 2000 and the nine months ended June 30, 2000 the Company reversed to income $1.3 million and $5.6 million, respectively, of the remaining reserve to reflect resolution of certain uncertainties. The remaining reserve balance at June 30, 2000 was $1.6 million. 9 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 Nine months ended June 30, June 30, --------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands, except per share data) Numerator for basic and diluted EPS - Net income (loss) $ (11,125) $ 7,854 $ (37,953) $ 28,986 Denominator: Weighted average number of common shares outstanding 46,574 46,509 46,571 46,485 Unearned shares - (36) (3) (46) ------------- ------------- ---------------- --------------- Denominator for basic EPS 46,574 46,473 46,568 46,439 Dilutive effect of stock options and restricted shares computed using the treasury stock method - 695 - 654 ------------- ------------- ---------------- --------------- Denominator for diluted EPS 46,574 47,168 46,568 47,093 ============= ============= ================ =============== Earnings (loss) per common share - basic $ (0.24) $ .17 $ (0.82) $ .62 ============= ============= ================ =============== Earnings (loss) per common share - diluted $ (0.24) $ .17 $ (0.82) $ .62 ============= ============= ================ ===============
Options to purchase 5,118,250, 4,606,750 and 4,606,750 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 first, second and third quarters of fiscal 2000, respectively, because their inclusion would have been antidilutive. Options to purchase 2,839,486, 1,642,826 and 2,812,412 shares of common stock were not included in the computation of diluted earnings per share for the first, second and third quarters of fiscal 1999, respectively, 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 a motion to dismiss the amended complaint. In July 2000, the magistrate submitted a recommended order dismissing the complaint with prejudice. The plaintiffs have objected to the 10 recommended order and the matter is before the District Court judge. The Company intends to defend such lawsuit vigorously. In addition, the Company is subject to legal proceedings and claims that 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. 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 $18 million at June 30, 2000. The Company is also contingently liable as guarantor on subordinated securities issued by REMIC trusts in the aggregate principal amount of $123 million at June 30, 2000. 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's estimated maximum potential obligation under such repurchase agreements approximated $195 million at June 30, 2000. 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: 11
Three months ended Nine months ended June 30, June 30, --------- -------- (in thousands) 2000 1999 2000 1999 ---- ---- ---- ---- Revenues Retail $ 211,178 $ 294,793 $ 575,006 $ 810,139 Manufacturing 209,575 291,383 619,857 805,558 Consumer finance 10,391 17,746 31,995 48,156 Insurance 13,087 13,676 43,518 37,229 Eliminations/other (107,842) (176,325) (307,731) (474,077) ----------- ----------- ----------- ------------- $ 336,389 $ 441,273 $ 962,645 $ 1,227,005 =========== =========== =========== ============= Income (loss) before interest expense, investment income and income taxes Retail $ (11,291) $ (3,878) $ (38,686) $ 1,777 Manufacturing 3,991 28,759 39,367 74,917 Consumer finance (1,465) 8,517 (3,013) 20,281 Insurance 5,379 5,181 18,873 13,144 Eliminations/other (2,547) (13,525) (40,231) (33,464) ----------- ----------- ----------- ------------- (5,933) 25,054 (23,690) 76,655 Interest expense (12,083) (12,266) (37,908) (29,581) Investment income 73 88 385 445 ----------- ----------- ----------- ------------- Income (loss) before income taxes $ (17,943) $ 12,876 $ (61,213) $ 47,519 =========== =========== =========== =============
12
Depreciation and amortization Retail $ 2,656 $ 2,371 $ 7,595 $ 6,541 Manufacturing 4,300 5,618 12,744 14,976 Consumer finance 2,213 2,413 10,092 5,957 Eliminations/other 2,314 2,004 6,486 6,000 --------- --------- --------- --------- $ 11,483 $ 12,406 $ 36,917 $ 33,474 ========= ========= ========= ========= Capital expenditures Retail $ 1,828 $ 5,003 $ 6,761 $ 16,775 Manufacturing 935 3,318 4,565 15,399 Consumer finance 1,495 - 3,607 375 Eliminations/other - - 1,738 1,942 --------- --------- --------- --------- $ 4,258 $ 8,321 $ 16,671 $ 34,491 ========= ========= ========= ========= June 30, September 30, 2000 1999 ---- ---- Identifiable assets Retail $ 489,882 $ 560,253 Manufacturing 654,482 1,038,673 Consumer finance 431,539 491,585 Insurance 105,785 132,691 Eliminations/other (483,871) (785,355) ------------ ------------ $ 1,197,817 $ 1,437,847 ============ ============
