Date: Friday, 21-Nov-97 01:59:28 GMT Server: Open-Market-Secure-WebServer/2.0.5.RC0 MIME-version: 1.0 Security-Scheme: S-HTTP/1.1 Accept-Ranges: bytes Content-length: 7704 Last-modified: Tuesday, 07-Jan-97 17:27:04 GMT Content-type: text/html Oakwood Homes Corporation

Annual Report


Performance

Directors
What a year fiscal 1996 was for Oakwood! By all accounts and by every measure, this was the best year in our history. Revenues for the year increased to $974 million, up 19% from $821 million in 1995 and reflecting strong retail sales and loan securitization gains. Net income jumped 51% to $68 million or $1.47 per share compared with $45 million or $.98 per share last year. These results continued Oakwood's impressive long-run performance, with revenues increasing at a compound annual rate of 28% over the past five years, accompanied by a 36% compound annual rate of growth in earnings per share.

The strength of our retail sales in 1996 was particularly noteworthy and, I might add, somewhat masked by our efforts to redirect a portion of the production of acquired businesses from independent dealer sales to distribution through our own retail system. Total net sales for the year increased 16% to $862 million. However, the retail component of net sales rose a robust 29% to $703 million, which was much more consistent with our five-year growth rate in total revenues. By converting more of our independent dealer sales into retail sales this past year, and by sourcing more of our product internally, overall gross margins increased to 29.3% in 1996 -- nearly a three percentage point gain in just one year.

During 1996 we continued to set the pace for the industry, seizing the opportunities created by the growing popularity and appeal of manufactured housing. Two key factors were fundamental to Oakwood's historic performance in 1996: The powerful synergies made possible by Oakwood's fully integrated operations, and the Company's relentless expansion of its retail network. These strategies have promoted superior growth in our retail sales, which have continued to outpace the overall industry rate of growth during the past five years by a margin of nearly three to one.

Of course, the hallmark of Oakwood Homes has been its complete integration of manufacturing, sales, and financing activities -- all the important elements that complete the cycle of making and selling the product. Our involvement in every facet of the home buying process provides real insight into consumer motivations, their sense of value, and the choices they make in purchasing a home. Importantly, this involvement also enables us to match our capabilities to our customers' needs and objectives to enhance the home buying process and deliver the quality and value that customers have grown to expect from Oakwood.

As the nation's largest retailer of manufactured housing, we continued to extend our dominance over the market, adding 57 new retail sales centers in 1996 and ending the year with a network of 255 locations in 27 states. Over the next few years, we plan to continue the expansion of our retail chain by about 50 centers per year, maintaining a focus on the Deep South and Pacific Northwest in 1997, and later expanding into new markets. As we build our presence in these regions, we hope to duplicate the market share gains we have achieved in our more established markets such as North Carolina, South Carolina, and Virginia.

During 1996 we signed a joint venture agreement with Deutsche Financial Services, a unit of Deutsche Bank North America, to create a nationwide retail finance powerhouse in the manufactured housing industry. By combining its expertise in marketing financial services to independent dealers -- DFS is the largest provider of floor plan financing to dealers in the country -- with our retail underwriting and loan production capabilities, we believe we can create a formidable partnership that will expand our penetration of a huge $10 billion market. Already, application volume at the new venture is exceeding our expectations, and we believe it can make a meaningful contribution to our results in fiscal 1998.

Although we are very gratified by Oakwood's continued progress in 1996 and encouraged by the outlook for 1997, we realize the Company's ongoing success depends just as much on Oakwood's people as it does on the Company's strategies. For nearly a decade now, we have place great emphasis on muscle-building the Company -- our term for making sure that we have the right people, with the right skill sets and the right sense of urgency -- to get the job done in every position within the Company. We have been very successful in these efforts and know that Oakwood's people continue to contribute greatly to our ability to post consistent, industry-leading growth year after year.

As the current up-cycle in the manufactured housing industry reaches the five-year mark, there is growing apprehension among investors that more competitive conditions will restrain profit margins in the near term. Since the beginning of this expansion phase, we have worked to anticipate this scenario and, if you recall our past annual reports, you know we have spoken of how important it is for a company to control its retail network, to capture the profit potential of each step in the manufacturing and sales process, and to leverage the benefits of vertical integration. We believe these strategies will position us, more strongly than any other company in the industry, to capitalize on the opportunities that may arise if competitive pressures mount in 1997.

The strong results and progress witnessed in 1996, our fiftieth year, are tributes to Oakwood's unsurpassed quality -- in its people, products, and processes. As we have expanded from coast to coast, leading the industry with unparalleled performance, we have become the benchmark for others. During the coming year, we will work to extend this lead, working to build market share and enhance Oakwood's value to its customers, shareholders, employees, and associates.

In closing, I would like to acknowledge the loss of a close friend and one of the Company's strongest supporters, Ralph L. Darling. Mr. Darling was Chairman of Oakwood's Board of Directors until his death on December 9, 1996. As founder of the Company, he was a true inspiration to all of us at Oakwood. Known for his high moral and ethical standards, Mr. Darling's compassion for people also endeared him to us. We are saddened by his death and will miss his counsel and kindness.

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