OAKWOOD
[LOGO] HOMES
CORPORATION
1995
ANNUAL REPORT
RECORD YEAR
PERFORMANCE
NOW AND TOMORROW
about the company Oakwood Homes Corporation is a fully integrated manufactured
housing company--manufacturing, retailing and financing quality homes in a
30-state region stretching from coast to coast. Our strategy of vertical
integration, which we have implemented more completely than any competitor,
enables us to control all the factors that influence our customers' home buying
decision: product features and design, quality of materials and workmanship,
effectiveness of the retail selling process, availability of financing options
that meet customer needs, and service after the sale. With 198 retail sales
centers, we sell more homes than any other retailer, and our sales centers are
consistently among the most productive in the industry in terms of the average
number of new homes sold per center. As the fifth largest manufacturer in the
industry, our 16 plants located across our market areas support the needs of our
company-owned retail centers and, in certain markets, independent retailers. Our
consumer finance arm makes the American dream of home ownership come true,
providing almost one-half billion dollars in customer financing last year. We
also provide home siting options for our customers in our rental communities and
land/home subdivisions. Through our efforts in each of these areas, we provide a
level of service and responsiveness to our customers that is greater than our
competitors are able or willing to provide. Combining skills in retailing,
manufacturing and finance, we are delivering the promise of complete customer
satisfaction that today's value conscious consumer demands. Founded in 1946, our
headquarters is located in Greensboro, North Carolina, and our common shares are
listed on the New York Stock Exchange.
OAKWOOD HOMES CORPORATION
- ---------------------------
SELECTED FINANCIAL DATA
- ---------------------------
Year Ended September 30,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
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(in thousands, except per share data)
Net sales $741,521 $595,127 $422,103 $313,272 $247,911 $245,995
Total revenues $821,412 $664,610 $483,736 $360,446 $285,540 $277,124
Pro forma net income $ 45,318 $ 35,655 $ 25,715 $ 14,334 $ 8,823 $ 7,504
Pro forma earnings per common share
Primary $1.97 $1.55 $1.21 $0.91 $0.67 $0.65
Fully diluted $1.97 $1.55 $1.18 $0.83 $0.63 $0.62
Total assets $782,640 $590,397 $596,950 $459,924 $380,063 $305,536
Notes and bonds payable $198,812 $207,990 $264,225 $297,033 $235,377 $193,493
Cash dividends per common share $0.08 $0.08 $0.08 $0.06 $0.05 $0.04
[The 3 tables below were represented as bar graphs in the printed report]
Net Sales
(in millions
1990 ................... $246
1991 ................... $248
1992 ................... $313
1993 ................... $422
1994 ................... $595
1995 ................... $742
5 year compound growth rate: 25%
Pro Forma Net Income
(in millions)
1990 ................... $ 7.5
1991 ................... $ 8.8
1992 ................... $14.3
1993 ................... $25.7
1994 ................... $35.7
1995 ................... $45.3
5 year compound growth rate: 43%
Pro Forma Fully Diluted EPS
1990 ................... $0.62
1991 ................... $0.63
1992 ................... $0.83
1993 ................... $1.18
1994 ................... $1.55
1995 ................... $1.97
5 year compound growth rate: 26%
1
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TO OUR SHAREHOLDERS
- -----------------------
We are very pleased to share with you the record results we achieved in fiscal
1995. Revenues for the year increased 24% to $821 million from $665 million last
year. Net income advanced 27% to $45 million from $36 million, and earnings per
share were $1.97, a 27% increase from the $1.55 reported for 1994. Over the past
five years, revenues have grown at a compound annual rate of 24% and earnings
per share at an annual compound rate of 26%.
While 1995 was a great year in terms of profitability, the more important
story is what we accomplished toward making Oakwood Homes the preeminent
manufactured housing company in America. We intend to compete in every
significant manufactured housing market in the nation because we believe the
industry has substantial opportunities for growth in the coming years.
Manufactured housing has significant advantages over many other forms of
shelter. As site-built homes lose their investment appeal in a non-inflationary
environment, the outstanding value and high quality represented in the product
today are key factors driving the industry. Improvements in the features,
styling and construction of manufactured homes have made them attractive to a
larger segment of the population than ever before. In a time when the average
site-built home costs about $55 per square foot and the average manufactured
home costs only about $25 per square foot, each excluding land, more and more
consumers are looking for value. Moreover, there is significant change taking
place in America, change which in many markets is reducing or stagnating family
[The table below is represented as a bar graph in the printed report]
Cumulative Growth since 1990
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Oakwood Retail Home Sales ...... 12% 51% 98% 165% 239%
Industry Shipments ............. -9% 2% 29% 54% 73%
(PICTURE)
2
incomes despite increasing numbers of two-earner households. The substantial
decrease in unemployment over the past few years has been deceptive, in that
many people work in relatively lower-skilled service positions or have been
rehired in jobs paying less than they previously made. As these consumers become
more value conscious, they turn increasingly to manufactured housing, which now
accounts for almost one-third of all new single-family homes sold in the United
States. And while apartments are a competing form of lower cost housing,
rational construction lending and income tax policies grounded in sound
economics have limited the number of new lower cost apartments being
constructed.
We are positioning Oakwood to take advantage of positive industry trends
through execution of our vertical integration strategy, in which we control
every facet of our customers' home buying experience, from design to
manufacturing, retail, financing and after-sale service. Vertical integration
means agility and flexibility--the ability to respond to customer needs faster
and more effectively than the competition. In some highly competitive states
where our retail distribution system is well established, our retail market
share is as high as 20%. We intend to grow by competing in attractive markets in
which we currently have little or no presence and by improving productivity in
our more established markets. Over the past five years, the industry's shipments
have grown by 73%, while our retail home sales have grown at over three times
that rate. We are gaining market share, and the reason is vertical integration.
Our four largest competitors are together over six times our size, so we have a
lot of market share left to gain.
With last year's acquisition of Golden West Homes we signaled a dramatic
acceleration of our expansion plans and claimed a meaningful share of attractive
markets in the West and Northwest. This year, our acquisition of Destiny
Industries gave us a strong foothold in the Deep South and complemented our
existing retail network in the Southeast. In fiscal 1996, we will be
concentrating on melding Golden West and Destiny into our vertically integrated
operations by establishing a strong retail presence in their markets and laying
the groundwork for expansion into new and existing markets in 1997 and beyond.
During 1995 we did not neglect the most important prerequisite to achieving
our long-term growth plans. We have added significantly to our management team
to ensure we have the people to manage successfully a rapidly expanding
business. We have continued to seek out the best people in their fields, and in
the coming year we will be investing in additional training for all our Oakwood
people to give them the new skills they need to keep us the best team in the
industry. This year's results clearly reflect the quality of our people, and
their talent and dedication are key to our future.
As we turn our attention to the coming year, we are eager and enthusiastic
to continue execution of our vertical integration strategy and our focus on
customer value. Our confidence is bolstered by strong industry trends that
continue to make our products more attractive to consumers. We believe there are
considerable opportunities to grow our retail system in current and new markets,
and these efforts will benefit greatly from our recent acquisitions. Finally, we
have the financial and management resources to execute the bold plans we have
set in motion to enhance the value of our franchise, and with it the value of
the Company.
Sincerely yours,
/s/ Nicholas J. St. George
Nicholas J. St. George
President and Chief Executive Officer
/s/ Ralph L. Darling
Ralph L. Darling
Chairman
(PICTURE)
Nicholas J. St. George
3
(PICTURE)
Oakwood's Presence
(MAP SHOWING RETAIL CENTER NETWORK)
4
- ----------------------------
CONTROLLING DISTRIBUTION
- ----------------------------
growth
Control of retail distribution is the cornerstone of Oakwood's growth strategy.
This control ensures consistent quality and service throughout the entire
customer encounter--not only in how the home is built, but also in the way it is
sold and serviced. Company-owned retail distribution differentiates our products
from the competition's through exclusivity, and creates brand loyalty among our
customers. When industry conditions are not so robust as they are today, control
over retail distribution should help insulate us from margin pressures because
we will not have to compete with other manufacturers for retail shelf space, and
it should enable market share gains as small, thinly capitalized retailers exit
the market.
Operating retail and manufacturing as a single business also enables us to
respond effectively to customer problems, avoiding the battle between retailer
and manufacturer about whether the problem was caused in manufacturing, delivery
or installation. The result: a satisfied customer who refers others to us. The
retail distribution network also feeds substantial loan origination volume into
our finance company, acting as referral agents without the origination fees
normally associated with that activity.
Control of retail distribution has made Oakwood the largest retailer of
manufactured housing in America. In fiscal 1995 we sold 16,711 new homes at
retail, an increase of 28% over 1994 and 239% over our total just five years
ago.
[The table below is represented as a bar graph in the printed report]
New Homes Sold at Retail
1990 ................... 4,926
1991 ................... 5,515
1992 ................... 7,453
1993 ................... 9,756
1994 ................... 13,034
1995 ................... 16,711
5 year compound growth rate: 28%
[GRAPHIC OMITTED] WE ENDED FISCAL 1995 WITH 198 COMPANY-OWNED OUTLETS, UP FROM
152 AT THE END OF FISCAL 1994, AND HAVE APPROXIMATELY 45 NEW
CENTERS PLANNED FOR FISCAL 1996.
[GRAPHIC OMITTED] OUR COMPANY-OWNED RETAIL DISTRIBUTION SYSTEM ENHANCES
CUSTOMER SATISFACTION THROUGH SUPERIOR SERVICE AND SERVES AS
THE LOAN ORIGINATION NETWORK FOR THE FINANCIAL SERVICES
BUSINESS.
[GRAPHIC OMITTED] WE HAVE A PROVEN ABILITY TO CAPTURE SIGNIFICANT MARKET SHARE
IN FULLY PENETRATED MARKETS.
[GRAPHIC OMITTED] THERE ARE HUNDREDS OF ATTRACTIVE MARKETS IN WHICH WE HAVE
LITTLE OR NO PRESENCE, REPRESENTING SUBSTANTIAL
OPPORTUNITIES FOR GROWTH.
[GRAPHIC OMITTED] WE PLAN TO EXPAND AND ENHANCE THE EXCLUSIVE DEALER BASE AT
GOLDEN WEST AND DESTINY IN SEVERAL WAYS, INCLUDING
INTRODUCTION OF OUR FINANCIAL SERVICES PRODUCTS TO THESE
DEALERS' CUSTOMERS.
5
- --------------------------------------------
ENHANCING PRODUCTIVITY AND PROFITABILITY
- --------------------------------------------
agility
In addition to being the largest retailer of manufactured housing in the nation,
Oakwood is also one of the most productive retailers, selling significantly more
new homes per sales center than most of our competitors. Average new unit sales
per sales center fell only slightly in 1995 despite our adding 48 new sales
centers during the year, the most ambitious expansion effort we've ever
undertaken. Extensive salesperson training, proven marketing programs, and
state-of-the-art information systems scheduled for implementation at our sales
centers over the next year should enable our retail centers to improve unit
sales in the coming years.
To complement enhanced retail productivity, we are in the process of an
extensive project to reengineer how we design and build houses, eliminating
non-value added activities and processes. We are also working to improve the
coordination between our retail and manufacturing units to help them operate
more fully as a single business with a single focus: the retail customer.
We believe consolidated gross margins should improve in the coming years as
we realize the benefits of manufacturing cost reductions through our
reengineering efforts and through the increased buying power we enjoy as a much
larger company than we were even two years ago. Margins will also benefit from
higher production levels from new manufacturing plants, enabling us to source a
greater percentage of our retail sales from company-owned facilities. Margins
should also benefit from distributing an increasing percentage of the homes
manufactured by Golden West and Destiny through our expanded company-owned
retail network. This will not only allow us to add the retail gross profit to
the manufacturing profit we already earn, but also position us to profit from
offering financial services products to our customers.
We are also looking to technology to improve productivity and efficiency in
our financial services businesses. The new retail information systems to be
deployed in 1996 include automated loan application and loan document
preparation features, and we are investigating new technology to make other
elements of our credit and servicing operations more effective.
[GRAPHIC OMITTED] IN FISCAL 1995 COMPANY-OWNED RETAIL CENTERS AVERAGED 94 NEW
HOMES SALES EACH, AN INCREASE OF 31% SINCE 1990.
[GRAPHIC OMITTED] CONSOLIDATED GROSS MARGINS INCREASED TO 26.7% IN FISCAL
1995, UP 4.8 PERCENTAGE POINTS OVER THE PAST FIVE YEARS.
[GRAPHIC OMITTED] INTEGRATING MANUFACTURING WITH RETAIL ENHANCES EFFICIENCY
BECAUSE IT REDUCES THE EFFECTS ON PRODUCTIVITY OF THE
SEASONALITY IN RETAIL SALES--WE CAN BUILD HOMES FOR
INVENTORY AND DO NOT HAVE TO AWAIT DEALER ORDERS.
