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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________to__________
Commission file number 1-8824
CLAYTON HOMES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Tennessee 62-0794407
- - -------------------------------------------- ---------------------------------------
State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization
623 Market Street
Knoxville, Tennessee 37902
- - ---------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615-970-7200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- - ----------------------------------------------------------------------------------------
COMMON STOCK, $.10 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 3, 1994, was approximately $908,085,753 (44,296,866 shares
at closing price on the NYSE of $20.50). For this purpose all shares
beneficially held by executive officers and the Board of Directors of the
Registrant are shares owned by "affiliates," a status which each of the
officers and directors individually disclaims.
Shares of common stock, $.10 par value, outstanding on August 3, 1994, were
60,237,335.
Exhibit index appears on pages 14-15.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Documents from which portions are incorporated by
reference
Part II (except for Item 5) Annual Report to Shareholders for fiscal year
ended June 30, 1994
Part III Proxy Statement relating to Company's
Annual Meeting of Shareholders on November 9, 1994
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CLAYTON HOMES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Clayton Homes, Inc. (Company) produces, sells, finances and insures primarily
low to medium priced manufactured homes. The Company's 13 manufacturing plants
produce homes which are marketed in 26 states through 583 retail dealers, 165
of which are company-owned sales centers. The Company provides installment
financing to purchasers of manufactured homes sold by its retail centers and by
selected independent dealers. Such financing is provided through its
wholly-owned finance subsidiary. The Company acts as agent and earns
commissions on physical damage and credit life insurance written for retail
purchasers of manufactured homes sold by the Company and reinsures risks on
physical damage and credit life insurance policies issued by a non-related
insurance company (ceding company) in connection with the Company's retail
sales. The Company also develops, owns, and manages manufactured housing
communities.
The Company is a Tennessee corporation whose predecessor was incorporated in
1968 in Tennessee. It's principal executive offices are located in Knoxville,
Tennessee.
The following table shows the percentage of revenue derived from sales by
company-owned retail centers, sales to independent dealers and financial
services operations and other income for each of the last three fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1994 1993 1992
<S> <C> <C> <C>
Sales by company-owned retail centers
and communities.......................... 54% 56% 56%
Sales to independent dealers.............. 27 25 24
Financial services and other.............. 19 19 20
---- ---- ----
Total..................................... 100% 100% 100%
==== ==== ====
</TABLE>
For information relating to the Company's three major business segments, see
Note 10 to the Consolidated Financial Statements in the Company's Annual Report
to Shareholders.
Company sales reflect the seasonality of the manufactured housing industry. In
recent years, approximately 32% of the Company's sales have occurred in its
fourth quarter ended June 30.
MANUFACTURED HOMES
A manufactured home made by the Company is a factory-built, completely finished
dwelling. Constructed to be transported by trucks, the home is mounted on
wheels attached to its chassis. Manufactured homes are designed as permanent,
primary residences when sited and attached to utilities.
The Company manufactures more than 150 models of single and multi-section homes
in a wide price range. Retail prices range from $13,000 to $75,000 with sizes
from 675 square feet to 2,100 square feet.
The Company markets homes under a variety of model names. Homes include as
standard equipment central heating, range, refrigerator, complete bathroom,
water heater, carpeting and draperies. Options offered include central air
conditioning, woodburning fireplace, bay windows, hardwood floors, vinyl siding
and furniture.
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MANUFACTURING OPERATIONS
The Company owns or leases 13 manufacturing plants, ranging in size from
53,000 to 226,000 square feet. Plants are located in Ardmore, two in Bean
Station, Halls, Maynardville, Rutledge and Savannah, Tennessee; in Henderson,
Oxford and Richfield, North Carolina; Waycross, Georgia and two in Waco, Texas.
See "Properties (item 2)." The Company's manufactured homes are built in its
plants using assembly-line techniques. Completion of a home ordinarily takes
two days. Homes are generally produced only against orders received from
independent dealers and company-owned retail centers; therefore the Company
does not normally maintain a significant inventory of homes at its plants.
Completed homes are transported to the retail centers by independent carriers.
The Company's plants operate on a one-shift-per-day basis, normally for a
five-day week, with the capacity to produce approximately 30,000 floor sections
per year. During the fiscal year ended June 30, 1994, the Company produced
21,973 floor sections.
The principal materials utilized in the production of the Company's homes are
steel, aluminum, wood, fiberglass, carpet, vinyl floor covering, hardware
items, appliances and electrical items. The Company purchases, among other
things, undercarriages, steel for the frames, appliances, plumbing fixtures,
furniture, windows and doors. The Company uses a number of supply sources, and
it believes that the materials and parts necessary for the construction and
assembly of its homes will remain readily available from these sources. In the
event that any of these items are not readily available or are available at a
higher cost than could be passed on to consumers, the operations of the Company
could be materially adversely affected.
The Company offers a one-year, limited warranty covering manufacturing defects
in materials or workmanship in a home. Warranties covering appliances and
equipment installed in the homes generally are obligations of the manufacturers
of such items and not those of the Company. Warranty and service costs during
the years ended June 30, 1994, and June 30, 1993, amounted to approximately
$7,510,000 and $5,224,000, respectively.
The backlog of firm orders for homes manufactured by the Company's
Manufacturing Group, including orders from company-owned retail centers, was
approximately $42,300,000 and $42,400,000 on June 30, 1994, and 1993,
respectively. Based on the Company's current production rate, approximately
six weeks would be required to fill backlog orders at June 30, 1994.
SALES OF HOMES MANUFACTURED BY THE COMPANY
The following table sets forth manufacturing sales data for number of homes
shipped to company-owned retail centers and to independent dealers, total
number of homes sold, number of plants, number of independent dealers and
number of company-owned retail centers for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED JUNE 30,
1994 1993 1992
<S> <C> <C> <C>
Number of homes sold to independent dealers............ 9,389 6,890 5,587
Number of homes shipped to company-owned retail centers 6,948 6,155 5,084
------ ------ ------
TOTAL................................................. 16,337 13,045 10,671
====== ====== ======
Number of plants operating............................ 13 13 11
Number of independent dealers......................... 372 371 312
Number of company-owned communities .................. 46 33 20
Number of company-owned retail centers................ 165 143 127
</TABLE>
INDEPENDENT DEALERS
In the years ended June 30, 1994, and 1993, approximately 57% and 53%,
respectively, of homes manufactured by the Company were sold to its independent
dealers. As of June 30, 1994, the Company had 372 independent dealers in 25
states. The Company believes that its independent dealer network enables it to
distribute homes to more markets and more quickly without as large an
investment in management resources and overhead expense as is required with
company-owned retail centers. Sales to independent dealers also help the
Company ensure that its homes are competitive with other manufacturers in terms
of consumer acceptability, product design, quality and price.
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The Company generally does not assist independent dealers in arranging
financing for their retail customers. However, the Company's finance
subsidiary, Vanderbilt Mortgage and Finance, Inc. (VMF), may provide financing
for retail customers of selected independent dealer locations with terms and
conditions similar to those provided to company-owned dealerships. Because
independent dealers have their own source of inventory financing, the Company
typically receives payment for homes within two weeks of delivery to the
independent dealer.
The Company establishes relationships with independent dealers through sales
representatives from its manufacturing plants. These representatives visit
independent dealers in assigned areas to solicit orders for the Company's
homes. The area is generally limited to a 400 to 500 mile radius from each of
the Company's manufacturing plants due to the relatively significant cost of
transporting a home. Depending on the cost of the home and the wholesale
competition within the area, a home may be competitively shipped shorter or
longer distances. During each of the last three fiscal years no dealer
accounted for more than 2% of the Company's consolidated revenues.
The Company has no written agreements with its independent dealers, and the
relationship between the Company and each of its independent dealers may be
terminated at any time by either party. The Company believes its relations
with independent dealers are good, and has experienced relatively little
turnover among independent dealers in the past five years. The Company
generally has no control over the operations of independent dealers.
Typically the Company neither provides inventory financing arrangements for
independent dealer purchases nor consigns homes. As is customary in the
industry, lenders financing independent dealer purchases require that the
Company execute repurchase agreements which provide that, in the event of
dealer default under the dealer's inventory financing arrangements, the Company
will repurchase homes for the amount remaining unpaid to the lender, excluding
interest and repossession costs. Historically, any homes repurchased under
such agreements have been resold to other dealers, including company-owned
retail centers, at no less than the repurchase price. During the last five
fiscal years, the Company has incurred no significant loss resulting from these
contingent obligations, but there can be no assurance that losses will not
occur in the future.
COMPANY RETAIL OPERATIONS
As of June 30, 1994, the Company sold homes through 165 company-owned retail
centers in 15 states. In addition to selling homes built by the Company,
virtually all of these retail centers sell new homes manufactured by other
companies and previously owned manufactured homes.
The following table indicates the number of company-owned retail centers and
certain information relating to homes they sold during the last three fiscal
years.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1994 1993 1992
<S> <C> <C> <C>
Number of company-owned centers............ 165 143 127
Number of new homes sold (including homes
built by the Company and by other
manufacturers).......................... 10,071 8,752 7,475
Average retail price of new homes sold..... $29,103 $26,434 $24,269
Number of previously-owned homes sold...... 2,523 2,126 2,076
</TABLE>
All of the company-owned retail centers employ salespeople who are primarily
compensated on a commission basis. The retail centers do not have
administrative staffs since most administrative functions are performed at the
Company's corporate headquarters.