7. In July 2000, the Company idled a manufacturing line at its Arizona plant, closed two of its regional finance offices and eliminated certain positions at its corporate office. These actions reduced headcount by approximately 200 people. The costs of implementing these actions, which are estimated to be less than $2 million, will be charged to operations in the quarter ending September 30, 2000. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS --------------------- Three months ended June 30, 2000 compared to three months ended June 30, 1999 The following table summarizes certain statistics for the quarters ended June 30, 2000 and 1999: 2000 1999 ---- ---- Retail sales (in millions) $ 209.0 $ 289.4 Wholesale sales (in millions) $ 101.6 $ 114.9 Total sales (in millions) $ 310.6 $ 404.3 Gross profit % - integrated operations 28.2% 33.9% Gross profit % - wholesale operations 14.8% 16.1% New single-section homes sold - retail 1,804 2,526 New multi-section homes sold - retail 2,664 3,658 Used homes sold - retail 342 486 New single-section homes sold - wholesale 662 858 New multi-section homes sold - wholesale 2,254 2,549 Average new single-section sales price - retail $31,700 $32,600 Average new multi-section sales price - retail $55,400 $56,000 Average new single-section sales price - wholesale $21,700 $21,700 Average new multi-section sales price - wholesale $38,400 $37,300 Weighted average retail sales centers open during the period 377 392 Net sales The Company's sales volume was adversely affected by competitive industry conditions during the quarter ended June 30, 2000. Retail sales dollar volume decreased 28%, reflecting a 28% decrease in new unit volume and decreases of 3% 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 competitive pricing pressure and various promotional programs targeted at moving older inventory models. Multi-section homes accounted for 60% of retail new unit sales compared to 59% in the quarter ended June 30, 1999. During the quarter ended June 30, 2000 the Company opened two new sales centers compared to 15 sales centers during the quarter ended June 30, 1999. The Company also closed two underperforming sales centers during quarter ended June 30, 1999. Total new retail sales dollars at sales centers open more than one year decreased 32% during the quarter ended June 30, 2000. Wholesale sales dollar volume decreased 12%, reflecting a 14% decrease in unit volume. This decrease was partially offset by a shift in product mix toward multi-section homes, which have higher average selling prices than single-section homes and a 3% increase in the 14 average unit sales price of multi-section homes. Multi-section sales accounted for 77% of wholesale unit sales compared to 75% in the quarter ended June 30, 1999. 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 33.9% in the quarter ended June 30, 1999 to 28.2% in the quarter ended June 30, 2000 primarily as a result of competitive pricing pressures and unfavorable manufacturing variances caused by reduced production schedules experienced during the quarter ended June 30, 2000. Wholesale gross profit margins decreased from 16.1% in the quarter ended June 30, 1999 to 14.8% in the quarter ended June 30, 2000 as a result of competitive pricing pressures and unfavorable manufacturing variances caused by reduced production schedules experienced during the quarter ended June 30, 2000. Compared to prior year levels, 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 further reduce inventory from the June 30, 2000 levels and will continue to vary production levels to ensure that inventory reduction targets are met. Competitive pricing pressures in both retail and wholesale distribution channels coupled with reduced plant operating schedules are likely to adversely affect gross margin comparisons for the remainder of fiscal 2000. Consumer finance revenues Consumer finance revenues are summarized as follows: Three months ended June 30, -------- (in thousands) 2000 1999 ---- ---- Interest income $ 9,260 $ 12,834 Servicing fees 6,342 7,329 REMIC residual income 3,228 1,835 Losses on loans sold or held for sale: Loss on sale of loans (2,880) (1,587) Valuation provision on loans held for sale (696) - --------------- -------------- (3,576) (1,587) Loss on sale of securities (20) - Impairment and valuation provisions (5,341) (3,069) Other 498 404 --------------- -------------- $ 10,391 $ 17,746 =============== ============== 15 The decrease in interest income reflects lower average outstanding balances of loans held for sale in the warehouse prior to securitization and lower interest income on loans held for investment, the principal balance of which is declining as these loans are liquidated. Lower average warehouse balances resulted from reduced originations during the current year as compared to the prior year and the timing of securitizations. These decreases were partially offset by incremental interest income on retained regular REMIC interests from certain of the Company's post-1997 securitizations and higher average interest rates on loans held for sale. Loan servicing fees, which are reported net of amortization of servicing assets, declined as a result of lower servicing cash flows from the Company's securitizations. The increase in residual income reflects higher yields on retained residual interests in REMIC securitizations. The loss on sale of loans during the quarter ended June 30, 2000 reflects the completion of a $360 million securitization. The increase in securitization losses reflects a 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, in part, generally lower interest rates prevailing in the marketplace when the loans were originated as compared to when they were securitized. Impairment and valuation provisions are summarized as follows: Three months ended June 