[GRAPHIC OMITTED] THE INTEGRATION OF GOLDEN WEST AND DESTINY INTO THE
COMPANY-OWNED DISTRIBUTION SYSTEM WILL ENHANCE MARGINS.
[GRAPHIC OMITTED] OUR LONG-TERM GROSS MARGIN TARGET OF 30% IS ACHIEVABLE.
6
[The tables below are represented as a bar graph in the printed report]
New Home Sales Per Sales Center
1990 ................... 72
1991 ................... 73
1992 ................... 77
1993 ................... 87
1994 ................... 96
1995 ................... 94
Gross Profit Margin
1990 ................... 21.9%
1991 ................... 23.1%
1992 ................... 24.3%
1993 ................... 24.9%
1994 ................... 25.8%
1995 ................... 26.7%
(PICTURE)
7
(PICTURE)
THE OAKWOOD
ONE-STOP SHOPPING EXPERIENCE
[GRAPHIC FLOW CHART SHOWING OAKWOOD'S ONE-SHOPPING EXPERIENCE]
8
- ----------------------------
MEETING CUSTOMERS' NEEDS
- ----------------------------
quality
Our objective is to offer our customers quality homes covering approximately 80%
of the price points in every market we serve. We plan to avoid the high-end and
low-end niche products in favor of building the high-volume price point homes
that maximize the economies of factory-built housing. Toward this end, in 1995
we made progress in significantly expanding the price range of products offered
by Golden West, which prior to its acquisition by Oakwood produced principally
high-end multi-section homes. This broader product line, to be supported by a
significant expansion at the Albany, Oregon facility, will not only provide the
range of homes needed by the company-owned retail centers we are opening in
Golden West's markets, but also should enhance the prospects for stronger
relationships on an exclusive basis with Golden West's independent dealers.
One of our important efforts over the past five years has been to build our
presence in the growing multi-sectional market, which comprises approximately
one-half of the industry's unit shipments, but which accounted for less than 30%
of our retail home sales in 1995. While single-section homes will always remain
an essential part of the market because of their strong value, multi-section
homes will likely gain increased popularity because they closely match the look,
function and lifestyle offered by site-built homes. These attributes, coupled
with the quality and craftsmanship of factory construction, are increasingly
drawing new clientele to manufactured housing, including retirees, professionals
and "empty nest" families--all of whom recognize the unmatched shelter value
these homes provide.
[The table below is represented as a bar graph in the printed report]
Multi-Section Sales
(% of new retail home sales)
1990 ................... 12%
1991 ................... 15%
1992 ................... 25%
1993 ................... 25%
1994 ................... 25%
1995 ................... 28%
[GRAPHIC OMITTED] OAKWOOD'S VERTICAL INTEGRATION STRATEGY PROVIDES "ONE-STOP"
SHOPPING TO SATISFY EVERY CUSTOMER NEED.
[GRAPHIC OMITTED] THE DESTINY AND GOLDEN WEST ACQUISITIONS MAKE IT POSSIBLE TO
TEAM VERTICAL INTEGRATION AND RETAIL EXPANSION IN THE DEEP
SOUTH AND NORTHWEST, WHICH ARE THE FOCUS OF OUR 1996
EXPANSION PLANS.
[GRAPHIC OMITTED] WE INTEND TO OFFER COMPETITIVE PRODUCTS AT ALL HIGH-VOLUME
PRICE POINTS IN EVERY MARKET WE SERVE.
[GRAPHIC OMITTED] THE OPPORTUNITY TO MARKET ADDITIONAL MULTI-SECTION HOMES
PROVIDES THE POTENTIAL FOR SALES GROWTH EVEN IF THE OVERALL
MARKET SLOWS.
9
- ----------------------------------
EMPHASIZING FINANCIAL SERVICES
- ----------------------------------
performance
An important element of the over-all one-stop shopping experience we provide for
our customers is our financial services capability. Oakwood Acceptance has
originated over $1.2 billion in loans in the past five years and has provided
other important financial services to our customers to make home ownership a
reality for thousands of families.
With this dramatic growth, our financial services business has become an
increasingly important contributor to our profitability. We now finance through
Oakwood Acceptance more than 90% of our retail credit sales, providing a
significant stream of revenues to complement what we earn from manufacturing and
retail. We seek to minimize the effect of credit losses by using highly
effective credit scoring systems and employing sophisticated loan servicing
procedures. Moreover, by using the power of our extensive retail network, we can
maximize recoveries on defaulted loans.
Our successful origination and servicing record has enhanced our access to
the capital markets. The cumulative net proceeds of our loan securitization
program now exceed $1 billion. We expect to continue regular issuance of
asset-backed securities in the public market through our Oakwood Mortgage
Investors subsidiary and to continue our securitization relationship with a
long-term institutional investor. During 1995 we also obtained Fannie Mae and
Freddie Mac mortgage seller/servicer authorization as an additional step in
exploring alternative loan financing opportunities.
With our recent acquisitions in the Deep South and in the West--operations
that previously had no captive finance sources --we foresee attractive
opportunities to increase our loan originations hand in hand with our retail
expansion and through closer relationships with our exclusive independent
dealers.
[GRAPHIC OMITTED] OVER THE LAST FIVE YEARS, LOAN ORIGINATIONS HAVE GROWN AT AN
ANNUAL RATE OF 51%.
[GRAPHIC OMITTED] OUR SERVICING PORTFOLIO AT YEAR END STOOD AT $1.2 BILLION,
UP FROM $185 MILLION FIVE YEARS AGO.
[GRAPHIC OMITTED] LOANS OVER 30 DAYS PAST DUE WERE 2.0% OF THE PORTFOLIO AT
YEAR END, UP FROM A NEAR ALL-TIME LOW OF 1.6% LAST YEAR, BUT
DOWN FROM 3.0% IN 1990.
[GRAPHIC OMITTED] CREDIT LOSSES WERE .75% OF THE AVERAGE PORTFOLIO IN 1995, UP
SLIGHTLY FROM THE .66% RECORDED LAST YEAR, BUT WELL BELOW
OUR 1.0% TARGET.
[GRAPHIC OMITTED] OUR SUCCESSFUL LOAN SECURITIZATION PROGRAM HAS MADE OUR
FINANCIAL SERVICES OPERATIONS SELF-FUNDING--THIS FUNDAMENTAL
CHANGE, COUPLED WITH STRONG OPERATING CASH FLOW, SHOULD
ENABLE US TO EXECUTE OUR EXPANSION PLANS WITHOUT THE NEED TO
RAISE SIGNIFICANT NEW LONG-TERM CAPITAL.
10
[The tables below are represented as bar graps in the printed report]
Serviced Loan Portfolio
(in millions)
1990 ................... $ 185
1991 ................... $ 237
1992 ................... $ 346
1993 ................... $ 538
1994 ................... $ 843
1995 ................... $1,201
Loan Originations
(in millions)
1990 ................... $ 63
1991 ................... $ 76
1992 ................... $131
1993 ................... $212
1994 ................... $344
1995 ................... $487
5 year compound growth rate: 51%
(PICTURE)
11
outlook
In the coming years we plan to continue execution of the broad strategies that
have proven so successful in the past. At the forefront of these efforts will be
our unwavering commitment to quality and customer satisfaction, enhanced control
over distribution to drive market share growth, the maximization of revenues at
each stage of a vertically integrated enterprise, and the quest for greater
manufacturing efficiencies to enhance profitability.
A significant part of Oakwood's growth in fiscal 1996 is expected to come
from the ongoing expansion of our retail sales network, which will be carried
out in three distinct ways. First, we will continue to use the manufacturing
presence of Golden West as a springboard for new market penetration in key
western states, such as Arizona, California, Oregon and Washington. We plan to
have 15 new sales centers in Northwest markets in operation by the end of fiscal
1996. Second, we will implement our Deep South expansion strategy using a core
of 31 exclusive independent Destiny dealers as critical mass for the addition of
35 to 40 company-owned retail centers in strong manufactured housing states like
Alabama, Florida, Georgia and Mississippi--four of the top ten markets in the
country and ones in which we previously had little or no presence. Third, we
will continue to enter new, attractive markets that are contiguous with our
present marketing region. In doing so, we will establish relationships with
independent dealers to serve smaller markets and target the most attractive
areas for additional company-owned outlets.
Most of the planned expansion into other new markets will await fiscal 1997
as we concentrate on the Deep South and Northwest in 1996. As we look toward
1997 and 1998, we plan to attack the mature manufactured housing markets in the
central United States, such as Ohio, Illinois, Indiana and Michigan. Between now
and the end of 1998, we plan to establish a presence in substantially all the
major markets in the country, although we expect full penetration of those
markets to take us into the next century.
We expect to participate in the continuing consolidation in our industry,
and would prefer to acquire existing manufacturers to meet our production needs,
if quality candidates are available at a reasonable price.
We believe that the vertical integration strategy that has served us well
to this point makes even more sense in the current environment. Companies like
WalMart have shown that control of distribution and focus on customer value are
what it takes to be successful. We believe our increasing financial strength and
the inherent power of a vertically integrated company should enable us to
continue to gain market share in all market conditions, and should provide for
continued growth in revenues and earnings in the years ahead.
[GRAPHIC OMITTED] WE WILL CONTINUE EXPANSION OF COMPANY-OWNED SALES CENTERS TO
SOLIDIFY RETAIL DOMINANCE.
[GRAPHIC OMITTED] WE EXPECT TO IMPROVE GROSS MARGINS THROUGH INCREASED
PRODUCTION AT NEW PLANTS, COST REDUCTIONS AND DISTRIBUTION
OF GOLDEN WEST AND DESTINY PRODUCTS THROUGH COMPANY-OWNED
SALES CENTERS.
[GRAPHIC OMITTED] WE EXPECT INCREASING PROFITABILITY FROM OUR FINANCIAL
SERVICES OPERATIONS FROM THE ANNUITY PROVIDED BY A RAPIDLY
GROWING LOAN SERVICING PORTFOLIO, CAREFUL UNDERWRITING,
SUPERIOR LOAN SERVICING AND DEFAULT LOSS MINIMIZATION.
12
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- -------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------
The following discussion includes the results of operations of Destiny
Industries, Inc. for all periods presented. See Notes 1 and 3 to the financial
statements.
RESULTS OF OPERATIONS
During fiscal 1995 the Company continued to achieve significant growth in both
revenues and earnings. Total revenues increased 24% to $821 million from $665
million last year, following a 37% increase in 1994 from the $484 million
reported for 1993. Pro forma net income rose 27% in 1995 to $45.3 million
compared to $35.7 million in 1994 and $25.7 million in 1993.
Industry shipments grew for the fourth consecutive year in 1995. According
to industry sources, shipments of manufactured homes were up approximately 12%
for the first nine months of calendar 1995, and increased 20% in calendar 1994
over 1993. Oakwood's growth was more impressive, as new retail home sales grew
by 28% in fiscal 1995 and 34% in fiscal 1994. In 1995, the Company continued
executing its plan to become a national competitor, acquiring Destiny
Industries, Inc. in Moultrie, Georgia, to serve as a springboard for expansion
into the Deep South and expanding its retail network at the most rapid pace in
its history.
The following table summarizes certain key sales statistics for each of the
last three fiscal years:
1995 1994 1993
- --------------------------------------------------------------------------------
Retail sales (in millions) $ 543.8 $ 385.8 $ 258.8
Wholesale sales (in millions) $ 185.6 $ 201.5 $ 161.2
Other sales--principally relating
to communities
(in millions) $ 12.1 $ 7.8 $ 2.1
Total sales (in millions) $ 741.5 $ 595.1 $ 422.1
Gross profit %--
integrated operations 29.6% 30.4% 31.0%
Gross profit %--
wholesale operations 18.7% 17.4% 15.2%
New single-section
homes sold--retail 12,073 9,715 7,305
New multi-section
homes sold--retail 4,638 3,319 2,451
Used homes sold--retail 1,940 1,675 1,138
New single-section
homes sold--wholesale 2,168 2,360 1,778
New multi-section homes
sold--wholesale 4,923 5,671 4,873
Average new single-section
sales price--retail $25,900 $23,900 $21,400
Average new multi-section
sales price--retail $46,500 $42,800 $38,500
Average new single-section
sales price--wholesale $14,100 $11,200 $12,000
Average new multi-section
sales price--wholesale $31,200 $30,900 $28,700
Weighted average retail sales
centers open during the year 178 136 112
Average new home sales
per sales center 94 96 87
1995 COMPARED TO 1994
Retail sales dollar volume increased 41%, reflecting a 28% increase in new home
volume and increases of 8% and 9% in the average new home sales prices of
single-section and multi-section homes, respectively. New home volume rose
primarily due to a 31% increase in the weighted average number of sales centers
open during the year. Average new home sales per sales center decreased
slightly, reflecting the rapid pace of retail expansion during fiscal 1995, in
which the Company added 48 new sales centers compared to 32 centers in fiscal
1994. New sales centers typically require a period of several months to reach
normalized unit sales levels. Because the Company plans to open approximately 35
to 45 new sales centers annually over the next several years, management does
not expect any significant increase in the average number of new homes sold per
sales center over the near term. Total sales dollars at sales centers open more
than one year rose 9% in 1995.