To provide customers a wider price range of homes, the Company purchases
previously-owned homes from individuals and from other dealers, as well as
repossessed homes from lenders throughout its trade territory.
Homes sold by company-owned retail centers are delivered to the home owner's
site by trucks either owned by the Company or leased for the particular
delivery. The purchase price of the home includes delivery to the retail
purchaser's site. The Company's service personnel are responsible for siting
the home and connecting all utilities available at the time, except the
electrical, water and gas connections, which are done by licensed technicians
at the home owner's expense.
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FINANCIAL SERVICES
The Company believes the ability to make financing available to retail
purchasers is a materially important factor affecting the market acceptance of
its product. The Company facilitates retail sales by making loans through its
finance subsidiary, VMF, and by maintaining relationships with conventional
lenders such as banks, finance companies and insurance companies for the
pre-arranged sale of retail installment contracts. The following table
reflects the relative percentages of homes sold by the Company's retail centers
which were financed through the Company, either by VMF or by conventional
lenders, and those sales made to customers who arranged their own financing or
paid cash.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1994 1993 1992
<S> <C> <C> <C>
VMF........................................ 74% 74% 67%
Conventional lenders....................... 5 4 7
Customer arranged or cash.................. 21 22 26
---- ---- ----
TOTAL...................................... 100% 100% 100%
==== ==== ====
</TABLE>
VMF also purchases and originates manufactured housing installment contract
receivables (also referred to as manufactured housing contracts) on an
individual basis from dealers not owned by the Company. Such dealers must make
an application to VMF for dealer approval. Upon satisfactory results of VMF's
investigation of the dealer's creditworthiness and general business reputation,
VMF and the dealer enter into a dealer agreement.
In addition to purchasing manufactured housing contracts from company-owned and
independent dealers on an individual basis, VMF makes bulk purchases of
manufactured housing contracts. It also performs, on behalf of other
institutions, servicing of manufactured housing contracts that were not
originally purchased or originated by VMF. These purchases and servicing
arrangements may relate to the portfolios of other lenders or finance
companies, governmental agencies or instrumentalities, or other entities that
purchase and hold manufactured housing contracts.
VMF is actively seeking arrangements by which it would service manufactured
housing contracts originated by other lenders. VMF currently anticipates that
it will only seek servicing responsibilities which relate to manufactured
housing contracts.
UNDERWRITING POLICIES. Retail customers of the Company who express a desire to
obtain financing by or through the Company complete a credit application form
which is initially reviewed by the manager of the company-owned retail
center. The manager then forwards the application to VMF or another source of
financing.
Credit applications are then evaluated by VMF credit managers. VMF's
underwriting guidelines generally require that each applicant's credit history,
residence history, employment history and income to debt payment ratios be
examined. There are no requirements on the basis of which, if met, credit is
routinely approved; or if they are not met, credit is routinely denied. If in
the judgment of the VMF credit manager an applicant does not meet minimum
underwriting criteria, there generally must be compensating higher ratings with
respect to other criteria in order for an applicant to be approved. Credit
managers must confirm that the credit investigation gave a complete and
up-to-date accounting of the applicant's creditworthiness. Credit managers are
encouraged to obtain second opinions on loans for relatively larger dollar
amounts or those which in their judgment, tend to rank lower in terms of
underwriting criteria. Generally, the sum of the monthly obligation for
installment obligations, including the manufactured loan payment and monthly
site costs, should not exceed 40% of the applicant's gross monthly income.
With respect to those customers determined to be credit worthy, VMF requires a
down payment in the form of cash, the trade-in value of a previously owned
manufactured home, and/or the estimated value of equity in real property
pledged as additional collateral. For previously- owned homes, the trade-in
allowance accepted by the dealer must be consistent with the value of the home
as determined by VMF in light of current market conditions. The value of real
property pledged as additional collateral is estimated by personnel of the
dealer, who are not appraisers but are familiar with the area in which the
property is located. The minimum amount of the down payment is 5% of the
purchase price. The purchase price includes the stated cash sale price of the
manufactured home, sales or other taxes and fees, set-up costs and certain
insurance premiums (including up to five years of premiums on required hazard
insurance). The balance of the purchase price is financed by an installment
sales
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contract providing for a purchase money security interest in the manufactured
home and a mortgage on any real property pledged as additional collateral.
Normally, the contracts provide for equal monthly payments, generally over a
period of five to fifteen years at fixed rates of interest. VMF's installment
contracts may provide for either fixed rates or adjustable rates of interest.
VMF believes the typical manufactured home purchaser is primarily sensitive to
the amount of the monthly payment, and not to the interest rate.
VMF has developed financing options such as contracts with a seven-year term
(compared to the industry norm of 15 to 20 years) which provide financing to
its customers at a relatively lower cost. In January 1990, the Company
introduced a bi-weekly payment contract which provides for 26 payments a year
which are made by electronically drafting the purchaser's checking account.
The Company believes that such financing options are attractive to the customer
and improve market acceptance of its homes as well as improve its delinquency
and repossession experience.
During the last seven fiscal years, VMF has become the most significant source
of financing for purchasers of the Company's homes. In fiscal 1988, VMF
originated 5,692 contracts and in fiscal 1994, VMF originated 12,401 contracts.
At June 30, 1994, VMF was servicing approximately 88,000 contracts with an
aggregate dollar amount of $1,316 million of which VMF has ownership interest
or contingent liability on approximately 60,200 contracts with an aggregate
dollar amount of $1,013 million. The Company expects that VMF will continue to
originate a significant portion of the financing for purchasers of its homes.
The volume of manufactured housing contracts originated by VMF for the periods
indicated below and certain other information at the end of such periods are as
follows:
<TABLE>
<CAPTION>
Contract Originations
Year Ended June 30,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Principal Balance of Contracts
Originated (in thousands)........ $292,435 $230,733 $177,311
Number of Contracts Originated.... 12,401 10,880 9,230
Average Contract Size (1)......... $ 23,582 $ 21,207 $ 19,210
Average Interest Rate (1)......... 10.84% 11.61% 13.40%
</TABLE>
(1) At period end.
The following table shows the size of the portfolio of manufactured housing
contracts serviced by VMF on which it was contingently liable or owner on the
dates indicated:
<TABLE>
<CAPTION>
Contract Servicing Portfolio
Year Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Total Number of Contracts Being
Serviced......................... 60,165 52,433 46,623
Originated by VMF................ 47,944 42,656 36,335
Acquired from other
institutions.................... 12,221 9,777 10,288
</TABLE>
VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans made to retail customers of the Company and
selected independent dealers. After short-term warehousing, VMF transfers or
pledges these loans, generally in pools, to institutional investors or
long-term lenders.
VMF maintains long-term committed credit facilities and other arrangements or
relationships with institutional investors. It acts as a permanent lender on
certain conventional loans in that it holds these loans as long-term
receivables, pledging them as collateral for borrowings. VMF also permanently
funds conventional loans by pooling them for sale to institutional investors.
Proceeds of both sources of funding are used to repay short-term borrowings.
VMF retains servicing in both cases.
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Loans insured by the Federal Housing Administration (FHA) or guaranteed by the
Veterans Administration (VA) are permanently funded through the Government
National Mortgage Association (GNMA) pass-through program. Under the GNMA
program, installment sales contracts that are either insured by the FHA or
guaranteed by the VA are warehoused by VMF and then pooled in denominations of
approximately $1,000,000 to collateralize the issuance by VMF of securities
guaranteed by GNMA under the provisions of the National Housing Act. Under the
GNMA program, VMF retains the servicing of the installment sales contracts and
is responsible for passing through payments under the contracts to GNMA
security holders. During the fiscal year ended June 30, 1994, VMF originated
installment sales contracts eligible for financing under the GNMA program
having aggregate principal balances of $19 million. As of June 30, 1994, VMF
was servicing 221 GNMA pools totaling $148 million in principal balances. Use
of GNMA financing minimizes the Company's contingent liability for these
installment sales contracts because of the government-insured nature of the
loans. Accordingly, the Company believes that the use of this form of
financing, for customers who qualify, enables increases in the marketability of
its manufactured homes.
Certain of the agreements related to borrowings include covenants with respect
to the Company's financial condition, corporate existence and employment of
certain key individuals. The Company may remain contingently liable on
installment sales contracts sold with recourse to institutional investors; this
contingent liability amounted to approximately $63 million as of June 30, 1994.
See Note 5 to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders.
The interest rates on approximately 98% of the long-term credit facilities or
the pass-through certificates representing ownership of the pools are fixed or
have adjustable rates with ceilings, while the remaining 2% have variable rates
which provide for no minimum or maximum rate of interest. VMF attempts to
match liabilities and assets as to both term and rate. This reduces loss
exposure from interest rate fluctuations. VMF uses a number of techniques to
achieve this result, principally by pricing its fixed rate receivables at or
above the maximum rate allowed under such arrangements. When loans are funded
under arrangements which do not have a maximum rate, the Company attempts to
price these loans at or above forecasted interest rates. The Company minimizes
the use of credit facilities which do not carry a maximum rate.
The Company believes that, as long as buyers of the Company's homes remain
sensitive primarily to the amount of their monthly payments rather than
interest rates and VMF is able to continue to implement its loan practice and
pricing policies, a change in interest rates will not have a material effect on
its business. There can be no assurance, however, that a significant change in
interest rates will not have a material effect on the Company's business and
financial condition. Generally, the Company's and VMF's existing borrowing
arrangements do not provide for interest rate hedging.