30, -------- (in thousands) 2000 1999 ---- ---- Impairment writedowns of residual REMIC interests $ - $ 3,069 Impairment writedowns of regular REMIC interests - - Valuation allowances on servicing contracts 1,924 - Reduction of previously recorded valuation allowances on servicing contracts - - Additional provisions for potential guarantee obligations on REMIC securities sold 3,417 - -------- -------- $ 5,341 $ 3,069 ======== ======== The charges generally resulted from changes in assumptions of credit losses on securitized loans. Management continues to monitor performance of the loan pools and underlying collateral and adjust the carrying value of assets and liabilities arising from loan securitizations as appropriate. Changes in loan pool performance and market conditions, such as higher industry inventory levels of repossessed homes, which have affected recovery rates and may continue to affect future recovery rates, may result in future impairment charges. 16 For the quarter ended June 30, 2000 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 2.14% on an annualized basis of the average principal balance of the related loans, compared to approximately 1.40% 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 June 30, 2000 the Company had a total of 3,049 unsold properties in repossession or foreclosure (approximately 2.45% of the total number of Oakwood originated serviced assets) compared to 2,809, 1,835 and 1,267 at March 31, 2000, June 30, 1999 and March 31, 1999, respectively (approximately 2.29%, 1.53% and 1.08%, respectively, of the total number of Oakwood originated serviced assets). Of the total number of unsold properties in repossession or foreclosure, 433, 414, 361 and 303 relate to loans originated on behalf of Deutsche Financial Capital ("DFC"), the Company's former consumer finance joint venture, at June 30, 2000, March 31, 2000, June 30, 1999 and March 31, 1999, respectively. At June 30, 2000 the delinquency rate on Company originated loans, excluding loans originated on behalf of DFC, was 4.1%, compared to 3.6% at June 30, 1999. Increased delinquency rates ultimately may result in increased repossessions and foreclosures and an increase in credit losses. Insurance revenues Insurance revenues from the Company's captive reinsurance business decreased 4% to $13.1 million in the quarter ended June 30, 2000 from $13.7 million in the quarter ended June 30, 1999. A substantial portion of insurance revenues is derived from insurance policies sold in connection with new home sales by the Company's retail operations. If the adverse retail sales trend experienced in the third quarter of fiscal 2000 continues, insurance revenues should be expected to continue to decline. Effective June 1, 2000, the Company entered into a quota share agreement which management believes will reduce the volatility of the Company's earnings by lowering its underwriting exposure to natural disasters such as hurricanes and floods. The agreement will substantially reduce the levels of credit support, which currently take the form of letters of credit and cash, to secure the reinsurance subsidiary's obligations to pay claims and to meet regulatory capital requirements. Under the new arrangement, which covers physical damage policies, the Company will retro-cede 50% of the Company's physical damage premiums. In return, the Company will receive a nonrefundable commission with the potential to receive an incremental commission based on favorable loss experience. In addition, the Company will cede 50% of all losses incurred. The Company estimates that this quota share arrangement reduced insurance revenues and expenses by $1.0 million and $1.1 million, respectively, in the quarter ended June 30, 2000. On an annualized basis, the Company expects that this arrangement will reduce pre-tax income slightly in a normal loss year. Selling, general and administrative expenses Selling, general and administrative expenses decreased $23.2 million, or 21%, during the quarter ended June 30, 2000 compared to the prior year. The decrease is primarily due to cost reduction actions, particularly relating to the Company's retail operations, taken in the fourth quarter of fiscal 1999, as well as reduced sales volumes. However, as a percentage 17 of net sales, selling, general and administrative expenses increased to 28.2% in the quarter ended June 30, 2000 from 27.4% in the quarter ended June 30, 1999 primarily as a result of a lower sales base over which to spread the Company's fixed portion of distribution and overhead costs and higher service costs. Consumer finance operating expenses Consumer finance operating expenses rose $2.3 million, or 26%, during the quarter ended June 30, 2000. Of the total dollar increase, approximately $0.9 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 $0.8 million represents other increases in servicing related costs. Insurance operating expenses Insurance operating costs declined by $0.8 million, or 9%, in the fiscal 2000 quarter primarily as a result of the reinsurance arrangement entered into in June. 