The increase in the average new home sales price reflects increases in the
cost of certain raw materials and price increases implemented to recover
increased costs associated with new wind and thermal standards adopted by the
Department of Housing and Urban Development ("HUD"), as well as an increase in
the portion of new home sales derived from the Southwest region, where the
average home size is somewhat larger than in the Southeast. Sales in the
Southwest comprised 38% of total new manufactured housing sales dollars in 1995
compared to 27% last year. Because the new HUD standards have been in effect for
over one year and because the majority of 1996 retail expansion will take place
in the Deep South, which typically favors lower price points than the Company's
historical markets, the Company does not expect an increase in average home
sales prices in 1996 consistent with the past two years. Retail sales of
multi-section homes accounted for 28% of new home unit sales in 1995 versus 25%
in 1994.
Wholesale sales dollar volume (which represents sales by Golden West and
Destiny to independent dealers) declined 8%, reflecting a 12% decrease in volume
offset by increases of 26% and 1% in the average sales prices of new
single-section and multi-section homes, respectively. The decline in wholesale
volume is the result of a number of factors, including soft market conditions in
the Pacific Northwest early in the year as a result of increased industry
capacity and reduced demand for Golden West's relatively high price point
products resulting from higher interest rates. In late March 1995, Golden West
introduced several new home models at price points lower than those
traditionally targeted by Golden West in order to broaden its product line, to
lessen its dependence on higher end homes and to increase the attractiveness of
13
exclusive dealer arrangements. In addition, the Company sold Golden West's
Sacramento, California plant in the third quarter because it was not well
aligned geographically with the Company's retail expansion plans. Destiny's
single-section home volume declined 8% from 1994, while the average
single-section selling price increased 26%. During 1994 Destiny produced a large
number of park model homes (which typically contain less than 400 square feet of
living space and which are not designed for year-round habitation) which
wholesale for between $5,000 and $6,000 per home. Because of improving
conditions in Destiny's markets, Destiny produced significantly fewer park
models in fiscal 1995, focusing instead on traditional manufactured housing
products which carry higher gross margins.
In addition, sales to independent dealers have declined because the Company
has begun distributing homes manufactured by Golden West and Destiny through its
company-owned retail sales centers. In 1995, Golden West and Destiny shipped 653
homes to Oakwood sales centers, which are not included in the wholesale dollar
sales and home sales in the table above. Management expects Golden West's and
Destiny's home sales to Oakwood to increase in future years. To the extent the
Company is successful in establishing company-owned retail centers in Golden
West and Destiny markets, the decline in sales to wholesale dealers will
continue.
Gross profit margin--integrated operations reflects the retail gross profit
earned on retail sales as well as the manufacturing gross profit on retail sales
of homes manufactured by the Company, including the manufacturing gross profit
earned by Golden West and Destiny on their sales to the Oakwood retail
operation. Gross profit margins--integrated operations declined to 29.6% in 1995
from 30.4% in 1994. The reduction in gross margin reflects a .4% decline in
retail margins attributable to increasing competition at retail and to the
results of certain new sales centers which in early 1995 did not meet gross
profit expectations. During 1995, management provided additional training of
retail personnel in order to improve retail margins and also implemented a new
prospect tracking and follow-up program. Manufacturing margins also declined in
1995, principally due to start-up costs and manufacturing inefficiencies
associated with new manufacturing plants in Texas, Tennessee and Colorado. As
the year progressed, gross profit margin--integrated operations improved, rising
from 29.1% in the first quarter to 30.1% in the fourth quarter.
Approximately 76% of the total new home retail sales volume was
manufactured by the Company in fiscal 1995 compared to 75% in 1994. To the
extent production levels at new manufacturing facilities increase at a faster
rate than new home sales, and manufacturing costs at new plants can be
controlled, margins should increase as retail home sales are increasingly
sourced from company-owned manufacturing facilities.
Wholesale gross profit margins increased to 18.7% in 1995 from 17.4% last
year. The increase in margins over the prior year reflects reduced production of
low margin park models at Destiny, reduced product liability, property and
workers' compensation insurance costs at Golden West, and improved pricing of
certain materials and components resulting from taking advantage of Oakwood's
purchasing power with certain vendors. These savings were partially offset by
the effects of a shift in Golden West's product mix toward lower price point
homes which typically carry lower margins because they are ordered with fewer
high margin option packages.
Financial services income increased 9% to $62.0 million from $56.8 million
last year. Interest income earned on loans held for investment and on loans held
for sale prior to securitization decreased from $44.2 million in 1994 to $38.2
million in 1995. This decrease reflects the amortization of and prepayments on
loans held for investment, a decrease in the average balance of loans held for
sale resulting from more frequent loan securitization, and a decrease in the
average yield on these assets as older, higher-yielding loans are liquidated.
The Company is selling via securitization substantially all the loans it
originates, and accordingly interest income should continue to decline as the
remaining loans held for investment are liquidated. Loan servicing fees
increased from $7.1 million in 1994 to $12.2 million in 1995, reflecting the
increased size of the Company's securitized loan servicing portfolio. REMIC
residual income increased from $3.2 million to $7.2 million, reflecting the
shift in the Company's financing strategy toward securitization of its loans
from holding loans for investment and the adoption of sales accounting for
securitizations in 1993. Other financial services revenues, which consist
principally of credit life insurance premiums, miscellaneous fees and other
income, increased to $4.4 million from $2.4 million, and reflect the increasing
size of the Company's loan servicing portfolio.
14
The majority of the 41% increase in other income is related to increased
insurance commissions resulting from the increase in retail home sales.
Non-financial selling, general and administrative expenses rose to 22.3% of
net sales compared to 21.6% of net sales last year. Non-financial selling,
general and administrative expenses in 1995 include a charge of $1.2 million
($738,000 after tax, or $.03 per share) for costs associated with the sale of
Golden West's Sacramento, California facility and costs resulting from staffing
and overhead reductions at Golden West's Santa Ana, California headquarters, and
a charge of $150,000 ($.01 per share) for costs associated with the Destiny
merger. Non-financial selling, general and administrative expenses in 1994
include a charge of approximately $1.3 million ($973,000 after tax, or $.04 per
share) for costs relating to the acquisition of Golden West Homes. Exclusive of
these charges, non-financial selling, general and administrative expenses rose
29% to $163,940,000 (22.1% of net sales) compared to $127,216,000 (21.4% of net
sales) last year. These costs increased disproportionately to sales as a result
of general and administrative expenses associated with four new manufacturing
plants, increased accruals relating to the 1996 long-term management incentive
compensation plan, increased accruals for stock appreciation rights resulting
from the increase in the price of the Company's common stock, costs associated
with the Company's ongoing business reengineering projects and increased
headcount levels, particularly in the management information systems, human
resources and internal audit areas. Higher accruals for compensation payable
under the incentive compensation plan and for stock appreciation rights granted
under an earlier plan increased non-financial selling, general and
administrative expenses by .5% of net sales compared to 1994.
Financial services selling, general and administrative expenses rose 57% on
a 34% increase in the average number of loans serviced during the period and a
56% increase in total credit application volume. This somewhat disproportionate
growth in costs is largely due to increased headcount in the credit and
collections areas. The Company has been adding headcount in advance of portfolio
volume growth in order to help ensure that adequate numbers of properly trained
personnel are available to originate and service anticipated loan origination
growth.
The provision for losses on credit sales decreased 62% from 1994,
reflecting the increased seasoning of loans held for investment and loans sold
with full or limited recourse. As the portfolio ages, its overall credit quality
generally increases because the majority of credit losses generally are incurred
relatively early in the term of the loans. The Company provides for estimated
losses based on the Company's historical loss experience, current repossession
trends and costs and management's assessment of the current credit quality of
the loan portfolio.
Non-financial services interest expense rose from $1,149,000 to $2,259,000
due principally to new indebtedness relating to permanent financing for new
manufacturing facilities, the purchase of a corporate aircraft and the
leveraging of the employee stock ownership plan.
Financial services interest expense includes interest expense associated
with long-term debt secured by loans and interest associated with short-term
line of credit borrowings used to fund the warehousing of loans prior to their
securitization. Financial services interest expense decreased 3% due to
declining and retired long-term debt balances. This decrease was offset by a
$3.2 million increase in short-term interest expense, reflecting higher average
outstanding balances on lines of credit due to the significant increase in loan
volume, as well as higher short-term interest rates. Financial services interest
expense associated with notes and bonds payable is expected to continue to
decline as the Company retires its outstanding debt secured by loans.
The Company's pro forma effective income tax rate was 37.9% in fiscal 1995
compared to 37.5% in fiscal 1994 (excluding in 1994 a $214,000 reduction in
income tax expense arising from the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109")).
15
1994 COMPARED TO 1993
Retail sales dollar volume rose 49% in 1994, reflecting a 34% increase in new
home volume and increases of 12% and 11% in the average sales prices of new
single-section and multi-section homes, respectively. New home volume increased
due to a 21% increase in the weighted average number of sales centers open
during the year and a 10% increase in average new home sales per sales center.
Total sales dollars for sales centers open at least one year rose 20%. The
increase in the average new home selling price reflects price increases required
to offset rising lumber prices, the effect of the Company's entry into the Texas
market where the average home size is larger than in the Southeast and higher
selling prices in the Southeast due to a change in product mix toward higher-end
homes. Sales in the Southwest comprised 27% of total new manufactured housing
retail sales dollars during 1994 compared to 11% in 1993. Retail sales of
multi-section homes accounted for approximately 25% of new home unit sales in
both 1994 and 1993.
Wholesale sales dollar volume increased 25%, reflecting a 21% increase in
home volume and an 8% increase in the average sales price of new multi-section
homes, offset by a 7% decrease in the average sales price of new single-section
homes. The sales volume increases were primarily due to continued strong demand
for manufactured housing in the western and southern United States and increased
park model production at Destiny. The increase in the average wholesale
multi-section selling price reflects price increases required to offset rising
lumber prices, as well as changes in the product mix. The average single-section
selling price declined due to increased production of park models.
Gross profit margin--integrated operations decreased to 30.4% in 1994 from
31.0% in 1993. Margins rose in the Southeast, principally due to manufacturing
efficiencies resulting from higher production levels, but were offset by the
effects of the Company's expansion into the Southwest, where a substantial
portion of the new home sales volume was sourced from third party manufacturers.
Of the total 1994 new home sales volume, 75% was manufactured by the Company
compared to 82% in 1993.
Wholesale gross profit margins increased to 17.4% in 1994 from 15.2% in
1993. This improvement in margin was primarily due to greater operating
efficiencies associated with a higher sales volume which allows for a more
consistent production cycle. In addition, Golden West's 1993 results were
negatively affected by a rapid rise in the cost of lumber, only a portion of
which could be passed on in the form of sales price increases.
Financial services income increased 13% to $56.8 million in 1994 from $50.1
million in 1993. Interest income rose 4% to $44.2 million from $42.3 million in
1993 as a result of higher average loans held for sale during the period.
Interest on loans held for investment is declining as the underlying loans
amortize; because the Company is selling through securitization substantially
all its loan originations, loans held for investment and the related interest
income will decline over time. Loan servicing fees increased to $7.1 million in
1994 from $4.9 million in 1993, reflecting the increased size of the Company's
securitized loan servicing portfolio. REMIC residual income increased from
$754,000 to $3.2 million, reflecting the adoption of sales accounting for the
Company's REMIC securitizations in 1993. Other financial services revenues
increased to $2.4 million from $2.1 million, and reflect the increasing size of
the Company's loan servicing portfolio.
Other income rose to $12.7 million in 1994 from $11.6 million in 1993. The
1993 amount includes a gain of $1.6 million on the sale of manufactured housing
communities (approximately $1 million after tax, or $.05 per share). Excluding
this gain, other income rose 27%, principally due to increased insurance
commissions resulting from an improvement in the percentage of total sales for
which physical damage coverage was written by the Company's agency and the
overall increase in sales. This growth was offset by a decline in endorsement
fee income resulting from the Company's emphasis on internal financing of credit
sales. Endorsement fee income will continue to decline because the Company has
ceased selling installment sale contracts on a full recourse basis.
Non-financial selling, general and administrative expenses increased to
21.6% of net sales in 1994 from 20.2% in 1993. Non-financial selling, general
and administrative expenses include a one-time charge of approximately $1.3
million ($973,000 after tax, or $.04 per share) for costs relating to the
acquisition of Golden West Homes. Excluding this one-time item, non-financial
services selling, general and administrative expenses were 21.4% of net sales in
1994. The increase in costs as a percentage of net sales reflects a provision
for long-term management incentive compensation pursuant to a long-term
incentive compensation plan adopted in 1994. The plan provides for cash bonuses
to key management personnel payable in 1996 if certain earnings performance
targets are achieved. Long-term incentive compensation previously was provided
principally in the form of stock options, and accordingly did not result in a
charge to earnings. The provision for compensation payable
16
under the plan amounted to approximately .6% of 1994 net sales. In addition,
non-financial selling, general and administrative expenses in 1994 reflect costs
associated with the Company's business process reengineering efforts, costs
associated with a new Texas manufacturing plant opened during the year and four
additional plants which began production at or soon after year end.