ACQUIRED CONTRACTS AND SERVICING ARRANGEMENTS. The Acquired Contracts were
originated by savings and loan associations or savings banks and acquired
indirectly or directly from them by VMF. The Acquired Contracts were
underwritten on the basis of underwriting criteria that were different from
and, as a whole, not as strict as VMF's underwriting criteria.
In fiscal 1992, VMF became the servicer of 15,409 manufactured homes
installment sales contracts with an approximate principal balance of $199
million acquired by a REMIC trust from the Resolution Trust Corporation. VMF
is acting solely as servicer with respect to these contracts and, thus, has no
ownership interest nor contingent liability related to this portfolio. At June
30, 1994, VMF was servicing approximately 27,000 of these installment sales
contracts with an approximate principal balance of $303 million.
DELINQUENCY AND REPOSSESSION EXPERIENCE. VMF performs recordkeeping and
collection activities on all loans that it originates or purchases through
portfolio acquisitions. Unrelated institutions purchasing the Company's
installment sales contracts individually and directly from company-owned retail
centers perform their own recordkeeping and collection activities, although the
Company is in some cases responsible for repossessing homes in the event such
action becomes necessary.
Although the terms of the installment sales contracts vary according to the
financial institutions which purchase the contracts, most contracts provide
that the failure to make a payment as scheduled is an event of default which
gives rise to the right to repossess the home. However, it is the policy of
the Company, not to repossess the home until payments are three months
delinquent unless the borrower has no apparent ability to bring payments
current, in which case repossession may occur sooner. The Company generally
follows the
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same policy with respect to loans insured by the FHA or guaranteed by the VA,
although the Company must also file a notice of claim within nine months after
default with the agency to preserve its rights under the programs.
The following table sets forth delinquent installment sales contracts as a
percentage of the total number of installment sales contracts on which the
Company provided servicing and was either contingently liable or owner. A
contract is considered delinquent if any payment is past- due 30 days or more.
<TABLE>
<CAPTION>
Delinquency Percentage at June 30
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Total delinquencies as percentage of
contracts outstanding:
All contracts................................ 1.97% 1.63% 2.40%
Contracts originated by VMF.................. 1.16 1.39 1.96
Contracts acquired from other institutions... 5.14 2.68 3.95
</TABLE>
The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the Company is
either owner or contingently liable:
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience
at or for the year ended June 30
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net losses as percentage of
average loans outstanding:
All contracts................................ .3% .6% 1.1%
Contracts originated by VMF.................. .1% .2% .4%
Contracts acquired from other institutions... 1.8% 2.9% 3.8%
Number of contracts in repossession:
Total........................................ 565 523 652
Contracts originated by VMF.................. 388 333 379
Contracts acquired from other institutions... 177 190 273
Total number of contracts in repossession as
percentage of total contracts................. .94% 1.00% 1.40%
</TABLE>
Generally, the Company pays off the related installment contract upon
repossession of a home and then resells the home. The Company believes that as
long as it is able to sell repossessed homes at satisfactory margins, the
increased repossession costs associated with payoffs of installment sales
contracts will be largely offset by resales of repossessed homes. See Note 5 to
the Consolidated Financial Statements in the Company's Annual Report to
Shareholders. There can be no assurance that the Company's future results with
respect to the payoff and resale of repossessed homes will be consistent with
its past experience.
INSURANCE OPERATIONS. The Company acts as agent on physical damage and credit
life insurance written by unaffiliated insurance companies (ceding companies)
for purchasers of its manufactured homes. During the fiscal year ended June
30, 1994, the Company acted as the agent on physical damage policies on
approximately 80% of the installment sales contracts originated on which it is
directly or contingently liable. Subsequent to January 1, 1993, physical
damage policies issued through the Company's agency were reinsured through
Vanderbilt Property and Casualty Insurance Co., LTD (VPC), a wholly-owned
subsidiary of the Company incorporated during fiscal year 1993. The credit
life insurance policies issued through the Company's agency were reinsured
through Vanderbilt Life and Casualty Insurance Co., LTD, (VLCIC) a
majority-owned subsidiary of the Company.
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MANUFACTURED HOUSING COMMUNITIES
In fiscal 1994 the Communities Division acquired 3,053 sites in 13 communities
bringing total sites owned to 13,003 at June 30, 1994, a 31% increase from the
prior year. See "Properties." The following table lists the number of
community sites owned and under exclusive marketing agreements and the
aggregate occupancy rate at the end of the last three fiscal years:
<TABLE>
<CAPTION>
June 30
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Home sites owned 13,003 9,950 5,353
Exclusive marketing 0 480 480
------ ----- -----
Total 13,003 10,430 5,833
====== ====== =====
Occupancy rate 64% 60% 58%
====== ===== =====
</TABLE>
REGULATION
The Company's manufactured homes are subject to a number of federal, state and
local laws. Construction of manufactured housing is governed by the National
Mobile Home Construction and Safety Standards Act of 1974. In 1976, the
Department of Housing and Urban Development (HUD) issued regulations under this
Act establishing comprehensive national construction standards. The HUD
regulations cover all aspects of manufactured home construction, including
structural integrity, fire safety, wind loads and thermal protection. The
Company's manufacturing facilities and the plans and specifications for its
manufactured homes have been approved by a HUD-designated inspection agency. A
HUD-approved organization regularly inspects the Company's manufactured homes
for compliance during construction. Failure to comply with the HUD regulations
could expose the Company to a wide variety of sanctions, including closing the
Company's plants. The Company believes the homes it manufactures comply with
all present HUD requirements. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product Safety Commission which
is empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require the manufacturer to repair
defects in components in its homes. In February 1983, the Federal Trade
Commission adopted regulations requiring disclosure of a manufactured home's
insulation specification.
A variety of laws affect the sale of manufactured homes on credit by the
Company. The Federal Consumer Credit Protection Act (Truth-in- Lending) and
Regulation Z (issued by the Board of Governors of the Federal Reserve System)
require written disclosure of information relative to such credit sales,
including the amount of the annual percentage rate and the finance charge. The
Federal Fair Credit Reporting Act also requires disclosure of certain
information used as a basis to deny credit. The Federal Equal Credit
Opportunity Act and Regulation B (issued by the Board of Governors of the
Federal Reserve System) prohibit discrimination against any credit applicant
based on sex, marital status, race, color, religion, national origin, age
(provided the applicant has the capacity to contract), receipt of income from
any public assistance program or the good faith exercise by the applicant of
any right under the Consumer Credit Protection Act. Regulation B establishes
administrative requirements for compliance with the Equal Credit Opportunity
Act and, among other things, requires the Company to provide a customer whose
credit request has been denied with a statement of reasons for the denial. The
Federal Trade Commission has issued or proposed various Trade Regulation Rules
dealing with unfair credit practices, collection efforts, preservation of
consumers' claims and defenses and the like. The Company is also subject to
the provisions of the Fair Debt Collection Practices Act which regulates the
manner in which the Company collects payments on installment sales contracts.
Installment sales contracts eligible for inclusion in the GNMA Program are
subject to credit underwriting requirements of the FHA or the VA.
The movement and use of the Company's manufactured homes are subject to highway
use laws, ordinances and regulations of various federal, state and local
authorities. Such regulations may prescribe size and road use limitations and
impose lower than normal speed limits and various other requirements. The
Company's manufactured homes and its development of manufactured housing
communities are also subject to local zoning and housing regulations.
9
<PAGE> 10
The Company is subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act which regulates the descriptions of warranties on products.
The description and substance of the Company's warranties are also subject to a
variety of state laws and regulations.
VPC and VLCIC are subject to insurance and other regulations of the British
Virgin Islands.
COMPETITION
The manufactured housing industry is highly competitive at the manufacturing
and retail levels in terms of price, service, delivery capabilities and product
performance. There are many firms in direct competition with the Company. The
Company believes it has a competitive advantage over firms which do not have
manufacturing, retailing and financing capabilities. Since the Company's homes
are a form of low-cost housing, they compete with other forms of such housing
including apartments and conventionally-built and prefabricated homes. Some of
the Company's competitors are larger and have significant financial resources
while other competitors are quite small in relation to the size of the Company.
The capital requirements for entry into both the manufacturing and retail
fields are relatively small, with retail and inventory financing generally
available to a prospective dealer. The Company is not able to estimate the
total number of competitors in its marketing area.
EMPLOYEES
As of June 30, 1994, the Company employed 3,955 persons. Of these, 1,045 were
employed in retail sales, 2,281 in manufacturing, 263 in financial services,
261 in communities and 105 in executive and administrative positions. The
Company does not have any collective bargaining agreements and considers its
employee relations to be good.
SECTION 16 COMPLIANCE
As required by the Securities and Exchange Commission Rules under Section 16 of
the Securities Exchange Act of 1934, which became effective on May 1, 1991, the
Company noted that for the fiscal year ended June 30, 1994, all required Forms
3, 4 and 5 were timely filed for its officers, directors and greater than
ten-percent beneficial owners except that one Form 4 for Mr. Warren Neel
covering the purchase of the Company's common stock was filed late.
