EXHIBIT 99.1
Contact: Douglas R. Muir
Oakwood Homes Corporation
336-664-2400
OAKWOOD HOMES CORPORATION
ANNOUNCES COMPLETION OF STRATEGIC REVIEW
GREENSBORO, N.C., October 13, 1998 - In a special letter to shareholders,
Oakwood Homes Corporation (NYSE - OH) today announced the completion of its
strategic review process related to its financial services business.
The review confirmed the strategic benefits of the Company's vertical
integration strategy and the benefits of retaining its consumer finance segment.
The Company's management and Board of Directors also sought to refine its
accounting practices to reduce earnings volatility. These refined practices will
reduce income short-term, but are expected to provide a stronger long-term
income stream. As a result of this reduction, the Company expects that it will
be short of the First Call consensus estimate of earnings per share of $.61 for
the fourth quarter ended September 30, 1998.
Oakwood Homes Corporation and its subsidiaries are engaged in the production,
sale, financing and insuring of manufactured housing, serving retail customers
and wholesale dealers throughout the United States.
The text of the letter follows:
Dear Fellow Shareholder:
Like you, I was deeply disappointed in the special charges Oakwood
reported for our second and third quarters. The charges prevented us from
providing you what you have come to expect from Oakwood--a continuation of
our 33 consecutive quarters of growth in net income.
As previously reported, the special charges related to our business
segment that finances manufactured home sales. Each quarter Oakwood
packages its manufactured home loans and sells them to a trust formed by
Oakwood. The trust pays Oakwood for the loans by selling bonds to
investors. Oakwood retains a "residual" interest
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in the trust which entitles Oakwood to all of the cash proceeds from the
loans after the bondholders are paid.
Accounting rules require Oakwood to estimate the fair market value of this
"residual" interest, record a gain and book an asset on our balance sheet
at the time the bonds are sold. The amount of the asset recorded depends
principally on three factors: the interest rate spread between the loans
and the bonds, estimates of the timing and amount of future credit losses
and prepayments, and an assumption as to the rate of return required by a
purchaser of the residual interest. The asset recorded does not represent
a capital investment, but is simply an estimate of the residual interest
value at the time of sale. Accounting rules then require us to record and,
from time to time, adjust the yield (income) on the residual asset, which
is also influenced by our then current estimate of future credit losses
and prepayments.
The two charges in our recent quarterly results stemmed from credit losses
and prepayments. While our assumptions were appropriate based on
conditions at the time they were made, we have now revised them in light
of current performance. We believe our experience reflects, in part,
today's higher levels of consumer debt and bankruptcy, as well as
declining interest rates which have caused an unprecedented rise in
prepayments by homeowners on their loans, factors which are not unique to
Oakwood. It is important to note that these were non-cash charges and have
not changed the credit rating of Oakwood.
The charges did cause the Company to undertake, with several consultants
and service providers, a thorough strategic analysis of Oakwood's
financial services business. Our firm conclusion is that this business
creates significant value for the Company and its shareholders for a
number of reasons. First, the financial services business has been highly
profitable to Oakwood, and we expect that to continue over the long-term.
Second, because of our ability to sell loans while continuing to receive
loan servicing fees and residual income, the financial services business
is a source of significant cash flow. Third, financing is an integral part
of our vertical integration strategy, enabling us directly to provide
convenient, customer-oriented packages with speed and flexibility.
Finally, this business helps ensure our purchasers access to funds if
credit markets tighten, which may help us to continue to sell homes when
competitors' sales stall for lack of financing.
Having made this positive determination, we also considered what changes
in our practices would be appropriate to minimize the
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likelihood of future write-downs. Importantly, prior to either write-down,
we began taking action which we believe will further this end. In November
1997 we implemented a new credit scoring system which we believe is more
predictive than our prior system and allows us to make better credit
underwriting decisions. We also significantly increased interest rates on
our lower scoring customers to more appropriately price credit in
accordance with the level of risk involved. And, effective September 1, we
exited our DFC joint venture to focus our financing efforts on our own
Oakwood dealers and key independent dealers that buy product from us.
As part of the analysis, we have refined our accounting practices to
reflect today's quickly changing environment, which has affected many
companies' results. We expect that these new practices should reduce the
volatility of future earnings. These refined practices will result in
recognition of lower gains at the time of the sale of loans and lower
initial yields recorded on residual interests. These practices should
shift the timing of income recognition to future years when we have actual
experience in loan performance, thus minimizing the risk and volatility of
the residual assets. We believe the result will be a long-term income
stream that will reward our long-term investors. In the fourth quarter of
the 1998 fiscal year, we estimate only modest gains from asset
securitizations and residual income as compared to $.11 per share in the
fourth quarter of fiscal 1997. As a result, we believe that we will miss
the First Call consensus estimate of earnings per share of $.61 for the
fourth quarter.
The strategic review process has reconfirmed the significant competitive
advantages of our vertically integrated business model. The new steps we
are taking will serve to further strengthen the Company's solid foundation
of core operations and strong earnings potential. Our strength can be seen
in our performance: during the first nine months of 1998 retail sales
dollars have increased 35%; we completed our acquisition of Schult Homes
Corporation, providing a strong platform for additional future growth; and
we opened 42 new stores. By any measure, fiscal 1998 will be the best year
from a retail and manufacturing standpoint of any in Oakwood's history.
Reflecting our strong fundamental long-term outlook, I am pleased that our
Board of Directors has approved a $25 million stock buyback program. Under
the program, the Company may repurchase shares from time to time in the
open market. At present
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values, our Board believes that Oakwood stock is an outstanding
investment.
I have confidence that Oakwood Homes moves ahead into our new fiscal year
as the strongest and best-positioned company in our industry. We also move
forward smarter and more experienced as a result of the events of 1998.
Our mission remains steadfast: we are focused on building the long-term
value of Oakwood Homes for the benefit of our shareholders, customers and
employees.
We plan to meet with investors over the course of the next several weeks
and look forward to speaking with you further.
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