Financial services selling, general and administrative expenses rose 20% on
a 45% increase in the average number of loans serviced and a 43% increase in
total credit application volume.
The provision for losses on credit sales decreased 21% from 1993,
reflecting the increased seasoning of loans held for investment and sold with
full or limited recourse.
Non-financial services interest expense decreased primarily due to the
redemption or conversion of the Company's convertible subordinated debentures in
November and December 1992. Financial services interest expense decreased
because the Company has adopted sales accounting for its REMIC securitizations;
prior to 1993, REMIC securitizations were treated as collateralized borrowings.
Effective October 1, 1993 the Company adopted prospectively FAS 109, which
requires the use of the asset and liability method to account for temporary
differences between the financial reporting and income tax bases of the
Company's assets and liabilities. Prior to fiscal 1994 the Company accounted for
the timing differences between financial and taxable income using the deferred
method. Adoption of FAS 109 had the effect of reducing the provision for income
taxes and increasing net income by $214,000 ($.01 per share) in the first
quarter of fiscal 1994. Excluding the effects of adoption of FAS 109, the
Company's pro forma effective income tax rate was 37.5% in 1994 compared to
37.2% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
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 issuing debt
collateralized by its loans or by securitizing such loans, primarily using
REMICs. Over the past five years, the Company has been able to obtain from
investors and lenders an increasing percentage of the capital required to fund
its finance business, and the related yield over treasuries required by
investors has declined, principally because of continued improvement in the
performance of loans originated by the Company, increasing investor and lender
familiarity with asset-backed financing transactions in the manufactured housing
industry, declining interest rates, and because of the Company's increasingly
strong financial performance. The Company expects to originate in excess of $600
million of loans in fiscal 1996 and believes it can finance substantially all of
this amount through securitization of the loans. During 1995 the Company raised
approximately $362 million to finance its loans, including $281 million from
REMIC certificates sold by Oakwood Mortgage Investors, substantially all of
which was sold to the public. In October 1995 Oakwood Mortgage Investors
completed another REMIC offering, the proceeds of which were approximately $187
million.
In each of the Company's four public REMIC securities offerings, the
Company has sold REMIC interests having a principal balance equal to 100% of the
par value of the related loans, and the Company intends to sell all of the
regular REMIC interests in its future securitizations. This decision eliminates
the Company's need for cash to finance retained REMIC interests and
substantially reduces the need to obtain other long-term financing. Because the
Company intends to continue to expand significantly its retail distribution
network and because a large percentage of the Company's customers purchase on
credit, the Company will have a substantial need for financing of its loans in
the coming years, and intends to utilize both the public and private markets to
broaden the number of sources of financing and minimize its financing costs.
In addition to the ongoing need to access the asset-backed capital market
for capital to fund its financing operations, the Company will require capital
to execute its ongoing expansion strategy. The Company estimates that its fiscal
1996 capital expenditures will approximate $37 million, comprised principally of
offices, leasehold improvements and fixtures relating to retail expansion,
remaining construction and upfit costs on a new headquarters building,
development of existing manufactured housing communities, computer hardware and
software associated with new and enhanced management information systems and
improvements to manufacturing facilities. In addition to capital expenditures,
the retail expansion will require an investment of approximately $400,000 of
working capital for each new sales center, or approximately $16 million for
fiscal 1996. Capital expenditures and working capital requirements in later
years are dependent upon the extent of expansion undertaken in such years.
17
The Company intends to finance its retail and manufacturing expansion
principally using internally generated funds and short-term lines of credit.
Because the Company has decided to sell all of the regular REMIC interests in
its future securitizations, additional permanent corporate financing is not
expected to be required to fund expansion of the financial services businesses.
However, the Company continues to monitor the debt and equity markets and
evaluate the sources and cost of long-term capital in light of management's
assessment of existing and future conditions in the capital markets and its
assessment of the appropriate components of the Company's capital structure.
While management believes that existing financing is sufficient to provide for
the Company's needs for the foreseeable future, the Company may seek to raise
additional long-term debt or equity if compelling market conditions arise.
The Company has several credit facilities in place to provide for its
short-term liquidity needs. The Company has a $130 million line of credit
facility with a group of banks to provide warehouse financing for loans, which
bears interest at LIBOR plus 1%. The Company also has a $75 million revolving
line of credit secured by inventory bearing interest at LIBOR plus 1%. The
Company currently is negotiating additional short-term credit, and expects to
achieve a reduction in the interest rate on short-term borrowings.
NEW ACCOUNTING STANDARDS
In March 1995 the Financial Accounting Standards Board (the "Board") adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121"), which requires that companies assess potential impairments of
long-lived assets, certain identifiable intangibles and associated goodwill when
there is evidence that events or changes in circumstances have made recovery of
an asset's carrying value unlikely, and recognize an impairment loss when the
sum of expected future net cash flows is less than the carrying amount.
In May 1995 the Board issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("FAS 122"), which
eliminates the accounting distinction between rights to service mortgage loans
that are acquired through loan origination activities and those acquired through
purchase transactions. FAS 122 requires that an entity which sells or
securitizes loans while retaining the mortgage servicing rights applicable to
the loans, allocate a portion of the costs of acquiring/originating the loans to
mortgage servicing rights based on their relative fair values. The resulting
asset is then amortized and evaluated for impairment. The Company is studying
the applicability of FAS 122 to its loan originations, only a small portion of
which are mortgages.
In October 1995 the Board adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which
provides that companies adopt a method of accounting for stock compensation
awards based on estimated fair value at the date the awards are granted using an
accepted pricing model. The resulting charge to income is recognized over the
period during which the options or awards vest. The Board encourages recognition
of such expense in the statement of income but does not require it. If expense
is not recorded in the financial statements, FAS 123 requires pro forma
disclosures regarding the effects on net income and earnings per share had
expense been recognized.
Management is evaluating the potential effects on the Company's financial
statements of adoption of these statements, each of which the Company must adopt
in fiscal 1997. While such evaluation is not complete, management currently does
not expect adoption of the statements will have a material effect on its
financial condition or results of operations.
18
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------
(in thousands except per share data)
Year ended September 30,
-------------------------------------
1995 1994 1993
-------------------------------------
Revenues
Net sales $741,521 $595,127 $422,103
Financial services income (Note 4) 61,995 56,771 50,051
Other income (Note 5) 17,896 12,712 11,582
-------------------------------------
Total revenues 821,412 664,610 483,736
-------------------------------------
Costs and expenses
Cost of sales 543,320 441,364 316,974
Selling, general and administrative expenses
Non-financial services (Note 3) 165,290 128,516 85,382
Financial services 12,799 8,127 6,748
Provision for losses on credit sales (Note 6) 2,109 5,485 6,945
Interest expense
Non-financial services 2,259 1,149 1,706
Financial services 22,638 23,260 25,054
-------------------------------------
Total costs and expenses 748,415 607,901 442,809
-------------------------------------
Income before income taxes 72,997 56,709 40,927
Provision for income taxes (Note 7) 26,374 20,009 14,876
-------------------------------------
Net income $ 46,623 $ 36,700 $ 26,051
=====================================
Pro forma information (unaudited) (Note 2)
Historical income before income taxes $ 72,997 $ 56,709 $ 40,927
Pro forma provision for income taxes 27,679 21,054 15,212
-------------------------------------
Pro forma net income $ 45,318 $ 35,655 $ 25,715
=====================================
Pro forma earnings per share (unaudited) (Note 2)
Primary $ 1.97 $ 1.55 $ 1.21
=====================================
Fully diluted $ 1.97 $ 1.55 $ 1.18
=====================================
The accompanying notes are an integral part of the financial statements.
19
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- ------------------------------
CONSOLIDATED BALANCE SHEET
- ------------------------------
(in thousands except share and per share data)
September 30,
--------------------------
1995 1994
--------------------------
Assets
Cash and cash equivalents $ 6,189 $ 16,974
Receivables and investments (Notes 6 and 11) 480,875 372,278
Inventories (Note 8) 151,190 98,688
Properties and facilities, net of accumulated depreciation
and amortization (Notes 9 and 11) 101,758 67,225
Deferred income taxes (Note 7) 15,546 7,403
Other assets 27,082 27,829
--------------------------
$ 782,640 $ 590,397
==========================
Liabilities and shareholders' equity
Short-term borrowings (Note 10) $ 154,400 $ 25,000
Notes and bonds payable (Note 11) 198,812 207,990
Accounts payable and accrued liabilities (Note 12) 87,405 68,284
Reserve for contingent liabilities (Note 6) 3,184 3,827
Other long-term obligations 20,431 8,966
Shareholders' equity (Notes 13 and 14)
Common stock, $.50 par value; 100,000,000 shares authorized;
22,171,000 and 22,010,000 shares issued and outstanding 11,086 11,005
Additional paid-in capital 149,482 148,125
Retained earnings 160,000 117,200
--------------------------
320,568 276,330
Unearned ESOP shares (Note 15) (2,160) --
--------------------------
Total shareholders' equity 318,408 276,330
Contingencies (Note 6)
--------------------------
$ 782,640 $ 590,397
==========================
The accompanying notes are an integral part of the financial statements.
20
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- ----------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------
(in thousands)
Year ended September 30,
--------------------------------------
1995 1994 1993
--------------------------------------
Operating activities
Net income $ 46,623 $ 36,700 $ 26,051
Items not requiring (providing) cash
Depreciation and amortization 8,278 5,526 5,069
Deferred income taxes (7,060) (5,413) (4,014)
Provision for losses on credit sales 2,109 5,485 6,945
Gain on sale of manufactured housing communities -- -- (1,636)
Other -- 697 699
(Increase) in other receivables (21,617) (5,162) (5,549)
(Increase) in inventories (52,502) (36,660) (11,991)
Increase in accounts payable and accrued liabilities 19,121 11,834 20,890
Increase in other long-term obligations 11,465 5,467 1,328
--------------------------------------
Cash provided by operations 6,417 18,474 37,792
Loans originated (486,601) (343,733) (211,860)
Purchase of loan portfolios -- (604) (28,337)
Sale of loans 362,296 362,982 85,683
Principal receipts on loans 34,915 44,913 43,550
--------------------------------------
Cash provided (used) by operating activities (82,973) 82,032 (73,172)
--------------------------------------
Investing activities
Additions to properties and facilities (41,870) (28,225) (14,069)
Proceeds from sales of manufactured housing communities -- -- 6,194
Other (1,619) (6,661) (3,066)
--------------------------------------
Cash (used) by investing activities (43,489) (34,886) (10,941)
--------------------------------------
Financing activities
Net borrowings (repayments) on short-term credit facilities 129,400 (1,882) 24,886
Issuance of notes and bonds payable 29,890 2,093 58,555
Payments on notes and bonds (41,228) (56,436) (45,942)
Cash dividends (1,712) (1,635) (1,482)
Proceeds from exercise of stock options 1,438 1,950 3,623
Proceeds from sale of common stock -- -- 53,602
Redemption of preferred stock -- (1,150) (1,150)
Cash dividends to shareholders of acquired company (2,111) (1,348) (443)
--------------------------------------
Cash provided (used) by financing activities 115,677 (58,408) 91,649
--------------------------------------
Net increase (decrease) in cash and cash equivalents (10,785) (11,262) 7,536
Cash and cash equivalents
Beginning of year(*) 16,974 28,236 21,632
--------------------------------------
End of year $ 6,189 $ 16,974 $ 29,168
======================================
* The beginning cash balance for 1994 does not agree to the ending balance
for 1993 because of the differing accounting periods used by Oakwood and
Golden West. See Note 1.
The accompanying notes are an integral part of the financial statements.