ITEM 2. PROPERTIES
The Company's executive offices and Financial Services operations are located
in Knoxville, Tennessee in several wholly-owned one-story buildings made up of
modular units (built by the Bean Station single-section plant) which total
approximately 30,000 square feet of office space and approximately 16,000
square feet in an office building owned 50% by the Company and 50% by a related
party. See "Item 13. Certain Relationships and Related Transactions." The
following table sets forth the properties which the Company uses for its
manufacturing operations and locations of its manufactured housing communities.
All of the buildings used for manufacturing operations are constructed of
fabricated metal on a concrete slab.
LOCATION OF PROPERTY
Approximate
Manufacturing Operations Square Feet
Owned by company
Tennessee
Maynardville 98,000
Savannah 85,000
Ardmore 53,000
Rutledge 87,000
Bean Station #1 103,000
Bean Station #2 128,000
North Carolina
Henderson 100,000
Oxford 80,000
Richfield 226,000
Georgia
Waycross 80,000
10
<PAGE> 11
Approximate
Manufacturing Operations (con't) Square Feet
Texas
Waco #1 93,000
Waco #2 80,000
Leased
Halls, Tennessee 69,000
Approximate
Communities Acres
Owned by company
Colorado
Denver 125
Thornton 184
Florida
Gainesville - Arredondo Farms 67
Gainesville - Castlegate 65
Kissimmee 41
Mulberry 28
Georgia
Douglasville - West Atlanta 45
Douglasville - Pinelake 52
Tennessee
Farragut 23
Knoxville - Amherst 78
Knoxville - Grand Oaks 40
Knoxville - Northridge Estates 29
LaVergne 76
Morristown 12
Maryville - Little River 46
Maryville - Willow Hill 21
Powell 23
Rockford 13
Tullahoma 18
Texas
Arlington 43
Dallas - Clayton Estates 33
Dallas - Oakwood Cove 51
Denton - Clayton Estates 104
Denton - Hickory Creek 61
Denton - Pecan Creek 36
Fort Worth - Clearfield 35
Fort Worth - Summer Lake 20
Fort Worth - Sleepy Hollow 21
Flower Mound 18
Greenville 25
Houston 28
Humble 55
Little Elm 48
Mesquite 27
Pearland 30
San Antonio - Clayton Estates 69
San Antonio - Springfield Meadow 38
San Antonio - Saddlecrest 38
San Antonio - Hidden Lakes 61
Schertz 71
Wylie - Redwood at the Lake 59
Wylie - Southfork Wylie 120
Missouri
Independence 90
Michigan
Kalamazoo 126
North Carolina
Greensboro 83
Virginia
Evington 70
11
<PAGE> 12
The company-owned retail centers are generally one to four acre sites with a
manufactured office unit serving as sales office. The balance of a retail
center site is devoted to the display of homes. Of the 165 retail centers, 73
are owned and 92 occupy leased property. The Company does not believe that
any of the property owned or leased for an individual retail center is material
to its overall business.
All of the properties described above are well maintained, adequately insured
and suitable for the purposes for which they are being used by the Company.
The Company believes that its properties are adequate for its near-term needs.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending other than routine litigation
incidental to the business of the Company. The Company believes that such
proceedings will not have any material adverse effect on it or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
No matters were submitted to shareholders during the last quarter of the fiscal
year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
(a) The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth, for the period from July 1, 1992 to June 30, 1994,
the range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.
<TABLE>
<CAPTION>
Fiscal Fiscal
1994 1993
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
September $24.60 $18.40 $15.84 $12.16
December 24.25 18.20 20.80 14.08
March 26.63 19.63 21.20 18.00
June 22.50 17.00 20.60 16.50
</TABLE>
(b) As of August 3, 1994, there were 1,843 holders of record (approximately
28,700 beneficial holders) of the Company's Common Stock.
(c) It is the policy of the Board of Directors of the Company to reinvest
earnings in its business. The Board of Directors has no current plans to
initiate the payment of cash dividends, and future dividend policy will depend
on the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors. Additionally, certain
of the Company's financing agreements have various covenants that restrict
payments which may be made for dividends and other stock transactions. At June
30, 1994, the aggregate amount of earnings available for cash dividends or for
repurchase of the Company's stock was $281,480,000.
The following portions of the Company's 1994 Annual Report to Shareholders are
incorporated herein by reference (page number references are to Annual Report):
ITEM 6. SELECTED FINANCIAL DATA.
Ten Year Review on page 14.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 12-15.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- Consolidated Statements of Income on page 17.
- Consolidated Balance Sheets on page 16.
- Consolidated Statements of Cash Flows on page 18.
- Consolidated Statements of Changes in Shareholders' Equity on page 17.
- Notes to the Consolidated Financial Statements on pages 19-24.
- Report of Independent Accountants on page 16.
- Quarterly Results on page 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position
James L. Clayton 60 Chairman of the Board and
Chief Executive Officer
Joseph H. Stegmayer 43 President and Chief Operating Officer (a)
Richard B. Ray, Jr. 53 Executive Vice President - Finance
Chief Financial Officer (b)
Timothy W. Williams 38 Executive Vice President -
Financial Services
David M. Booth 41 Executive Vice President - Retail
James R. Conner 45 Vice President - Computer Services
Kevin T. Clayton 31 Secretary (c)
Timothy R. Rhoades 42 Treasurer (d)
(a) Mr. Stegmayer joined the Company in July 1993 as President and Chief
Operating Officer. From 1982 to July 1993 he served as Vice President, Chief
Financial Officer, Treasurer and Director of Worthington Industries, Inc.
(b) Retired August 31, 1994.
(c) Secretary since December 1993. Prior to December 1993, he was in various
management positions in the housing group.
(d) Mr. Rhoades joined the Company in August 1993 as Corporate Controller and
became Treasurer in November of 1993. From August 1992 to February 1993, he
served as Chief Financial Officer of Lexalite International Corporation and
prior to that held various financial positions with Worthington Industries,
Inc.
All other officers have been in their positions for at least five years.
The Company's executive officers serve at the pleasure of the Board of
Directors.
All other required information is incorporated by reference to the Company's
Proxy Statement under the heading ELECTION OF DIRECTORS.
13
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Company's Proxy Statement under the heading
EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Company's Proxy Statement under the headings
ELECTION OF DIRECTORS and VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF;
SECURITIES OWNERSHIPS OF DIRECTORS AND OFFICERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Company's Proxy Statement under the heading
CERTAIN TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as part of this report:
1. Financial Statements: (Included in Annual Report - Exhibit 13).
The following Consolidated Financial Statements of Clayton
Homes, Inc. and its subsidiaries included in Part II, Item 8 are
incorporated by reference to the 1994 Annual Report to
Shareholders for the year ended June 30, 1994.
Consolidated Statements of Income - years ended June 30, 1994,
1993 and 1992.
Consolidated Balance Sheets - June 30, 1994 and 1993.
Consolidated Statements of Cash Flows - years ended June 30,
1994, 1993 and 1992.
Consolidated Statements of Changes in Shareholders' Equity -
years ended June 30, 1994, 1993 and 1992.
Notes to the Consolidated Financial Statements.
Report of Independent Accountants.
3. Exhibits:
3. (a) Restated charter as amended. (A)
(b) Bylaws. (B)
(c) Amendment to Bylaws.
4. (a) Specimen stock certificates.(E)
(b) The Company agrees to furnish to the Commission, upon
request, instruments relating to the long term debt of the
Company or its subsidiaries.
10. (a) Form of shareholders' agreement between Clayton Homes, Inc.
and Progressive Partners.(B)
(b) Lease Agreement, dated June 29, 1972, as amended, between
Clayton Homes, Inc. and Dean Planters Warehouse, Inc.(B)
(subsequently assigned to CLF, a limited partnership which
includes a related party).
(c) Clayton Homes, Inc. 1983 Stock Option Plan.(B)
14
<PAGE> 15
(d) Clayton Homes, Inc. 1985 Stock Option Plan.(F)
(e) 1991 Employee Stock Incentive Plan.(H)
(f) Directors' Equity Plan.(H)
(g) Director's Equity Plan. (I)
(h) Directors' Equity Plan. (J)
(i) Clayton Homes, Inc. Employee Savings Plan and partnership.(C)
(j) Description of Clayton Homes, Inc. bonus arrangement for key
executives.(J)
11. Computation of earnings per share.
13. Annual Report to Shareholders for year ended June 30, 1994.(D)
21. List of Subsidiaries of the Registrant.
- - -----------------------------------------------------
(A) Filed with the Company's Form 10-K for the year ended June 30, 1992, and
incorporated by reference thereto.
(B) Filed as Exhibits to Registration Statement on Form S-1 (SEC File No.
2-83705) and incorporated by reference thereto.
(C) Filed with Registration Statement on Form S-1(SEC File No. 2-92565) and
incorporated by reference thereto.
(D) For the information of the Commission only, except to the extent of
portions specifically incorporated by reference.
(E) Filed as Exhibits to Registration Statement on Form S-1(SEC File No.
33-2665) and incorporated by reference thereto.
(F) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 4, 1985, and incorporated by reference thereto.
(G) Filed with Registration Statement on Form S-3 (SEC File No. 39172), and
incorporated by reference thereto.
(H) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 12, 1991, and incorporated by reference
thereto.
(I) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 11, 1992, and incorporated by reference
thereto.
(J) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held November 10, 1993, and incorporated by reference
thereto.
- - ------------------------
(b) Reports on Form 8-K.