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. However, the reinsurance agreement described previously, as well as the Company's purchase of catastrophe reinsurance, should reduce the Company's underwriting exposure to natural disasters. Interest expense Interest expense for the quarter ended June 30, 2000 remained relatively unchanged from the third quarter of fiscal 1999. Lower average outstanding borrowings on short-term lines of credit in fiscal 2000 were substantially offset by higher average interest rates and fees compared to fiscal 1999. The Company expects these higher rates and fees to continue to increase until such time as the Company replaces its credit facilities. See "Liquidity and Capital Resources." Income taxes The Company's effective income tax rate was 38.0% in the quarter ended June 30, 2000 compared to 39.0% in the quarter ended June 30, 1999. The decrease reflects primarily limited state income tax benefits associated with certain losses and charges. 18 Nine months ended June 30, 2000 compared to nine months ended June 30, 1999 The following table summarizes certain statistics for the nine months ended June 30, 2000 and 1999: 2000 1999 ---- ---- Retail sales (in millions) $ 567.9 $ 798.7 Wholesale sales (in millions) $ 311.5 $ 332.6 Total sales (in millions) $ 879.4 $1,131.3 Gross profit % - integrated operations 26.4% 34.2% Gross profit % - wholesale operations 13.3% 16.6% New single-section homes sold - retail 4,302 7,421 New multi-section homes sold - retail 7,572 9,717 Used homes sold - retail 1,233 1,741 New single-section homes sold - wholesale 2,264 2,278 New multi-section homes sold - wholesale 6,857 7,403 Average new single-section sales price - retail $31,600 $32,500 Average new multi-section sales price - retail $55,200 $55,900 Average new single-section sales price - wholesale $21,000 $21,700 Average new multi-section sales price - wholesale $38,200 $37,900 Weighted average retail sales centers open during the period 385 376 Net sales The Company's sales volume was adversely affected by competitive industry conditions during the nine months ended June 30, 2000. Retail sales dollar volume decreased 29%, reflecting a 31% decrease in new unit volume and decreases of 3% 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 and competitive pricing pressure. Multi-section homes accounted for 64% of retail new unit sales compared to 57% in the nine months ended June 30, 1999. During the nine months ended June 30, 2000 the Company opened eight new sales centers compared to 46 sales centers during the nine months ended June 30, 1999. The Company also closed 43 underperforming sales centers during the nine months ended June 30, 2000 as part of its previously announced restructuring plans. During the nine months ended June 30, 1999, five sales centers were closed. Total new retail sales dollars at sales centers open more than one year decreased 37% during the nine months ended June 30, 2000. Wholesale sales dollar volume decreased 6% due to a 6% decrease in unit volume, a higher percentage of single-section sales, which have lower average selling prices than multi-section homes, and lower average sales prices on single-section homes. Single-section sales accounted for 25% of wholesale unit sales compared to 24% in the nine months ended June 30, 1999. The average new unit sales prices of single-section homes decreased 3%. 19 Gross profit Gross profit margin - integrated operations decreased from 34.2% during the nine months ended June 30, 1999 to 26.4% during the nine months ended June 30, 2000 primarily as a result of competitive pricing pressures and unfavorable manufacturing variances caused by reduced production schedules experienced during the first nine months of fiscal 2000. Wholesale gross profit margins decreased from 16.6% during the nine months ended June 30, 1999 to 13.3% during the nine months ended June 30, 2000 as a result of competitive pricing pressures and unfavorable manufacturing variances caused by reduced production schedules experienced during the first nine months of fiscal 2000. Consumer finance revenues Consumer finance revenues are summarized as follows: Nine months ended June 30, -------- (in thousands) 2000 1999 ---- ---- Interest income $ 28,841 $ 32,532 Servicing fees 16,435 18,706 REMIC residual income 13,521 5,596 Losses on loans sold or held for sale: Loss on sale of loans (8,324) (3,152) Valuation provision on loans held for sale (9,388) - ---------- ---------- (17,712) (3,152) Loss on sale of securities (4,461) - Impairment and valuation provisions (6,083) (6,618) Other 1,454 1,092 ---------- ---------- $ 31,995 $ 48,156 ========== ========== The decrease in interest income primarily reflects lower average outstanding balances of loans held for sale prior to securitization. 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, declined as a result of increased servicing asset amortization and lower servicing cash flows from the Company's securitizations. The increase in residual income reflects significantly higher yields on retained residual interests in REMIC securitizations. 20 The loss on sale of loans for the nine months ended June 30, 2000 reflects the completion of three securitizations. In addition, during the period the Company recorded provisions of $9.4 million to reduce the carrying value of loans held for sale to the lower of cost or market, resulting in aggregate losses on loans sold or held for sale of $17.7 million, compared to $3.2 million in the prior year period. 