21
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
- -----------------------------------
(in thousands except per share data)
Shares outstanding Additional Unearned
------------------- Preferred B Common paid-in Retained ESOP
Preferred B Common stock stock capital earnings shares
------------------------------------------------------------------------------
Balance at September 30, 1992 12 14,665 $ 3,000 $ 7,332 $ 46,757 $ 59,677 ($1,019)
Net income -- -- -- -- -- 26,051 --
Exercise of stock options -- 418 -- 209 3,414 -- --
Sale of common stock -- 2,875 -- 1,437 52,165 -- --
Conversion of debentures -- 3,851 -- 1,926 42,090 -- --
Redemption of preferred stock (12) -- (3,000) -- 1,850 -- --
Cost of ESOP shares allocated -- -- -- -- -- -- 240
Cash dividends ($.08 per share) -- -- -- -- -- (1,482) --
Cash dividends to shareholders of
acquired company -- -- -- -- -- (443) --
------------------------------------------------------------------------------
Balance at September 30, 1993 -- 21,809 -- 10,904 146,276 83,803 (779)
Net income -- -- -- -- -- 36,700 --
Less: net income of Golden West
for the three months ended
December 25, 1993 (Note 1) -- -- -- -- -- (320) --
Exercise of stock options -- 201 -- 101 1,849 -- --
Cost of ESOP shares allocated -- -- -- -- -- -- 779
Cash dividends ($.08 per share) -- -- -- -- -- (1,635) --
Cash dividends to shareholders of
acquired company -- -- -- -- -- (1,348) --
------------------------------------------------------------------------------
Balance at September 30, 1994 -- 22,010 -- 11,005 148,125 117,200 --
Net income -- -- -- -- -- 46,623 --
Exercise of stock options -- 161 -- 81 1,357 -- --
Purchase of ESOP shares -- -- -- -- -- -- (2,398)
Cost of ESOP shares committed
to be released -- -- -- -- -- -- 238
Cash dividends ($.08 per share) -- -- -- -- -- (1,712) --
Cash dividends to shareholders of
acquired company -- -- -- -- -- (2,111) --
------------------------------------------------------------------------------
Balance at September 30, 1995 -- 22,171 $ -- $11,086 $149,482 $160,000 ($2,160)
==============================================================================
The accompanying notes are an integral part of the financial statements.
22
OAKWOOD HOMES CORPORATION AND SUBSIDIARIES
- -------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -------------------------
NOTE 1--BASIS OF PRESENTATION
On June 30, 1995 Oakwood Homes Corporation ("Oakwood") acquired Destiny
Industries, Inc. ("Destiny"), and on September 30, 1994 Oakwood acquired Golden
West Homes ("Golden West"). Each of these acquisitions has been accounted for as
a pooling of interests as described in Note 3. The accompanying financial
statements reflect the combined results of operations and financial position of
Oakwood, Destiny and Golden West for all periods presented.
Prior to its acquisition by Oakwood, Golden West utilized a 52/53 week year
ending in December. For accounting convenience, the accompanying financial
statements for the year ended September 30, 1993 have not been adjusted to
conform Golden West's accounting year to the September 30 year used by Oakwood
and Destiny. Amounts set forth in the accompanying financial statements for 1993
reflect the results of operations of Oakwood and Destiny for the twelve months
ended September 30, 1993, and the results of operations of Golden West for the
twelve months ended December 1993. Accordingly, Golden West's results of
operations for the three months ended December 25, 1993 have been reflected in
the accompanying financial statements for both 1994 and 1993, and such results
of operations have been reflected as a reduction in the opening balance of
retained earnings for the year ended September 30, 1994 in the accompanying
statement of changes in shareholders' equity.
The consolidated financial statements include the accounts of Oakwood Homes
Corporation and its subsidiaries, including Destiny and Golden West
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated in consolidation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Retail financing
A substantial majority of the Company's retail customers purchase homes on
credit. The related loans are evidenced by either installment sale contracts or
mortgages originated by the Company's finance subsidiary, Oakwood Acceptance
Corporation, or, to a much lesser extent, by third party financial institutions.
The Company finances its lending activities primarily by securitizing the
loans it originates using Real Estate Mortgage Investment Conduits ("REMICs")
or, for certain FHA-insured loans, using collateralized mortgage obligations
issued under authority granted to the Company by the Government National
Mortgage Association ("GNMA"). Indebtedness of the Company secured by loans,
including REMIC securitizations completed prior to fiscal 1993 when the Company
adopted sales accounting for its REMICs, is reflected in the financial
statements as collateralized borrowings.
REMIC securitizations consummated in fiscal 1993 and thereafter and all
GNMA securitizations are treated as sales of receivables. The Company allocates
the sum of its basis in the loans conveyed to each REMIC and the costs of
forming the REMIC among the interests retained and the interests sold to
investors based upon the estimated relative fair values of such interests; costs
of marketing REMIC interests sold are charged to expense as incurred. The
aggregate gains on securitization transactions have not been material.
Effective October 1, 1994 the Company adopted Statement of Financial
Accounting Standards, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). REMIC residual interests retained by the Company
following securitization are considered held to maturity under the provisions of
FAS 115 and are carried at amortized cost; retained regular REMIC interests are
considered available for sale and are carried at their estimated fair values.
The Company has no securities held for trading purposes. Prior to adoption of
FAS 115, both regular and residual REMIC interests retained by the Company were
carried at amortized cost.
Loans held for investment are carried at their outstanding principal
amounts, less unamortized discounts and plus unamortized premiums. Loans held
for sale are carried at the lower of cost or market.
Revenue recognition--manufactured housing
The Company records a retail sale upon passage of title to the home to the
customer and, in the case of credit sales, upon execution of the loan agreement
and other required documentation and receipt of a designated minimum down
payment. Homes sold to independent dealers are manufactured to order; the
Company recognizes a sale upon completion and transfer of title to the home.
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in income at
the time the policies are written.
The Company receives an endorsement fee from certain unrelated financial
institutions in exchange for guaranteeing loans sold to such institutions.
Endorsement fees are recognized on the level yield method over the life of the
related loans; such fees relate principally to loans sold prior to 1990 when the
Company substantially ceased selling loans on a full recourse basis.
23
Revenue recognition--financial services
Interest income on loans is recognized in accordance with the terms of the loans
(principally 30 day accrual). The Company retains servicing rights for
substantially all loans it originates, except for loans sold without recourse.
Servicing fee income is recognized as earned. Income on retained REMIC residual
interests, net of associated credit losses, is recorded as earned using the
level yield method over the period such interests are outstanding.
The Company periodically purchases portfolios of loans. The Company adds to
the reserve for losses on credit sales an estimate of future credit losses on
such loans and includes such amount as a component of the purchase price of the
acquired portfolios. The difference between the aggregate purchase price of the
acquired portfolios and the aggregate principal balance of the loans included
therein, representing discount or premium on the loans, is amortized to income
over the life of the loans using the level yield method.
Interest rate risk management
The Company periodically enters into off-balance sheet financial agreements,
principally forward contracts to enter into interest rate swaps, in order to
hedge the sales price of REMIC interests to be sold in securitization
transactions. The net settlement proceeds or cost from termination of the
contracts is included in the determination of gain or loss on the sale of the
REMIC interests.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
using the specific identification method for new and used manufactured homes and
the first-in, first-out method for all other items.
Properties and facilities
Properties and facilities are carried at cost less accumulated depreciation and
amortization. The Company provides depreciation and amortization using
principally the straight-line method over the assets' estimated useful lives,
which are as follows:
Estimated
Classification useful lives
- ----------------------------------------------------------------
Land improvements 3-20 years
Buildings and field sales offices 8-50 years
Furniture, fixtures and equipment 2-10 years
Leasehold improvements 3-10 years
Manufactured housing communities 10-20 years
Income taxes
Effective October 1, 1993 Oakwood adopted prospectively the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which requires use of the asset and liability method to
account for deferred income taxes. Prior to 1994, Oakwood accounted for income
taxes using the deferred method. The excess of Oakwood's aggregate net deferred
income tax asset as of October 1, 1993, computed using the asset and liability
method, over the aggregate net deferred income tax asset as of September 30,
1993, computed using the deferred method, was approximately $214,000 ($.01 per
share) and has been reflected as a reduction in the provision for income taxes
for 1994. Golden West utilized the asset and liability method for all periods
presented. The Company's results of operations for 1993 would not have been
materially different had Oakwood adopted FAS 109 as of the beginning of that
year.
Reserve for losses on credit sales
The Company maintains reserves for estimated credit losses on loans held for
investment or sold to third parties with full or limited recourse. The Company
provides for losses on credit sales in amounts necessary to maintain the
reserves at amounts the Company believes are sufficient to provide for future
losses based upon the Company's historical loss experience, current economic
conditions and an assessment of current portfolio performance measures.
During fiscal 1995 the Company began presenting the effects of current and
anticipated future credit losses relating to retained REMIC residual interests
as an element of financial services income as opposed to including such effects
in the provision for credit losses. Amounts previously reported for 1994 have
been reclassified to conform to the basis of presentation adopted in 1995.
Unaudited pro forma information
Prior to its acquisition by the Company, Destiny was an S corporation, and
accordingly its earnings were includable in the income tax returns of its former
shareholders. As a consequence, Destiny's financial statements did not reflect a
provision for income taxes for periods prior to its acquisition by the Company.
The pro forma provision for income taxes and pro forma net income set forth in
the statement of income reflect the Company's provision for income taxes on a
pro forma basis assuming Destiny's results of operations had been included in
the Company's income tax returns for preacquisition periods. Deferred income
taxes relating to Destiny's assets and liabilities as of the acquisition date
were not material and have been charged to the provision for income taxes for
the year ended September 30, 1995.
24
The pro forma provision for income taxes and amounts derived therefrom are
unaudited.
Earnings per share
Primary earnings per share is computed by dividing pro forma net income by the
weighted average number of common and dilutive common equivalent shares
outstanding during the year. The weighted average number of shares used in the
computation of primary earnings per share was 22,999,000, 22,992,000 and
21,166,000 in 1995, 1994 and 1993, respectively. Fully diluted earnings per
share is computed by dividing pro forma net income, adjusted for interest
accruing on the convertible subordinated debentures, net of income taxes, by the
sum of the weighted average number of common and dilutive common equivalent
shares outstanding and the number of common shares into which the convertible
subordinated debentures could be converted during periods in which such
convertible securities were outstanding. During 1993 the Company called for
redemption of all the outstanding convertible subordinated debentures as
described in Note 13. The weighted average number of shares used in the
computation of fully diluted earnings per share was 23,056,000, 23,005,000 and
22,027,000 in 1995, 1994 and 1993, respectively. The dilutive effect of stock
options is computed using the treasury stock method.
Because the Company's historical results of operations do not reflect a
provision for income taxes on Destiny's earnings for preacquisition periods,
historical earnings per share amounts are not meaningful and accordingly have
been omitted.
Cash and cash equivalents
Short-term investments having initial maturities of three months or less are
considered cash equivalents.
Reclassifications
Certain amounts previously reported for 1994 and 1993 have been reclassified to
conform to classifications used in 1995.
NOTE 3--ACQUISITIONS
On June 30, 1995 Oakwood completed its business combination with Destiny.
Oakwood issued 925,000 shares of its common stock in exchange for all the
outstanding common stock of Destiny (an exchange ratio of approximately 9.25
Oakwood common shares for each outstanding Destiny common share).
On September 30, 1994 Oakwood completed its business combination with
Golden West. Oakwood issued 612,857 shares of its common stock in exchange for
all the outstanding common and convertible preferred stock of Golden West, and
substituted options to acquire 87,116 shares of Oakwood common stock for
previously granted options to acquire Golden West common stock (an exchange
ratio of approximately .23 of an Oakwood common share for each outstanding
Golden West common share and each right to acquire a Golden West common share).
These business combinations have been accounted for as poolings of
interests, and accordingly the accompanying financial statements reflect the
combined results of operations and financial position of Oakwood, Destiny and
Golden West for all periods presented, as more fully described in Note 1.
Summary results of operations for Oakwood (including Golden West) and
Destiny for periods prior to the Destiny acquisition are set forth below. Gross
profit recorded by Destiny on sales to Oakwood in preacquisition periods has
been eliminated with respect to homes in Oakwood's inventory as of the
combination date.
Nine months Year ended
ended June 30, September 30,
1995 (unaudited) 1994 1993
---------------------------------------
(in thousands)
Net sales
Oakwood $451,249 $506,187 $350,441
Destiny 71,471 88,940 71,662
------------------------------------
$522,720 $595,127 $422,103
====================================
Income before income taxes
Oakwood $ 45,691 $ 53,923 $ 40,031
Destiny 3,520 2,786 896
------------------------------------
$ 49,211 $ 56,709 $ 40,927
====================================
Pro forma net income
Oakwood $ 28,100 $ 33,914 $ 25,155
Destiny 2,215 1,741 560
------------------------------------
$ 30,315 $ 35,655 $ 25,715
====================================
Costs incurred by Oakwood and Destiny in completing the business
combination totalling approximately $150,000 (approximately $.01 per share,
after tax) have been charged to operations in 1995 and are included in selling,
general and administrative expenses.
Oakwood incurred approximately $500,000 of costs and expenses directly
related to completing the Golden West acquisition. In addition, Golden West
incurred approximately $800,000 of costs relating to completion of the
acquisition and relating to Golden West's planned initial public offering of
common stock, which was terminated in connection with the business combination
with Oakwood. The aggregate amount of these costs of approximately $1.3 million
($973,000 net of income taxes, or $.04 per share) has been charged to operations
in 1994 and is included in selling, general and administrative expenses.