No reports were filed in the Registrant's last quarter.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Knoxville,
State of Tennessee, on September 16, 1994.
CLAYTON HOMES, INC.
By: s/Joseph H. Stegmayer
-------------------------
Joseph H. Stegmayer
President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
s/James L. Clayton September 16, 1994 Chairman of the Board and
- - ------------------------ Chief Executive Officer
James L. Clayton (Principal Executive Officer)
s/Joseph H. Stegmayer September 16, 1994 President, Chief Operating Officer
- - ------------------------ and Director
Joseph H. Stegmayer
s/Timothy R. Rhoades September 16, 1994 Treasurer (Principal Accounting
- - ------------------------ Officer)
Timothy R. Rhoades
s/Kevin T. Clayton September 16, 1994 Secretary
- - ------------------------
Kevin T. Clayton
s/B. Joe Clayton September 16, 1994 Director
- - ------------------------
B. Joe Clayton
s/James D. Cockman September 16, 1994 Director
- - ------------------------
James D. Cockman
s/Wallace C. Doud Septmeber 16, 1994 Director
- - ------------------------
Wallace C. Doud
s/Dan W. Evins September 16, 1994 Director
- - ------------------------
Dan W. Evins
s/Wilma H. Jordan September 16, 1994 Director
- - ------------------------
Wilma H. Jordan
s/C. Warren Neel September 16, 1994 Director
- - ------------------------
C. Warren Neel
</TABLE>
16
<PAGE> 1
EXHIBIT 11. Earnings per share computation.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
(in thousands except per share data)
1994 1993 1992
<S> <C> <C>
Reported income before accounting
change (primary) $69,285 $53,756 $39,343
Add: Convertible debentures
interest expense, net of tax 1,211 1,931 1,931
------- ------- -------
Net income before accounting
change (fully diluted) $70,496 $55,687 $41,274
======= ======= =======
Reported net income (primary) $72,285 $53,756 $39,343
Add: Convertible debentures interest
expense, net of tax 1,211 1,931 1,931
------- ------- -------
Net income after accounting change,
(fully diluted) $73,496 $55,687 $41,274
======= ======= =======
Weighted average shares
outstanding (primary) 58,919 57,088 54,218
Shares issuable upon
conversion of all debentures 2,470 3,986 3,986
------- ------- -------
Weighted average shares
outstanding (fully diluted) 61,389 61,074 58,204
======= ======= =======
Net Income per share before accounting
change:
Primary $ 1.18 $ .94 $ .72
Fully diluted 1.15 .91 .71
Net Income per share:
Primary $ 1.23 $ .94 $ .72
Fully diluted 1.20 .91 .71
</TABLE>
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
- - ------------------------------------------------------------- Year Ended June 30,
(dollars in thousands, except per share) 1994 1993 % Change
============================================================= =========== ======== ========
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 628,236 $476,241 31.9%
Income before income taxes and accounting change $ 108,285 $ 83,356 29.9%
Income before accounting change $ 69,285 $ 53,756 28.9%
Net income $ 72,285 $ 53,756 34.5%
Earnings per common share before accounting change:
Primary $ 1.18 $ .94 25.5%
Fully diluted $ 1.15 $ .91 26.4%
Earnings per common share:
Primary $ 1.23 $ .94 30.9%
Fully diluted $ 1.20 $ .91 31.9%
- - ------------------------------------------------------------- ---------- -------- -----
BALANCE SHEET DATA:
Total assets $ 701,148 $587,032 19.4%
Shareholders' equity $ 462,154 $348,630 32.6%
Return on average shareholders' equity 18.0% 16.9%
- - ------------------------------------------------------------- ---------- -------- -----
PORTFOLIO DATA:
Loans serviced $1,316,000 $961,000 36.9%
Delinquency % (over 30 days):
Originated contracts 1.2% 1.4%
All contracts serviced (including purchased portfolios) 1.9% 1.6%
Net write-offs as % of average loans outstanding:
Originated contracts .1% .2%
All contracts (including purchased portfolios) .3% .6%
- - ------------------------------------------------------------- ---------- -------- -----
OTHER DATA:
Total homes sold 22,791 18,440 23.6%
Market share (nation) 7.1% 7.1% --
Manufacturing plants 13 13 --
Independent dealers 372 371 0.3%
Company-owned retail centers 165 143 15.4%
Community home sites owned 13,003 9,950 30.7%
Employees 3,955 3,414 15.8%
- - ------------------------------------------------------------- ---------- -------- -----
</TABLE>
Where appropriate, all per share data in this report has been adjusted for the
5 for 4 stock split paid December 8, 1993.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table reflects the percentage changes in sales by the Company's
retail and community sales centers and in wholesale sales to independent
dealers. It also shows the percentage changes in the average number of
company-owned retail centers, communities and independent dealers.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1994 VS 1993 1993 vs 1992
============================= ============ ============
<S> <C> <C>
Retail
Dollar sales +26.1% +25.9%
Average number of
retail centers +14.9% +5.8%
Average dollar sales per
retail center +9.7% +20.1%
Average home price +8.9% +10.5%
- - ----------------------------- ------------ ------------
Wholesale
Dollar sales +47.2% +30.9%
Average number of
independent dealers +11.6% +5.0%
Average dollar sales to
independent dealers +32.0% +24.7%
Average home price +8.0% +6.2%
- - ----------------------------- ------------ ------------
Communities
Dollar sales +29.6% +112.7%
Average number of
communities +36.2% +75.4%
Average dollar sale
per community -4.8% +21.3%
Average home price +7.8% -7.3%
- - ----------------------------- ------------ ------------
</TABLE>
FISCAL 1994 COMPARED TO FISCAL 1993
Total revenues for the year ended June 30, 1994, increased 32% because of the
33% increase in manufactured housing sales and the 29% rise in financial
services and other income.
Net sales of the Retail Group rose 26% to $318 million primarily due to a
15% rise in the average number of company-owned retail centers open during the
year, a 9% increase in the average home price and a slight increase in the
average number of homes sold per Company retail center. The rise in the
average home price resulted from a continued shift in product mix toward larger
single and multi-section homes. Multi-section homes represented 30% of all
homes sold by the Retail Group versus 28% in the prior year.
During the year, the Company acquired or opened 23 retail locations while
one unprofitable retail center was closed. The Company constantly evaluates
specific local markets and opens, acquires, or closes retail centers as
conditions warrant.
Net sales of the Manufacturing Group to independent dealers increased 47% to
$173 million due to the 36% increase in the number of homes sold and an 8%
increase in the average wholesale price. The increase in the average home
price is due mainly to improved recouping of raw materials costs and a shift in
the product mix toward the more expensive multi-section home. Multi-section
homes accounted for 34% of total shipments versus 31% last year.
Net sales of the Communities Group rose 30% to $20 million primarily due to
a 20% rise in unit sales and an 8% improvement in the average home price.
The 29% increase in financial services and other income to $118 million from
$92 million resulted principally from a $7 million increase in the gains on
sale of installment contract receivables, net of amortization, from the
wholly-owned finance subsidiary, Vanderbilt Mortgage and Finance, Inc. (VMF), a
$5 million rise in rental revenues in the Communities operation, and a $10
million growth in earned insurance premiums and commissions.
The following table reflects the fluctuations in interest and loan servicing
revenues and financial services interest expense related to changes in interest
and servicing rates and changes in the average balances of receivables owned,
receivables sold and debt. Receivables owned or sold are the installment
contract receivables related to the retail sale of homes by the Company and
independent dealers and purchases of contracts from unrelated financial
institutions. Receivables owned generate interest income and are used to
collateralize debt or, in certain cases, represent the Company's subordinated
interest in a pool of receivables accounted for on the consolidated basis.