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, in part, generally lower loan yields resulting from a shift in product mix toward loans involving land, which generally carry lower coupons than 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. The loss on sale of securities reflects the sale of all BBB rated asset-backed securities retained by the Company from securitizations prior to December 31, 1999. Impairment and valuation provisions are summarized as follows: Nine months ended June 30, -------- (in thousands) 2000 1999 ---- ---- Impairment writedowns of residual REMIC interests $ - $ 6,618 Impairment writedowns of regular REMIC interests 3,690 - Valuation provisions on servicing contracts 4,768 - Reductions of previously recorded valuation allowance on servicing contracts (6,401) - Additional provisions for potential guarantee obligations on REMIC securities sold 4,026 - --------- --------- $ 6,083 $ 6,618 ========= ========= Except for the impairment charge relating to regular REMIC interests, these charges and credits generally resulted from changes in assumptions of credit losses on securitized loans. The impairment writedown of regular REMIC interests reflects the Company's determination that the decline in fair value of a retained REMIC regular interest below its amortized cost was other than temporary. For the nine months ended June 30, 2000 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 1.90% on an annualized basis of the average principal balance of the related loans, compared to approximately 1.80% 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 21 disposed of from period to period may cause variations in the charge-off ratio. At June 30, 2000 the Company had a total of 3,049 unsold properties in repossession or foreclosure (approximately 2.45% of the total number of Oakwood originated serviced assets) compared to 2,417, 1,835, and 1,430 at September 30, 1999, June 30, 1999 and September 30, 1998, respectively (approximately 1.97%, 1.53% and 1.28%, respectively, of the total number of Oakwood originated serviced assets). Of the total number of unsold properties in repossession or foreclosure, 433, 417, 361 and 295 relate to loans originated on behalf of DFC at June 30, 2000, September 30, 1999, June 30, 1999 and September 30, 1998, respectively. Insurance revenues Insurance revenues increased 17% to $43.5 million for the nine months ended June 30, 2000 compared with the same period last year primarily as a result of the increased size of the Company's insurance portfolio. A substantial portion of insurance revenues is derived from insurance policies sold in connection with new home sales by the Company's retail operations. If the adverse retail sales trends experienced in the first nine months of fiscal 2000 continue, insurance revenues should decline in future periods. Selling, general and administrative expenses Selling, general and administrative expenses decreased $51.3 million, or 17%, during the nine months ended June 30, 2000 compared to the prior year. The decrease resulted from cost reduction actions, particularly at retail, taken in the fourth quarter of fiscal 1999, as well as lower sales volumes. However, as a percentage of net sales, selling, general and administrative expenses increased to 27.7% for the nine months ended June 30, 2000 from 26.1% last year as a result of a lower sales base over which to spread the Company's fixed portion of distribution and overhead costs and higher service costs. Consumer finance operating expenses Consumer finance operating expenses rose $7.2 million, or 28%, during the nine months ended June 30, 2000. Of the total dollar increase, approximately $3.1 million represents higher compensation costs, including headcount additions to the loan servicing functions in order to improve the performance of the loan servicing portfolio over the long term. Approximately $1.9 million represents other increases in servicing related costs. In addition, allocations of parent company costs, principally occupancy and telecommunications, increased by approximately $1.2 million. Insurance operating expenses Insurance operating costs for the nine months ended June 30, 2000 rose 2% to $24.6 million. Expenses did not increase commensurately with the increase in insurance revenues because a larger percentage of insurance revenues were derived from products with lower expense ratios. 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. However, the reinsurance agreement described previously, as well as the Company's purchase of catastrophe reinsurance, should reduce the Company's underwriting exposure to natural disasters. 22 Interest expense Interest expense increased $8.3 million, or 28%, during the nine months ended June 30, 2000 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. This increase was partially offset by lower interest expense on declining and retired long-term debt balances. Interest expense on short-term lines of credit was relatively constant, reflecting an approximate $100 million reduction in average balances outstanding offset by higher interest rates and fees. Income taxes The Company's effective income tax rate was 38.0% in the nine months ended June 30, 2000 compared to 39.0% in 1999. The decrease reflects primarily limited state income tax benefits associated with certain losses and charges. Liquidity and Capital Resources During the nine months ended June 30, 2000, the Company decreased inventories by $89 million as a result of inventory reduction measures initiated 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 $167 million at June 30, 2000. The Company originates loans and warehouses them until sufficient receivables have been accumulated for a securitization. Changes in loan origination volume, which is significantly affected by retail sales, and the timing of loan securitization transactions affect the amount of loans held for sale at any point in time. 