25
NOTE 4--FINANCIAL SERVICES BUSINESSES
The Company's financial services businesses include Oakwood Acceptance
Corporation ("Oakwood Acceptance"), which purchases a substantial portion of the
loans originated by the Company's retail operations and from time to time
purchases portfolios of loans from third parties. Oakwood Acceptance retains
servicing on substantially all loans held for investment or securitized by
Oakwood Acceptance or its subsidiary, Oakwood Mortgage Investors, Inc. Oakwood
Funding Corporation ("Oakwood Funding") is a special-purpose subsidiary of
Oakwood Acceptance which has issued non-recourse notes secured by specific pools
of loans. Oakwood Acceptance has from time to time also issued notes in its own
name secured by loans. Oakwood Financial Corporation ("Oakwood Financial") is a
subsidiary of Oakwood Homes Corporation which holds the Company's retained
interests in REMIC trusts. Oakwood Life Ltd. ("OLL") reinsures risk on credit
life insurance policies written by an unrelated insurance company in connection
with sales of Company products.
The aggregate principal balance of loans sold to third parties, including
securitization transactions in which the Company retained an interest, was
approximately $368 million in 1995, $380 million in 1994 and $92 million in
1993.
Oakwood Acceptance's servicing portfolio totalled approximately $1.2
billion and $843 million at September 30, 1995 and 1994, respectively, of which
approximately $787 million and $509 million, respectively, represented loans
owned by REMIC trusts treated as sales of receivables and other loans sold to
third parties.
Condensed financial information for the Company's financial services
businesses is set forth below:
1995 1994 1993
-------------------------------
(in thousands)
Statement of income
Revenues
Interest income $38,185 $44,162 $42,307
Servicing fees 12,202 7,091 4,913
REMIC residual income 7,212 3,167 754
Credit life insurance premiums 2,263 1,748 1,172
Gain on sale of securities 776 20 354
Other 1,357 583 551
-------------------------------
Total revenues 61,995 56,771 50,051
-------------------------------
Costs and expenses
Interest expense 31,142 32,066 30,541
Other operating expenses 12,799 8,127 6,748
Provision for losses
on credit sales 2,109 5,485 6,945
-------------------------------
Total costs and expenses 46,050 45,678 44,234
-------------------------------
Income before intercompany
interest elimination
and income taxes 15,945 11,093 5,817
Add: intercompany interest expense 8,504 8,806 5,487
-------------------------------
Income before income taxes $24,449 $19,899 $11,304
===============================
1995 1994
-----------------------
(in thousands)
Balance sheet
Loans $405,166 $324,472
REMIC regular interests 28,133 22,811
REMIC residual interests 20,599 6,628
Other assets 23,364 21,596
-----------------------
Total assets $477,262 $375,507
=======================
Short-term borrowings $124,400 $ 15,000
Notes payable secured by loans 127,650 155,709
Unearned insurance premiums 3,510 2,107
Due to affiliates 129,155 155,530
Reserve for contingent liabilities 3,184 3,827
Other liabilities 2,854 1,330
Parent company's investment 86,509 42,004
-----------------------
Total liabilities and parent
company's investment $477,262 $375,507
=======================
Condensed financial information for Oakwood Homes Corporation with its
financial services businesses accounted for using the equity method is as
follows:
1995 1994 1993
----------------------------------
(in thousands)
Statement of income
Revenues
Net sales $741,521 $595,127 $422,103
Equity in income of financial
services businesses 24,449 19,899 11,304
Other income 18,331 12,955 11,773
----------------------------------
Total revenues 784,301 627,981 445,180
----------------------------------
Costs and expenses
Cost of sales 543,320 441,364 316,974
Selling, general and
administrative expenses 165,725 128,759 85,573
Interest expense 2,259 1,149 1,706
----------------------------------
Total costs and expenses 711,304 571,272 404,253
----------------------------------
Income before income taxes 72,997 56,709 40,927
Pro forma provision
for income taxes 27,679 21,054 15,212
----------------------------------
Pro forma net income $ 45,318 $ 35,655 $ 25,715
==================================
26
1995 1994
---------------------
(in thousands)
Balance sheet
Current assets
Cash and cash equivalents $ 4,974 $ 14,234
Receivables 17,848 13,677
Inventories 151,190 98,688
Prepaid expenses 2,649 2,333
---------------------
Total current assets 176,661 128,932
Properties and facilities 100,108 66,185
Investment in and advances to
financial services businesses 215,664 197,534
Other assets 28,609 19,393
---------------------
$521,042 $412,044
=====================
Current liabilities
Short-term borrowings $ 30,000 $ 10,000
Current maturities of long-term debt 6,731 814
Accounts payable and accrued liabilities 84,551 66,573
---------------------
Total current liabilities 121,282 77,387
Long-term debt 64,431 51,467
Other long-term obligations 16,921 6,860
Shareholders' equity 318,408 276,330
---------------------
$521,042 $412,044
=====================
NOTE 5--OTHER INCOME
The components of other income are as follows:
1995 1994 1993
-----------------------------------
(in thousands)
Insurance commissions $10,198 $ 7,012 $ 4,618
Endorsement fees 1,151 1,172 1,482
Investment income 1,047 1,114 1,000
Gain on sale of manufactured
housing communities -- -- 1,636
Other 5,500 3,414 2,846
-----------------------------------
$17,896 $12,712 $11,582
===================================
Note 6--Receivables and Investments
The components of receivables and investments are as follows:
1995 1994
----------------------
(in thousands)
Loans held for sale $244,593 $136,615
Loans held for investment 173,545 198,396
Trade receivables 8,025 7,480
Accrued interest 3,521 3,472
Other receivables 11,070 7,672
Less: reserve for uncollectible receivables (8,611) (10,796)
----------------------
Total receivables 432,143 342,839
Retained interests in REMIC
securitizations treated as sales
of receivables
Regular interests, at amortized cost
which approximates fair value 28,133 22,811
Residual interests, at amortized cost 20,599 6,628
----------------------
Total retained REMIC interests 48,732 29,439
----------------------
$480,875 $372,278
======================
The estimated principal receipts, including estimated prepayments, on loans
held for investment are $26.4 million in 1996, $24.7 million in 1997, $23.0
million in 1998, $21.6 million in 1999 and $20.3 million in 2000.
Loans in which the Company retains an interest, either directly by owning
them or indirectly through the Company's retained interests in REMIC
securitizations, are located in over forty states, with North Carolina, South
Carolina, Virginia and Texas accounting for the majority of the loans. Because
of the nature of the Company's retail business, loans are not concentrated with
any single customer or among any group of customers. Trade receivables represent
amounts due from Golden West and Destiny independent dealers, which are located
principally in the Pacific Northwest and in the Southeast.
Substantially all the loans included in the Company's GNMA securitizations
are covered by FHA insurance which generally limits the Company's risk to 10% of
credit losses incurred on such loans. The Company's risk associated with
nonrecourse debt secured by loans is limited to the Company's equity in the
underlying collateral. The Company retains all of the credit risk associated
with loans used to secure debt issued by the Company and with respect to which
creditors have recourse to the general credit of the Company in addition to the
collateral for the indebtedness. The Company's contingent liability as guarantor
of loans sold to third parties on a recourse basis was approximately $95 million
as of September 30, 1995.
27
The following table summarizes the transactions reflected in the reserve for
losses on credit sales:
1995 1994 1993
-----------------------------------
(in thousands)
Balance at beginning of year $14,623 $12,477 $ 7,360
Provision for losses 2,109 5,485 6,945
Reserve recorded related to
acquired portfolios -- 1,000 1,500
Losses charged to the reserve (4,937) (4,339) (3,328)
-----------------------------------
Balance at end of year $11,795 $14,623 $12,477
===================================
The reserve for losses on credit sales is reflected in the balance sheet as
follows:
1995 1994
---------------------
(in thousands)
Reserve for uncollectible receivables $ 8,611 $10,796
Reserve for contingent liabilities 3,184 3,827
---------------------
$11,795 $14,623
=====================
The Company also retains credit risk on REMIC securitizations because the
related trust agreements provide that all losses incurred on REMIC loans are
charged to REMIC interests retained by the Company before any losses are charged
to REMIC interests sold to third party investors; such credit risk is considered
in determining the carrying value of the investments and the Company's yield
thereon.
The Company has retained servicing on substantially all loans it has
originated since 1989 with respect to which the Company has retained any credit
risk.
Golden West and Destiny are 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. Although Golden West and Destiny are
contingently liable under these agreements, the risk of loss is spread over
numerous retailers and financing institutions and is further reduced by the
resale value of repurchased homes. The estimated potential obligations under
such agreements approximated $52 million at September 30, 1995. Losses under
these agreements have not been significant.
NOTE 7--INCOME TAXES
The components of the provision for income taxes are as follows:
1995 1994 1993
-----------------------------------
(in thousands)
Current
Federal $30,524 $23,404 $17,410
State 2,910 2,018 1,480
-----------------------------------
33,434 25,422 18,890
-----------------------------------
Deferred
Federal (6,449) (5,078) (3,517)
State (611) (335) (497)
-----------------------------------
(7,060) (5,413) (4,014)
-----------------------------------
Historical provision
for income taxes 26,374 20,009 14,876
Pro forma provision for income
taxes on Destiny's earnings
for preacquisition periods 1,305 1,045 336
-----------------------------------
Pro forma provision for
income taxes $27,679 $21,054 $15,212
===================================
A reconciliation of the statutory federal income tax rate to the Company's
historical and pro forma effective income tax rates follows:
1995 1994 1993
-----------------------------
Statutory federal income tax rate 35% 35% 35%
State income taxes, less federal
income tax benefit 2 2 2
Reduction in valuation allowance
for deferred income tax assets (1) -- --
Other 2 -- --
-----------------------------
Pro forma effective income tax rate 38 37 37
Effect of Destiny's preacquisition
earnings includable in the
income tax returns of its
former shareholders (2) (2) --
-----------------------------
Historical effective income tax rate 36% 35% 37%
=============================
28
Deferred income taxes includes the following components:
1995 1994
---------------------
(in thousands)
Deferred income tax assets
Reserve for losses on credit sales $ 3,861 $ 5,364
REMIC residual interests 4,426 800
Accrued liabilities 7,470 3,341
Net operating loss carryforward 1,829 2,100
Inventories 867 413
Alternative minimum tax
credit carryforward 144 341
Other 777 622
---------------------
Gross deferred income tax assets 19,374 12,981
---------------------
Deferred income tax liabilities
Properties and facilities (2,344) (2,001)
Deferred installment sale income -- (475)
Discounts on acquired portfolios (424) (426)
Other (1,060) (576)
---------------------
Gross deferred income tax liabilities (3,828) (3,478)
---------------------
Valuation allowance for deferred
income tax assets -- (2,100)
---------------------
Net deferred income tax asset $15,546 $ 7,403
=====================
During 1995 the Company recognized an income tax benefit of approximately
$2.1 million relating to net operating loss carryforwards, of which
approximately $1,083,000 was applied to reduce to zero the excess of cost over
fair value of net assets acquired and $1,017,000 was credited to the provision
for income taxes. At September 30, 1995 the remaining net operating loss
carryforward is approximately $5,425,000 for federal income tax purposes.
Utilization of such carryforward is dependent upon the realization of taxable
income by Golden West, and such utilization is limited to a maximum of
approximately $775,000 annually through 2002.
Income tax payments were approximately $27.4 million, $24.8 million and
$13.8 million in 1995, 1994 and 1993, respectively.
NOTE 8--INVENTORIES
The components of inventories are as follows:
1995 1994
----------------------
(in thousands)
Manufactured homes $136,457 $84,218
Work-in-progress, materials and supplies 12,691 12,936
Land/homes under development 2,042 1,534
----------------------
$151,190 $98,688
======================
NOTE 9--PROPERTIES AND FACILITIES
The components of properties and facilities are as follows:
1995 1994
----------------------
(in thousands)
Land and land improvements $ 16,013 $ 14,500
Buildings and field sales offices 48,255 35,484
Furniture, fixtures and equipment 45,948 29,467
Leasehold improvements 6,185 4,335
Manufactured housing communities 16,735 8,920
----------------------
133,136 92,706
Less: accumulated depreciation
and amortization (31,378) (25,481)
----------------------
$101,758 $ 67,225
======================
Depreciation and amortization of properties and facilities was
approximately $7,337,000, $4,741,000 and $4,116,000 in 1995, 1994 and 1993,
respectively.
NOTE 10--SHORT-TERM CREDIT FACILITIES
The Company has a $130 million line of credit facility with a group of
commercial banks secured by loans held for sale, with interest payable at either
LIBOR plus 1% or prime. The Company has a $75 million line of credit with a
commercial bank secured by manufactured housing inventory with interest payable
at either LIBOR plus 1% or prime.