Receivables sold are pooled and generate loan service revenues equal to the
excess of principal and interest collected over the amount required to be
remitted to investors after deducting net credit losses. Servicing is retained
by the Company in all cases. The change due to both rate and volume has been
allocated in proportion to the relationship of the absolute dollar amounts of
the change in each. Comparative fluctuations are given between the years ended
June 30, 1994, 1993 and 1992:
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
1994 VS 1993 1993 vs 1992
INCREASE (DECREASE) Increase (Decrease)
(in thousands) DUE TO Due to
- - ------------------------------------- ------- ------ ------- ------- ------ -------
RATE VOLUME TOTAL Rate Volume Total
===================================== ======= ====== ======= ======= ====== =======
<S> <C> <C> <C> <C> <C> <C>
Interest and loan servicing revenues:
Receivables owned $(4,968) $ 351 $(4,617) $(3,785) $(5,287) $(9,072)
Receivables sold 1,526 6,657 8,183 (290) 5,490 5,200
Master servicing contract (1,466) 2,640 1,174 -- 1,455 1,455
- - ------------------------------------- ------- ------ ------- ------- ------- -------
$(4,908) $9,648 $ 4,740 $(4,075) $ 1,658 $(2,417)
===================================== ======= ====== ======= ======= ======= =======
</TABLE>
12
<PAGE> 3
QUARTERLY RESULTS
(Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands except per share data) Sept. 30 Dec. 31 Mar. 31 June 30 Year
==================================== ======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C>
1994
REVENUES $135,959 $145,951 $150,236 $196,090 $628,236
OPERATING INCOME 24,049 23,375 27,058 34,162 108,644
INCOME BEFORE ACCOUNTING CHANGE 14,828 14,834 17,521 22,102 69,285
NET INCOME 17,828 14,834 17,521 22,102 72,285
EARNINGS PER SHARE BEFORE
ACCOUNTING CHANGE:
PRIMARY $ .26 $ .26 $ .29 $ .37 $ 1.18
FULLY DILUTED .25 .25 .29 .36 1.15
EARNINGS PER SHARE:
PRIMARY $ .31 $ .26 $ .29 $ .37 $ 1.23
FULLY DILUTED .30 .25 .29 .36 1.20
SHARES OUTSTANDING:
PRIMARY 57,335 57,543 59,497 61,302 58,919
FULLY DILUTED 61,321 61,471 61,461 61,302 61,389
PRICE RANGE OF COMMON STOCK:
HIGH $ 24.60 $ 24.25 $ 26.63 $ 22.50 $ 26.63
LOW 18.40 18.20 19.63 17.00 17.00
CLOSE 21.70 24.25 21.13 17.63 17.63
==================================== ======== ======== ======== ======== ========
1993
Revenues $109,847 $106,010 $112,218 $148,166 $476,241
Operating income 17,236 16,300 21,375 28,615 83,526
Net income 11,163 10,412 13,800 18,381 53,756
Earnings per share:
Primary $ .20 $ .18 $ .24 $ .32 $ .94
Fully diluted .19 .18 .23 .31 .91
Shares outstanding:
Primary 56,954 57,056 57,184 57,160 57,088
Fully diluted 60,939 61,041 61,170 61,145 61,074
Price range of common stock:
High $ 15.84 $ 20.80 $ 21.20 $ 20.60 $ 21.20
Low 12.16 14.08 18.00 16.50 12.16
Close 15.04 20.50 18.70 18.40 18.40
==================================== ======== ======== ======== ======== ========
</TABLE>
For the year ended June 30, 1994, interest and loan servicing revenues
rose $5 million, or 9%, to $60 million. The average balance of receivables
owned increased 1% to $248 million with a decrease in the weighted averaged
interest rate to 11.6% from 13.6%. The average balance of receivables sold
increased 32% to $658 million with an increase in the weighted average loan
service spread to 4.2% from 3.9%.
Financial Services' interest expense decreased $4 million, or 33%, to
$8 million. Average debt collateralized by installment contract receivables
dropped 35% to $74 million with an increase in the weighted average interest
rate to 10.8% from 10.1%. Loan covenants preclude prepaying these obligations.
Gross profit margins in 1994 declined slightly to 29.9% from 30.5%
last year. The decrease is primarily the result of higher lumber costs
temporarily absorbed by the Manufacturing Group during the second and third
quarters and a shift in the Manufacturing/Retail sales mix to a greater
proportion of manufacturing wholesale sales which have lower margins.
Selling, general and administrative expenses were 30.1% and 29.6% of
sales for the years ended June 30, 1994 and 1993, respectively. Substantially
all of the increase is attributable to the Financial Services operations:
additional staff to service the 37% growth in receivables serviced and the
claims costs of the insurance subsidiaries formed in January 1993.
No provision for credit losses and contingencies was made in 1994 or
1993 due to the excellent loss and delinquency experience of the receivables
for which the Company is directly or contingently liable. Net losses as a
percentage of loans outstanding for fiscal 1994 dropped to 0.3% from 0.6% last
year while delinquency rates declined to 1.2% of contracts originated by VMF at
June 30, 1994, versus 1.4% at the same time last year. On June 30, 1994,
reserves equaled 1.5% of outstanding loans owned or on which the Company has
contingent liability.
13
<PAGE> 4
TEN YEAR REVIEW
<TABLE>
<CAPTION>
(in thousands except per
share and Other Data) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
============================== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Net sales $510,153 $384,491 $296,849 $257,557 $219,443 $208,624 $196,110 $166,272 $152,742 $111,539
Financial services
and other income 118,083 91,750 74,330 62,392 40,316 33,270 28,671 20,659 15,709 10,309
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
628,236 476,241 371,179 319,949 259,759 241,894 224,781 186,931 168,451 121,848
Cost and expenses:
Cost of sales 357,698 267,201 206,049 176,374 153,786 147,982 138,468 117,538 108,886 82,056
Selling, general and
administrative 153,698 113,695 84,785 76,420 60,220 55,456 50,781 40,222 36,914 22,573
Financial services interest 8,196 11,819 16,585 18,198 11,595 9,911 10,127 6,628 5,658 3,889
Provision for credit losses
and contingencies 0 0 3,300 3,772 2,213 1,539 2,010 1,863 1,600 1,600
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
519,592 392,715 310,719 274,764 227,814 214,888 201,386 166,251 153,058 110,118
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income 108,644 83,526 60,460 45,185 31,945 27,006 23,395 20,680 15,393 11,730
Interest income (expense) (359) (170) (317) (592) (575) (1,042) (1,073) (838) (276) 1,180
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 108,285 83,356 60,143 44,593 31,370 25,964 22,322 19,842 15,117 12,910
Provision for income taxes (39,000) (29,600) (20,800) (16,000) (11,500) (9,714) (8,370) (9,486) (6,741) (5,775)
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income before accounting
change 69,285 53,756 39,343 28,593 19,870 16,250 13,952 10,356 8,376 7,135
Cumulative effect of
accounting change 3,000 0 0 0 0 0 0 0 0 0
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net income $ 72,285 $ 53,756 $ 39,343 $ 28,593 $ 19,870 $ 16,250 $ 13,952 $ 10,356 $ 8,376 $ 7,135
============================== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Income before accounting
change per share:
Primary $ 1.18 $ .94 $ .72 $ .65 $ .50 $ .42 $ .36 $ .26 $ .22 $ .18
Fully diluted 1.15 .91 .71 .59 .45 .37 .33 .24 .21 .18
Net income per common share:
Primary $ 1.23 $ .94 $ .72 $ .65 $ .50 $ .42 $ .36 $ .26 $ .22 $ .18
Fully diluted 1.20 .91 .71 .59 .45 .37 .33 .24 .21 .18
Average shares outstanding:
Primary 58,919 57,088 54,218 44,499 39,329 39,091 39,020 39,869 39,688 39,108
Fully diluted 61,389 61,074 58,204 51,698 49,241 49,124 49,258 46,710 41,979 39,108
BALANCE SHEET DATA:
Total assets $701,148 $587,032 $554,780 $488,817 $339,099 $294,754 $275,835 $232,159 $164,835 $114,853
Long-term obligations 70,680 137,038 192,931 227,444 177,374 163,471 157,153 132,220 85,225 49,719
Shareholders' equity 462,154 348,630 292,950 200,992 108,334 87,462 70,651 58,530 49,257 40,661
OTHER DATA:
Company-owned retail
centers 165 143 127 123 96 99 100 88 86 85
Independent dealers 372 371 312 330 322 269 245 240 218 200
Manufacturing plants 13 13 11 10 10 10 10 8 7 6
- - ------------------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
Inventories increased at June 30, 1994 from June 30, 1993:
<TABLE>
<CAPTION>
Change
(in millions)
<S> <C>
MANUFACTURING GROUP
Increase in raw materials $ 0.2
Increase in finished goods 2.5
RETAIL GROUP
Net increase of 22 company-owned retail centers 8.0
Increase in average inventory levels at 143
company-owned sales centers 1.0
COMMUNITIES GROUP
Acquisition of 13 manufactured housing
communities and related inventory 2.6
Decrease in average inventory levels at
33 manufactured housing communities (1.7)
- - ------------------------------------------------- -----
$12.6
================================================= =====
</TABLE>
FISCAL 1993 COMPARED TO FISCAL 1992
Total revenues for the year ended June 30, 1993, increased 28% because of the
30% increase in manufactured housing sales and the 23% rise in financial
services and other income.
Net sales of the Retail Group rose 26% to $252 million primarily due
to an 8% increase in the average number of homes sold per company-owned retail
center, a 6% rise in the average number of company-owned retail centers open
during the year, and an 11% increase in the average home price. The rise in
the average home price is primarily attributable to a shift in the product mix
toward multi-section homes and larger single-section homes. Multi-section
homes represented 28% of all homes sold by the Retail Group versus 26% in the
prior year. The Company increased prices, in certain cases, on retail sales,
which are individually negotiated transactions, in response to market factors
and an increase in lumber prices over the prior year.
During the year, the Company acquired or opened 19 retail locations
while three unprofitable retail centers were closed. The Company constantly
evaluates specific local markets and opens, acquires, or closes retail centers
as conditions warrant.
Net sales of the Manufacturing Group to independent dealers increased
31% to $117 million due to the 23% increase in the number of homes sold and a
6% increase in the average wholesale price. The increase in the average home
price is due mainly to the rise in lumber prices from the prior year partially
offset by a shift in the product mix toward the less expensive single-section
home: 69% of units sold in fiscal 1993 versus 66% in the prior year.
14
<PAGE> 5
Production capacity for single-section models was added in July 1992. Two
additional production facilities for multi-section homes were acquired in the
spring and summer of 1993.
Net sales of the Communities Group rose 113% to $15 million primarily
due to the 75% increase in the average number of communities owned and a 21%
increase in the average number of homes sold per community, partially offset by
a 7% drop in the average home price. The decline in the average home price
relates to a slight shift in product mix toward less expensive used and
single-section models.