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 21 months, demand for subordinated securities, particularly securities rated BBB and below, has decreased dramatically. During the current fiscal year, the Company sold all BBB rated asset-backed securities retained by the Company from securitizations prior to December 31, 1999. Additionally, the Company sold the BBB rated securities created in the securitizations closed in the most recent March and June quarters. The aggregate principal balance of the securities rated below BBB (including any initial overcollateralization) represents approximately 8% of the aggregate principal balance of the loans securitized in transactions subsequent to May 1999. At June 30, 2000 the Company owned subordinated asset-backed securities having a carrying value of approximately $62.3 million associated with certain of the Company's 1998, 1999 and 2000 securitizations, as well as subordinated asset-backed securities having a carrying value of approximately $9.1 million retained from securitization transactions prior to 1994. The Company considers these securities to be available for sale, and would 23 consider opportunities to liquidate these securities based upon market conditions. Continued decreased demand for subordinated 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 subordinated 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 $8 million. The Company has several credit facilities in place to provide for its short-term liquidity needs. The Company has a $250 million credit facility with a conduit commercial paper issuer to provide warehouse financing for loans prior to securitization. The Company also has a revolving credit facility with a group of banks, which is available to fund up to $75 million of additional working capital needs. These facilities expire in November 2000. The Company has obtained waivers for covenant violations of these facilities through August 22, 2000. The Company is completing negotiations of amendments of these facilities to August 2001 and, while there can be no assurance that such negotiations will be successful, the Company believes it will be able to extend the facilities through 2001 at levels sufficient to provide the Company with liquidity needed to finance its business. Any such amendments would, however, increase the Company's borrowing costs and such increases would become more significant over time. The Company is exploring replacing these facilities with other lenders in order to mitigate these cost increases. 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, the adequacy of our existing credit facilities to meet short-term liquidity needs, the ability of the quota share agreement to reduce the Company's underwriting exposure to natural disasters and the ability to successfully negotiate amendments to the Company's credit facilities. 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 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 us; 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. 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 25 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. In July 2000, the magistrate submitted a recommended order dismissing the complaint with prejudice. The plaintiffs have objected to the recommended order and the matter is before the district court judge. The Company intends to defend such lawsuit vigorously. In addition, the Company is subject to legal proceedings and claims that 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. 26 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 June 30, 2000. Items 2, 3, 4 and 5 are inapplicable and are omitted. 27 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: August 14, 2000 OAKWOOD HOMES CORPORATION BY: /s/ Robert A. Smith ------------------------- Robert A. Smith Executive Vice President (Chief Financial Officer) (Duly Authorized Officer) 28 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS ITEM 6(a) FORM 10-Q QUARTERLY REPORT For the quarter ended Commission File Number June 30, 2000 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 29 EX-4 2 0002.txt OAKWOOD HOMES CORPORATION 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 EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2000 FILED AS PART OF THE REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 1,000 US DOLLARS 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 1 31,252 0 384,412 3,748 354,318 0 355,103 108,949 1,197,817 281,625 338,739 23,562 0 0 466,508 1,197,817 879,401 962,645 688,276 983,700 0 2,250 37,908 (61,213) (23,260) (37,953) 0 0 0 (37,953) (0.82) (0.82)
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