29
NOTE 11--NOTES AND BONDS PAYABLE
The components of notes and bonds payable are as follows:
1995 1994
---------------------------
(in thousands)
Non-financial services debt
9% reset debentures due 2007 $ 22,953 $ 23,000
9.125% reset debentures due 2007 16,975 17,000
Term loan payable in quarterly installments through 1998, with interest at LIBOR plus 1.5% 12,000 --
Capitalized aircraft lease payable in monthly installments through
2000, with interest at LIBOR plus .75% 6,292 --
Industrial revenue bonds due in annual installments through 2011, with interest at a variable rate
(4.55% and 4.2% at September 30, 1995 and September 30, 1994, respectively) 4,900 5,100
Industrial revenue bond due in installments through 2001, with
interest at 73% of the lender's prime rate 2,350 2,450
Other mortgage notes at interest rates ranging from
8% to 9%, payable in varying installments through 2006 2,784 3,354
ESOP note payable in quarterly installments through 2000, with interest at LIBOR plus 1.25% 2,160 --
Note payable in monthly installments through November 1998, with interest
at LIBOR plus 1.50% (prime plus .75% prior to 1995) 748 977
Other -- 400
---------------------------
Total non-financial services debt 71,162 52,281
---------------------------
Financial services debt collateralized by loans
Nonrecourse debt
Notes issued by Oakwood Funding Corporation, payable in monthly installments
through May 2001, with interest at an average rate of 8.89%
(8.99% at September 30, 1994) 39,130 54,784
REMIC Trust 1990 subordinated certificates payable in monthly
installments through September 2001, with interest at 10.1% 12,854 15,123
REMIC Trust 1992-1 certificates payable in monthly installments
through April 2001 with interest at 8.86% 12,482 15,676
REMIC Trust 1991-1 certificates payable in monthly installments
through September 1999 with interest at 9.5% 7,453 10,313
Subordinated note payable with interest payable monthly
at 12.58%, amortizing in 1998 through 2001 8,350 8,350
REMIC Trust 1988-1 certificates payable through 1995 with interest at 10.1% -- 1,446
---------------------------
Total nonrecourse debt 80,269 105,692
---------------------------
Recourse debt
Term loans payable in monthly installments through December 2000, with
interest at rates ranging from LIBOR plus 1.375% to prime plus .5%
(LIBOR plus 2% to prime plus .5% at September 30, 1994) 29,799 28,223
Subordinated note with interest payable monthly at 10.51%, amortizing in 2001 through 2004 12,954 12,954
Notes payable in quarterly installments through December 1998, with interest at 10.25% 4,628 8,840
---------------------------
Total recourse debt 47,381 50,017
---------------------------
Total financial services debt 127,650 155,709
---------------------------
$198,812 $207,990
===========================
30
The interest rates on the reset debentures will reset on June 1, 1997 and
June 1, 2002 to a rate to be determined by the Company in its sole discretion.
The reset debentures are redeemable at par at the option of the holders thereof
upon the occurrence of certain events, the most significant of which, generally,
involve a substantial recapitalization of the Company, merger or consolidation
of the Company, or acquisition of more than 30% of the beneficial ownership in
the Company by any person. In addition, the holders of the reset debentures may
call for their redemption as of either interest reset date. The reset debentures
are callable at the option of the Company at 101% of par and at par beginning
June 1, 1996.
The payment of notes collateralized by loans and REMIC certificates
generally is based on the scheduled monthly payment and actual prepayments of
principal on the loans collateralizing the notes or held by the REMIC trusts.
Under the provisions of certain note agreements and the trust indentures of each
REMIC trust, the notes and REMIC certificates are secured solely by the
underlying collateral, which consists principally of the loans collateralizing
the debt or held by the REMIC trusts. Such collateral had an aggregate carrying
value of approximately $174 million at September 30, 1995.
In connection with the issuance of certain indebtedness, the Company
incurred certain costs and discounts which are being amortized over the life of
the related obligations using the level yield method. The unamortized portion of
these costs, which is included in other assets, was approximately $2,881,000 and
$4,014,000 at September 30, 1995 and 1994, respectively. Land, land
improvements, buildings and equipment with a net book value of approximately $26
million are pledged as collateral for the $12 million term loan, the mortgage
notes and the industrial revenue bonds. The $4.9 million industrial revenue bond
is also secured by a letter of credit provided by a major bank through 1996.
The estimated principal payments under notes and bonds payable are $37
million in 1996, $34 million in 1997, $28 million in 1998, $20 million in 1999,
$15 million in 2000 and the balance thereafter. Interest paid by the Company was
approximately $24.3 million in 1995, $23.9 million in 1994 and $26.5 million in
1993.
Various of the Company's debt agreements and loan servicing agreements
contain covenants which, among other things, require the Company and/or Oakwood
Acceptance to maintain certain minimum financial ratios. The Company and Oakwood
Acceptance were in compliance with all such covenants at September 30, 1995.
NOTE 12--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows:
1995 1994
----------------------
(in thousands)
Accounts payable $47,705 $36,195
Accrued compensation 17,778 12,980
Accrued dealer volume bonus 3,792 4,260
Income taxes payable 7,607 2,608
Other accrued liabilities 10,523 12,241
----------------------
$87,405 $68,284
======================
NOTE 13--SHAREHOLDERS' EQUITY
The Company has adopted a Shareholder Protection Rights Plan (the "Plan") to
protect shareholders against unsolicited attempts to acquire control of the
Company that do not offer what the Company believes to be an adequate price to
all shareholders. Under the Plan each outstanding share of the Company's common
stock has associated with it a right to purchase (each, a "Right" and,
collectively, the "Rights"), upon the occurrence of certain events, one
two-hundredth of a share of junior participating Class A preferred stock
("Preferred Stock") at an exercise price of $40. The Rights will become
exercisable only if a person or group (an "Acquiring Person"), without the
Company's consent, commences a tender or exchange offer for, or acquires 20% or
more of the voting power of, the Company.
In such event, each holder of Preferred Stock, other than the Acquiring
Person, will be entitled to acquire that number of shares of the Company's
common stock having a market value of twice the exercise price. Similarly, if,
without the Company's consent, the Company is acquired in a merger or other
business combination transaction, each holder of Preferred Stock, other than the
Acquiring Person, will be entitled to acquire voting shares of the acquiring
company having a value of twice the exercise price. The Rights may be redeemed
at a price of $.01 per Right by the Company at any time prior to any person or
group acquiring 20% or more of the Company's voting power or certain other
triggering events, and will expire on August 22, 2001.
The Company's authorized capital stock includes 500,000 shares of $100 par
value preferred stock. The preferred stock may be issued in one or more series
with such terms, preferences, limitations and relative rights as the Board of
Directors shall determine. No Oakwood preferred stock has been issued.
31
In November 1993 Golden West redeemed for $1,150,000 cash its previously
outstanding Series B preferred stock. The excess of the stated value of the
Series B preferred stock over the redemption price has been reflected as
additional paid-in capital in the accompanying financial statements.
In fiscal 1993 the Company called for redemption two classes of convertible
debentures. Of the outstanding principal balance at the redemption date,
approximately $44.9 million was converted into 3,827,410 common shares and $.4
million was redeemed for cash. Primary earnings per share, computed assuming the
convertible debentures had been converted into common stock as of the beginning
of 1993, would have been $1.18 per share.
NOTE 14--STOCK OPTION AND AWARD PLANS
The Company has adopted the 1990 Long-Term Performance Plan under which
1,687,500 shares of the Company's common stock have been reserved for issuance
to key employees. Awards or grants under the plan may be made in the form of
incentive and nonqualified stock options, stock appreciation rights, restricted
stock and restricted unit grants, and performance equity and performance unit
grants.
The Company also has adopted the 1990 Director Stock Option Plan under
which 112,500 shares of the Company's common stock have been reserved for grant
to non-employee directors of the Company. The exercise price of options granted
is the fair market value of the Company's common stock on the date of grant.
Options granted under the plan become exercisable six months from the date of
grant and expire 10 years from the date of grant.
The Company has a 1985 Nonqualified Stock Option Plan under which 585,937
shares of the Company's common stock were reserved for issuance to key
employees. The plan authorizes two types of options--Book Value Stock Options
and Fair Market Value Stock Options. The exercise price of Book Value Stock
Options is the undiluted book value per common share as of the most recent
quarter end prior to the date of exercise. Fair Market Value Stock Options may
be granted with an exercise price of not less than 100% of the fair market value
of the Company's common stock on the date of grant. When exercising a Book Value
Stock Option, an employee is entitled to receive a loan from the Company for the
exercise amount plus, at the discretion of the Board of Directors, an amount
equal to any taxes payable by such employees as a result of such exercise.
Compensation expense under these plans was approximately $2,017,000,
$619,000 and $1,086,000 in 1995, 1994 and 1993, respectively.
The following table summarizes the changes in the number of shares under
option pursuant to the plans described above and pursuant to certain earlier
plans under which options may no longer be granted:
Number Per share
of shares option price
----------------------------
Outstanding at September 30, 1992 1,960,520 $3.24-$13.63
Granted 109,034 9.38-25.50
Exercised (431,526) 3.47-11.94
Terminated (61,202) 8.76-9.38
---------
Outstanding at September 30, 1993 1,576,826 3.24-25.50
Granted 216,000 23.07-29.44
Exercised (144,378) 3.47-22.19
Terminated (14,500) 22.19-23.50
---------
Outstanding at September 30, 1994 1,633,948 3.24-29.44
Granted 176,000 21.44-27.56
Exercised (164,549) 3.47-29.44
Terminated (26,012) 6.66-27.13
---------
Outstanding at September 30, 1995 1,619,387 3.24-29.44
=========
Exercisable at September 30, 1995 717,372 3.24-29.44
=========
Shares reserved for future grant
September 30, 1994 673,154
September 30, 1995 514,154
NOTE 15--EMPLOYEE BENEFIT PLANS
The Company maintains profit-sharing, employee stock ownership ("ESOP") and
401(k) plans in which substantially all employees who have met certain age and
service requirements may participate. Contributions to the profit-sharing plan
and ESOP are determined at the discretion of the Board of Directors; employees
contributions to these plans are not permitted. Employee contributions to the
401(k) plan are limited to a percentage of their compensation and are matched by
the Company on a sliding scale subject to certain limitations. Compensation cost
under the profit-sharing and 401(k) plans was approximately $837,000, $806,000
and $588,000 in 1995, 1994 and 1993, respectively.
During 1995 the Company loaned approximately $2,398,000 million to the ESOP
to enable the ESOP to purchase Company common stock on the open market. The ESOP
refinanced the Company's loan with the proceeds of a loan from a commercial bank
which the Company has guaranteed; the Company has reflected the note payable as
a liability in the accompanying balance sheet. The bank loan provides that
shares are released ratably upon repayment of the principal of the loan.
Compensation cost relating to shares acquired with the proceeds of the loan is
measured by reference to the fair value of the shares committed to be released
32
during the period, in accordance with Statement of Position 93-6. Compensation
cost relating to shares acquired under similar arrangements prior to fiscal 1995
was measured using the shares allocated method; all of such shares were
committed to being released on or before September 30, 1994. Total compensation
cost under the plan was approximately $1,067,000, $1,471,000 and $440,000 in
1995, 1994 and 1993, respectively.
At September 30, 1995 the ESOP held a total of 254,681 shares of the
Company's common stock having a fair value of approximately $9 million. Of the
total number of shares, 10,057 shares have been committed to be released, 91,443
shares are held in suspense and the balance, representing shares acquired using
cash contributed to the ESOP in excess of its debt service requirements and
shares acquired in prior years, have been allocated to plan participants.
NOTE 16--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is a party to on- and off-balance sheet financial instruments as a
result of its financing and funding activities. On-balance sheet financial
assets include loans originated in conjunction with retail home sales, loans
purchased from third parties, trade receivables arising from sales of homes to
independent dealers and other receivables. The Company has estimated the fair
value of consumer loans receivable by discounting the estimated future cash
flows relating thereto using interest rates which approximate the interest rates
charged by Oakwood Acceptance as of year end for loans of similar character and
duration. Due to their short-term nature, the fair values of trade and other
receivables approximates their carrying values.
The Company estimates the fair value of retained regular and residual
interests in REMIC securitizations treated as sales of receivables based upon
default, prepayment and interest rate assumptions which management believes
market participants would use for similar instruments. However, there exists no
active market for manufactured housing residual REMIC interests or uniformly
accepted valuation methodologies. Based on current estimates, management
believes that the fair value of the Company's retained REMIC interests
approximates their carrying values.
On-balance sheet financial obligations consist of amounts outstanding under
the Company's short-term credit facilities and notes and bonds payable. The
Company estimates the fair values of debt obligations using rates currently
offered to the Company for borrowings having similar character, collateral and
duration or, in the case of the Company's outstanding reset debentures, by
reference to quoted market prices.
There were no outstanding forward interest rate agreements in place at
September 30, 1995 and the amount of such agreements in place at September 30,
1994 was not material.
The following table sets forth the carrying amounts and estimated fair
values of the Company's on-balance sheet financial instruments at September 30,
1995 and 1994.