The 23% increase in financial services and other income to $92 million
from $74 million resulted principally from a $7 million increase in the gains
on sale of installment contract receivables, net of amortization, by VMF an $8
million rise in rental revenues in the communities operation, and a $3 million
growth in insurance premiums and commissions. Of the $7 million increase in
gains on sale of installment contract receivables, net of amortization,
approximately $3 million was reported in the fourth quarter as the result of an
adjustment to the discount rate. The adjustment to the discount rate resulted
from an analysis of relevant factors such as the impact of the continuing
decline of interest rates, actual prepayment experience and consultations with
investment advisors.
For the year ended June 30, 1993, interest and loan servicing revenues
fell $2 million, or 4%, to $55 million. The average balance of receivables
owned decreased 13% to $246 million with a decrease in the weighted averaged
interest rate to 13.6% from 15.1%. The average balance of receivables sold
increased 39% to $497 million with a decrease in the weighted average loan
service spread to 3.9% from 4.0%. In March 1992, the Resolution Trust
Corporation (RTC) contracted with the Company to act as master servicer for
manufactured housing contract receivables. The average balance of receivables
serviced was $167 million with a service fee of 1.2%. The increase in 1993
revenues reflects a full year of servicing under this contract compared to
approximately three months in 1992.
Financial Services' interest expense decreased $5 million, or 30%, to
$12 million. Average debt collateralized by installment contract receivables
dropped 28% to $115 million with a decline in the weighted average interest
rate to 10.1% from 10.4%. Loan covenants preclude prepaying these obligations.
Gross profit margins in 1993 dropped to 30.5% from 30.6% last year.
The decrease is primarily attributable to a higher charge to earnings than in
the prior year related to the last-in, first-out (LIFO) method of inventory
valuation ($4 million charge in 1993 versus $1 million in 1992). The decrease
in gross profit margins related to the LIFO adjustment is almost completely
offset by an improvement in margins mainly due to increased retail prices.
Selling, general and administrative expenses were 29.6% and 28.6% of
sales for the years ended June 30, 1993 and 1992, respectively. The rise is
due mainly to higher incentive compensation costs in the Retail Group and
increased compensation and fixed expense items such as property taxes,
insurance and depreciation in communities. The fixed expenses of the
Communities Group rose as a percentage of consolidated sales since there was an
86% increase in home sites owned and a 117% rise in sites rented during fiscal
1993. Partially offsetting the increase in expenses were improvements in
general corporate insurance costs for the entire Company and home delivery and
set-up expenses in retail operations.
No provision for credit losses and contingencies was made this year
compared to a provision of 1.1% of sales last year due to the excellent
charge-off and delinquency experience of the receivables for which the Company
is directly or contingently liable, the level of reserves for credit losses and
contingent liabilities in light of the portfolio performance, and the practice
begun in fiscal 1993 of selling most of the Company's conventional receivables
without recourse (versus selling them with limited recourse or borrowing
against the receivables as in the past). Net losses as a percentage of loans
outstanding for fiscal 1993 dropped to .2% from .4% last year while delinquency
rates declined to 1.4% of contracts originated by VMF at June 30, 1993, versus
2.0% at the same time last year. On June 30, 1993 reserves equaled 2.3% of
outstanding loans owned or on which the Company had contingent liability.
Inventories increased at June 30, 1993, from June 30, 1992:
<TABLE>
<CAPTION>
Change
(in millions)
<S> <C>
MANUFACTURING GROUP
Increase in raw materials $ 4.2
Increase in finished goods .2
RETAIL GROUP
Net increase of 16 company-owned retail centers 5.1
Decrease in average inventory levels at 127
company-owned retail centers (1.2)
COMMUNITIES GROUP
Acquisition of 13 manufactured housing
communities and related inventory 4.1
- - ------------------------------------------------------ -----
$12.4
====================================================== =====
</TABLE>
FOURTH QUARTER RESULTS
The increase in revenues and net income during the fourth quarters of fiscal
1994 and 1993 are not indicative of future operating trends but rather reflect
the seasonality of the manufactured housing industry. In recent years,
approximately 30% of the Company's sales have occurred in the fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, the Company originated and acquired approximately $384
million of installment contract receivables. The Company financed these
originations and acquisitions primarily through the pooling and sale of
approximately $320 million of installment contract receivables. The remainder
of the funding came from cash flows and cash balances. The Company invested
approximately $14 million in the acquisition of 13 properties for manufactured
housing communities and $8 million in related rental units, approximately $9
million for the opening of company-owned retail centers, $4 million for
improvement of existing manufacturing facilities and approximately $1 million
for other fixed assets using cash generated from operations.
The Company expects to invest approximately $27 million in 1995 in the
acquisition or construction of properties for manufactured housing communities,
up to $6 million for new company-owned retail centers, up to $14 million for
the construction and improvement of manufacturing facilities and to originate
$350 million of installment contract receivables. The Company anticipates to
meet cash needs for 1995 and thereafter with cash flows from operations,
current cash balances, and sale of installment contract receivables and GNMA
certificates.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board issued a new accounting standard (SFAS
No. 109) that revises the accounting for income taxes. The Company adopted
SFAS No. 109 effective July 1, 1993. The $3 million cumulative effect of the
change in method of accounting for income taxes was reported in the fiscal
quarter ending September 30, 1993. The accounting standard is discussed in
Note 1 to the consolidated financial statements.
EFFECTS OF INFLATION
Inflation has had an insignificant impact on the Company over the past several
years.
15
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
June 30,
(in thousands) 1994 1993
================================================================================================== ======== ========
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38,922 $ 28,668
Receivables, principally installment contracts and residual interests, net of reserve for credit
losses of $9,877 and $11,692 and unamortized discount of $12,022 and $16,384 354,114 319,159
Inventories 77,317 64,727
Property, plant and equipment, net 129,883 100,938
Other assets 100,912 73,540
- - -------------------------------------------------------------------------------------------------- -------- --------
Total assets $701,148 $587,032
================================================================================================== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 55,844 $ 35,644
Long-term obligations 70,680 137,038
Deferred income taxes 7,258 7,334
Other liabilities 105,212 58,386
- - -------------------------------------------------------------------------------------------------- -------- --------
Total liabilities 238,994 238,402
Shareholders' equity
Preferred stock, $.10 par value, authorized 1,000 shares, none issued -- --
Common stock, $.10 par value, authorized 100,000 shares, issued 60,240
at June 30, 1994 and 44,816 at June 30, 1993 6,024 4,482
Additional paid-in capital 171,994 132,297
Retained earnings 284,136 211,851
- - -------------------------------------------------------------------------------------------------- -------- --------
Total shareholders' equity 462,154 348,630
- - -------------------------------------------------------------------------------------------------- -------- --------
Total liabilities and shareholders' equity $701,148 $587,032
================================================================================================== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of
Clayton Homes, Inc. and Subsidiaries as of June 30, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended June 30, 1994.
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 conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Clayton Homes, Inc. and Subsidiaries as of June 30, 1994, and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles.