1995 1994
--------------------------------------------
Estimated Carrying Estimated Carrying
fair value amount fair value amount
--------------------------------------------
(in thousands)
Assets
Cash and cash equivalents $ 6,189 $ 6,189 $ 16,974 $ 16,974
Receivables and investments
Loans held for sale 246,372 244,593 136,615 136,615
Loans held for investment
Fixed rate loans 173,135 160,732 194,682 183,784
Variable rate loans 12,813 12,813 14,612 14,612
Trade receivables 8,025 8,025 7,480 7,480
Other receivables 14,591 14,591 11,144 11,144
Less: reserve for
uncollectible receivables -- (8,611) -- (10,796)
Retained REMIC
regular interests 28,133 28,133 22,811 22,811
Retained REMIC
residual interests 20,599 20,599 6,628 6,628
Liabilities
Short-term borrowings 154,400 154,400 25,000 25,000
Notes and bonds payable
Fixed rate obligations 144,389 139,641 173,072 172,057
Variable rate obligations 59,171 59,171 35,933 35,933
33
NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED)
The accompanying financial statements for 1994 and 1993 have been retroactively
restated to include the financial position and results of operations of Destiny
for all periods presented, as described in Notes 1 and 3. A summary of certain
quarterly financial information (which, for 1994 and the first two quarters of
1995, differs from that previously reported due to the pooling of interests
accounting method applied to the Destiny acquisition) follows:
First Second Third Fourth
quarter quarter quarter quarter Year
------------------------------------------------------------------
(in thousands, except per share data)
1995
Net sales
Oakwood and Golden West $127,443 $143,925 $179,881 $198,138 $649,387
Destiny 22,046 25,066 24,359 20,663 92,134
------------------------------------------------------------------
Combined $149,489 $168,991 $204,240 $218,801 $741,521
==================================================================
Gross profit
Oakwood and Golden West $ 34,203 $ 40,214 $ 51,504 $ 57,882 $183,803
Destiny 3,262 3,648 3,844 3,644 14,398
------------------------------------------------------------------
Combined $ 37,465 $ 43,862 $ 55,348 $ 61,526 $198,201
==================================================================
Net income
Oakwood and Golden West $ 7,648 $ 9,116 $ 11,336 $ 14,612 $ 42,712
Destiny 811 1,254 1,455 391 3,911
------------------------------------------------------------------
Combined $ 8,459 $ 10,370 $ 12,791 $ 15,003 $ 46,623
==================================================================
Pro forma net income
Oakwood and Golden West $ 7,648 $ 9,116 $ 11,336 $ 14,612 $ 42,712
Destiny 564 746 905 391 2,606
------------------------------------------------------------------
Combined $ 8,212 $ 9,862 $ 12,241 $ 15,003 $ 45,318
==================================================================
Pro forma earnings per share
Primary
Oakwood and Golden West $ .35 $ .41 $ .52 $ .64 $ 1.92
Effect of Destiny .01 .02 .01 .01 .05
------------------------------------------------------------------
As adjusted $ .36 $ .43 $ .53 $ .65 $ 1.97
==================================================================
Fully diluted
Oakwood and Golden West $ .35 $ .41 $ .52 $ .64 $ 1.92
Effect of Destiny .01 .02 .01 .01 .05
------------------------------------------------------------------
As adjusted $ .36 $ .43 $ .53 $ .65 $ 1.97
==================================================================
1994
Net sales
Oakwood and Golden West $ 96,316 $111,677 $145,596 $152,598 $506,187
Destiny 19,379 23,520 23,144 22,897 88,940
------------------------------------------------------------------
Combined $115,695 $135,197 $168,740 $175,495 $595,127
==================================================================
Gross profit
Oakwood and Golden West $ 26,899 $ 30,649 $ 40,958 $ 43,265 $141,771
Destiny 2,409 3,116 3,251 3,216 11,992
------------------------------------------------------------------
Combined $ 29,308 $ 33,765 $ 44,209 $ 46,481 $153,763
==================================================================
Net income
Oakwood and Golden West $ 6,634 $ 7,460 $ 10,001 $ 9,819 $ 33,914
Destiny 507 749 868 662 2,786
------------------------------------------------------------------
Combined $ 7,141 $ 8,209 $ 10,869 $ 10,481 $ 36,700
==================================================================
Pro forma net income
Oakwood and Golden West $ 6,634 $ 7,460 $ 10,001 $ 9,819 $ 33,914
Destiny 317 443 542 439 1,741
------------------------------------------------------------------
Combined $ 6,951 $ 7,903 $ 10,543 $ 10,258 $ 35,655
==================================================================
Pro forma earnings per share
Primary
Oakwood and Golden West $ .30 $ .34 $ .45 $ .45 $ 1.54
Effect of Destiny -- -- .01 -- .01
------------------------------------------------------------------
As adjusted $ .30 $ .34 $ .46 $ .45 $ 1.55
==================================================================
Fully diluted
Oakwood and Golden West $ .30 $ .34 $ .45 $ .45 $ 1.54
Effect of Destiny -- -- .01 -- .01
------------------------------------------------------------------
As adjusted $ .30 $ .34 $ .46 $ .45 $ 1.55
==================================================================
34
NOTE 18--BUSINESS SEGMENT INFORMATION
The Company operates in two principal business. The manufactured housing segment
includes the Company's retail and manufacturing operations. The Company's retail
business purchases homes primarily from the Company's manufacturing operations
but supplements these purchases in certain markets with purchases from third
party manufacturers. The Company's manufacturing operations sell the majority of
its homes to the Company's retail operations, with a lesser portion distributed
through independent dealers. The manufactured housing segment also includes the
Company's communities development arm, which is engaged in developing both
rental communities and manufactured housing subdivisions. Prior to fiscal 1995,
the communities development operations were reported as a separate business
segment. These operations have been combined with the manufactured housing
segment in 1995 (with prior years' information similarly reclassified) because
these operations have been redirected principally to a retail support role and
are not significant to the Company's consolidated financial position and results
of operations.
The financial services segment provides retail financing to customers of
the manufactured housing segment as well as to customers of independent retail
dealers. This segment both originates and services loans, and securitizes the
loans in the public and private markets as a source of capital. The segment also
reinsures credit life insurance risk on policies sold to retail customers.
Segment operating income is income before general corporate expenses,
non-financial interest expense, investment income and income taxes. Identifiable
assets include those assets directly related to the Company's operations in the
different segments; general corporate assets consist principally of cash,
certain property and other investments.
1995 1994 1993
----------------------------------
(in thousands)
Revenues
Manufactured housing(1) $758,370 $606,725 $432,685
Financial services 61,995 56,771 50,051
Investment income 1,047 1,114 1,000
----------------------------------
$821,412 $664,610 $483,736
==================================
Operating income
Manufactured housing(1)(2) $ 60,806 $ 48,812 $ 35,235
Financial services 24,449 19,899 11,304
----------------------------------
Combined 85,255 68,711 46,539
Non-financial interest expense (2,259) (1,149) (1,706)
Investment income 1,047 1,114 1,000
General corporate expenses(3) (11,046) (11,967) (4,906)
----------------------------------
Income before income taxes $ 72,997 $ 56,709 $ 40,927
==================================
Identifiable assets
Manufactured housing $286,147 $197,738 $138,065
Financial services 477,262 375,507 437,617
General corporate 19,231 17,152 21,268
----------------------------------
$782,640 $590,397 $596,950
==================================
Depreciation and amortization
Manufactured housing $ 5,683 $ 3,782 $ 3,841
Financial services 765 784 818
General corporate 1,830 960 410
----------------------------------
$ 8,278 $ 5,526 $ 5,069
==================================
Capital expenditures
Manufactured housing $ 25,276 $ 23,911 $ 11,038
Financial services 956 511 680
General corporate 15,638 3,803 2,351
----------------------------------
$ 41,870 $ 28,225 $ 14,069
==================================
(1) Includes a gain of approximately $1.6 million in 1993 from the sale of
manufactured housing communities
(2) Includes one-time charges of approximately $663,000 in 1995 relating to the
sale of a manufactured housing facility
(3) Includes one-time charges of approximately $537,000 in 1995 relating to
downsizing corporate overhead staff at Golden West and $150,000 for costs
associated with the Destiny acquisition; includes one-time charges of
approximately $1.3 million in 1994 for costs relating to the Golden West
acquisition
35
- -------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------
Price Waterhouse LLP [LOGO]
To the Board of Directors and Shareholders of
Oakwood Homes Corporation
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of cash flows and of changes in shareholders' equity present fairly,
in all material respects, the financial position of Oakwood Homes Corporation
and its subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Golden West Homes, a
wholly-owned subsidiary, which statements reflect total revenues of $89,564,000
for the year ended December 25, 1993 (see Note 1). We also did not audit the
financial statements of Destiny Industries, Inc., a wholly-owned subsidiary,
which statements reflect total assets of $15,210,000 at October 1, 1994 and
total revenues of $89,080,000 and $71,766,000 for the years ended October 1,
1994 and October 2, 1993, respectively (see Note 1). Those statements were
audited by other auditors, whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
Golden West Homes and for Destiny Industries, Inc., is based solely on the
reports of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Winston-Salem, North Carolina
October 31, 1995
- -----------------------
COMMON STOCK PRICES
- -----------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter High Low High Low High Low High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------------
First 26 5/8 20 3/4 28 5/8 22 5/8 21 3/8 13 11 7 5/8 6 4 1/8
Second 27 21 3/4 29 3/4 20 3/8 23 1/2 17 1/2 16 1/2 10 1/8 9 5/8 5 3/4
Third 27 1/8 23 1/4 23 3/4 19 1/4 21 1/4 17 1/4 15 3/4 10 1/8 10 1/8 6 3/4
Fourth 36 3/8 25 7/8 29 1/8 22 3/8 26 1/8 20 3/4 15 10 1/2 9 3/8 6 7/8
- ------------------------
DIVIDEND INFORMATION
- ------------------------
The Company declared a cash dividend of $.02 per common share during each of the
eight quarters in the period ended September 30, 1995.
36
SHAREHOLDER INFORMATION GUIDE
DIRECTORS
Ralph L. Darling
Elected 1971
Chairman
Nicholas J. St. George
Elected 1972
President and
Chief Executive Officer
A. Steven Michael
Elected 1992
Executive Vice President and
Chief Operating Officer
C. Michael Kilbourne
Elected 1995
Executive Vice President and
Chief Financial Officer
Robert D. Harvey, Sr.
Elected 1984
Vice President Administration
Clarence W. Walker*
Elected 1971
Partner, Kennedy Covington
Lobdell & Hickman, L.L.P.
Attorneys at Law
Kermit G. Phillips, II*
Elected 1979
Chairman, Phillips Management
Group, Inc. (Real Estate
Development and Management)
Dennis I. Meyer+
Elected 1983
Partner, Baker & McKenzie,
Attorneys at Law
H. Michael Weaver+*
Elected 1991
Chairman, W. H. Weaver
Construction Company (Real
Estate Development and
Management)
Sabin C. Streeter+
Elected 1993
Managing Director,
Donaldson, Lufkin & Jenrette
Securities Corporation
Francis T. Vincent, Jr.+
Elected 1993
Private Investor
* Member of the Audit Committee
+ Member of the Compensation Committee
EXECUTIVE OFFICERS
Ralph L. Darling
Chairman
Nicholas J. St. George
President and
Chief Executive Officer
A. Steven Michael
Executive Vice President and
Chief Operating Officer
C. Michael Kilbourne
Executive Vice President and
Chief Financial Officer
Douglas R. Muir
Senior Vice President,
Secretary and Treasurer
Jeffrey D. Mick
Senior Vice President
and Controller
Myles E. Standish
Senior Vice President and
General Counsel
J. Michael Stidham
Executive Vice President
Retail
Thomas E. Cross
Executive Vice President
Manufacturing
Larry T. Gilmore
Executive Vice President
Consumer Finance
Mailing Address
Oakwood Homes Corporation
Post Office Box 7386
Greensboro, North Carolina
27417-0386
(910) 855-2400
Legal Counsel
Kennedy Covington Lobdell &
Hickman, L.L.P.
Attorneys at Law
Charlotte, North Carolina
Independent Accountants
Price Waterhouse LLP
Winston-Salem, North Carolina
Transfer Agent and Registrar
Wachovia Bank of
North Carolina, N.A.
301 North Church Street
Second Floor East
Winston-Salem,
North Carolina 27101
(800) 633-4236
Securities Exchange Listing
New York Stock Exchange
Ticker Symbol--OH
Number of Shareholders of Record
1,046 as of December 1, 1995.
Cash Dividends
Cash dividends on Oakwood Common Stock have been paid for 20 consecutive years.
Cash dividends are ordinarily paid on or about the end of November, February,
May and August.
Shareholder Inquiries
Inquiries by shareholders and securities analysts should be directed to Douglas
R. Muir, Senior Vice President (910) 855-2360
Annual Meeting
The annual meeting of shareholders will be held in Greensboro, North Carolina at
2 p.m. on Wednesday, January 31, 1996.
10-K Report
The Corporation will provide without charge a copy of its annual report on Form
10-K as filed with the Securities and Exchange Commission upon receipt of a
written request. This request should be addressed to the Corporate Secretary,
P.O. Box 7386, Greensboro, North Carolina 27417-0386.
Design: Curran & Connors, Inc.
Oakwood Homes Corporation
[logo] P.O. Box 7386
Greensboro, North Carolina 27417-0386
910/855-2400