On July 1, 1993, the Company changed its method of accounting for
income taxes as described in Note 1.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
August 3, 1994
16
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands except per share data) 1994 1993 1992
================================================================================== ======== ======== ========
<S> <C> <C> <C>
Revenues:
Net sales $510,153 $384,491 $296,849
Financial services and other income 118,083 91,750 74,330
- - ---------------------------------------------------------------------------------- -------- -------- --------
628,236 476,241 371,179
Costs and expenses:
Cost of sales 357,698 267,201 206,049
Selling, general and administrative 153,698 113,695 84,785
Financial services interest 8,196 11,819 16,585
Provision for credit losses and contingencies -- -- 3,300
- - ---------------------------------------------------------------------------------- -------- -------- --------
519,592 392,715 310,719
- - ---------------------------------------------------------------------------------- -------- -------- --------
Operating income 108,644 83,526 60,460
Interest expense, net (359) (170) (317)
- - ---------------------------------------------------------------------------------- -------- -------- --------
Income before income taxes and cumulative effect of change in method of accounting 108,285 83,356 60,143
Provision for income taxes (39,000) (29,600) (20,800)
- - ---------------------------------------------------------------------------------- -------- -------- --------
Income before change in method of accounting $ 69,285 $ 53,756 $ 39,343
Cumulative effect as of July 1, 1993 of change in method of
accounting for income taxes 3,000 -- --
- - ---------------------------------------------------------------------------------- -------- -------- --------
Net income $ 72,285 $ 53,756 $ 39,343
================================================================================== ======== ======== ========
Net income per common share before change in method of accounting:
Primary $ 1.18 $ .94 $ .72
Fully diluted 1.15 .91 .71
Cumulative effect of change in method of accounting per common share:
Primary $ .05 -- --
Fully diluted .05 -- --
Net income per common share:
Primary $ 1.23 $ .94 $ .72
Fully diluted 1.20 .91 .71
Average shares outstanding:
Primary 58,919 57,088 54,218
Fully diluted 61,389 61,074 58,204
- - ---------------------------------------------------------------------------------- -------- -------- --------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total Additional
Shareholders' Common Paid-in Retained
(in thousands) Equity Stock Capital Earnings
========================================================== ============ ====== ========== ========
<S> <C> <C> <C> <C>
Balance at June 30, 1991 $200,992 $2,638 $ 79,602 $118,752
Net income 39,343 -- -- 39,343
Five-for-four stock split -- 665 (665) --
Issuance of 2,300 shares of stock, net 48,809 230 48,579 --
Issuance related to stock incentive plans, employee
benefit plans and other 3,806 34 3,772 --
- - ---------------------------------------------------------- -------- ------ -------- --------
Balance at June 30, 1992 292,950 3,567 131,288 158,095
Net income 53,756 -- -- 53,756
Five-for-four stock split -- 896 (896) --
Issuance related to stock incentive plans, employee
benefit plans and other 1,924 19 1,905 --
- - ---------------------------------------------------------- -------- ------ -------- --------
Balance at June 30, 1993 348,630 4,482 132,297 211,851
NET INCOME 72,285 -- -- 72,285
FIVE-FOR-FOUR STOCK SPLIT -- 1,126 (1,126) --
CONVERSION OF SUBORDINATED DEBT 40,265 398 39,867 --
PURCHASE OF 210 SHARES OF COMMON STOCK (4,175) (21) (4,154) --
ISSUANCE RELATED TO STOCK INCENTIVE PLANS, EMPLOYEE
BENEFIT PLANS AND OTHER 5,149 39 5,110 --
- - ---------------------------------------------------------- -------- ------ -------- --------
BALANCE AT JUNE 30, 1994 $462,154 $6,024 $171,994 $284,136
========================================================== ======== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands) 1994 1993 1992
=============================================================================== ========= ========= =========
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 72,285 $ 53,756 $ 39,343
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,679 4,991 3,533
Provision for credit losses and contingencies -- -- 3,300
Amortization of discount and accretion on
installment contract receivables (5,204) (6,823) (5,140)
Gain on sale of installment contract receivables, net of amortization (16,276) (9,472) (2,534)
Stock issued for profit-sharing 401(k) contribution 2,171 1,682 2,229
Deferred income taxes 2,924 2,200 (1,160)
Cumulative effect of change in method of accounting for income taxes (3,000) -- --
Increase in other receivables (8,086) (5,927) (2,428)
(Increase) decrease in inventories (12,590) (12,403) 7,904
Increase in accounts payable and accrued liabilities 21,393 5,116 389
Net increase in other assets and other liabilities 28,908 20,529 1,790
- - ------------------------------------------------------------------------------- --------- --------- ---------
Cash provided by operations 89,204 53,649 47,226
Origination of installment contract receivables (292,435) (230,733) (177,311)
Proceeds from sales of originated installment contract receivables 262,346 195,037 118,556
Principal collected on originated installment contract receivables 33,046 34,442 37,621
- - ------------------------------------------------------------------------------- --------- --------- ---------
Net cash provided by operations 92,161 52,395 26,092
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract receivables (91,882) (21,258) (18,323)
Proceeds from sales of acquired installment contract receivables 57,588 14,371 1,300
Principal collected on acquired installment contract receivables 15,098 15,376 12,842
Acquisition of partnership interest in Communities:
Property, plant and equipment -- (14,723) --
Debt Assured -- 4,975 --
Acquisition of property, plant and equipment, net (35,601) (22,705) (19,073)
Increase in restricted cash and investments (21,149) (4,736) (12,845)
- - ------------------------------------------------------------------------------- --------- --------- ---------
Net cash used in investing activities (75,946) (28,700) (36,099)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt collateralized by installment
contract receivables -- -- 26,000
Short term borrowing 106,319 2,202 --
Repayment of short-term borrowing (83,521) -- --
Repayment of debt collateralized by installment contract receivable (26,368) (57,522) (53,976)
Repayment of manufactured housing obligations -- (3,346) (6,537)
Proceeds from capital stock issued -- -- 48,809
Proceeds from stock issued for incentive and employee benefit plans and other 1,784 242 1,577
Purchase of common stock (4,175) -- --
- - ------------------------------------------------------------------------------- --------- --------- ---------
Net cash (used) provided by financing activities (5,961) (58,424) 15,873
- - ------------------------------------------------------------------------------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents 10,254 (34,729) 5,866
Cash and cash equivalents at beginning of year 28,668 63,397 57,531
- - ------------------------------------------------------------------------------- --------- --------- ---------
Cash and cash equivalents at end of year $ 38,922 $ 28,668 $ 63,397
=============================================================================== ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10,049 $ 16,176 $ 20,067
Income taxes 22,441 25,047 21,154
Supplemental disclosure of non-cash activities: In February 1994, installment
contracts aggregating $10,850 were transferred to investments coincident
with a sale of receivables
- - ------------------------------------------------------------------------------ --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Clayton Homes, Inc. and Subsidiaries
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The consolidated financial statements include the accounts of Clayton
Homes, Inc. (CHI) and its wholly-owned subsidiaries. Financial Services
subsidiaries consist of Vanderbilt Mortgage and Finance, Inc. (VMF), a finance
subsidiary, and Clayton-Vanderbilt, Inc. (CV), Vanderbilt Life and Casualty
Insurance Co. Ltd. (VLAC), and Vanderbilt Property and Casualty Insurance Co.
Ltd. (VPC), insurance subsidiaries. CHI and its subsidiaries are collectively
referred to as the Company. Significant intercompany accounts and
transactions have been eliminated in the financial statements. The Company
operates in three principal business segments: Manufactured Housing, Financial
Services, and Communities.
PARENT COMPANY
Condensed financial information of CHI with VMF, CV, VLAC and VPC
accounted for on the equity basis is as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
(in thousands) 1994 1993
=============================================== ======== ========
<S> <C> <C>
Cash and cash equivalents $ 37,905 $ 26,368
Receivables 21,999 18,148
Inventories 77,317 64,727
Advances to unconsolidated subsidiaries 48,000 43,000
- - ----------------------------------------------- -------- --------
Current assets 185,221 152,243
Investments in and advances to
unconsolidated subsidiaries 235,056 193,932
Property, plant and equipment, at cost, net of
accumulated depreciation and amortization 129,883 100,938
Other assets 0 4,264
- - ----------------------------------------------- -------- --------
Total assets $550,160 $451,377
=============================================== ======== ========
Short-term obligations $ 25,144 $ 2,245
Accounts payable 28,803 26,759
Accrued expenses and other liabilities 16,443 8,510
Federal and state income taxes 1,366 2,680
- - ----------------------------------------------- -------- --------
Current liabilities 71,756 40,194
Long-term obligations less current maturities 5,089 45,123
Notes payable to unconsolidated subsidiaries 7,053 7,430
Reserve for credit losses and contingencies 2,650 6,782
Deferred income taxes 1,458 3,218
Shareholders' equity 462,154 348,630
- - ----------------------------------------------- -------- --------
Total liabilities and shareholders' equity $550,160 $451,377
=============================================== ======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands) 1994 1993 1992
======================================= ======== ======== ========
<S> <C> <C> <C>
Revenues:
Net sales $510,153 $384,491 $296,849
Equity in net income of
unconsolidated subsidiaries 34,066 27,062 20,336
Insurance commissions, rent
and other 34,026 27,659 17,273
Interest and dividend income 5,965 4,252 7,177
- - --------------------------------------- -------- -------- --------
584,210 443,464 341,635
Costs and expenses:
Cost of sales 357,697 267,201 206,049
Selling, general and administrative 134,773 105,842 79,618
Provision for credit losses
and contingencies -- -- 2,729
Interest 655 1,425 3,656
- - --------------------------------------- -------- -------- --------
493,125 374,468 292,052
- - --------------------------------------- -------- -------- --------
Income before income taxes 91,085 68,996 49,583
Provision for income taxes (21,800) (15,240) (10,240)
- - --------------------------------------- -------- -------- --------
Income before accounting change 69,285 53,756 39,343
Cumulative effect of accounting change 3,000 -- --
- - --------------------------------------- -------- -------- --------
Net income $ 72,285 $ 53,756 $ 39,343
======================================= ======== ======== ========
</TABLE>
Subsidiaries
The following information is provided for the consolidated financial
services subsidiaries. Such subsidiaries consist of VMF, CV, VLAC and VPC.
Through VMF, CHI arranges to finance a portion of its retail sales. CV, VLAC
and VPC reinsure risk on credit life and physical damage insurance policies
issued by a non-related insurance company (ceding company) in connection with
credit sales. The financial statements of the Manufactured Home Contracts
1990-1 Trust and CABS, Inc., a special purpose finance subsidiary of VMF, are
also included in the condensed combined financial statements below. Condensed
combined financial information for these subsidiaries is as follows:
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
(in thousands) 1994 1993
================================================= ======== ========
<S> <C> <C>
Installment contract receivables, net of reserve
for credit losses of $7,227 and $7,274 and
unamortized discount of $12,022 and $16,384
(pledged $100,000 and $125,000 at June 30,
1994, and 1993, respectively) $335,785 $308,960
Other assets 104,907 74,411
- - ------------------------------------------------- -------- --------
Total assets $440,692 $383,371
================================================= ======== ========
Notes payable collateralized by installment
contract receivables $ 65,447 $ 91,872
Unearned premiums 25,257 13,080
Other liabilities 77,831 42,718
Due to CHI 155,934 149,936
Shareholders' equity 116,223 85,765
- - ------------------------------------------------- -------- --------
Total liabilities and shareholder's equity $440,692 $383,371
================================================= ======== ========
</TABLE>
CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands) 1994 1993 1992
==================================== ======= ======= =======
<S> <C> <C> <C>
Revenues $84,657 $64,684 $64,526
Expenses:
Interest expense 12,422 16,375 21,270
Other 20,969 6,887 11,914
Provision for credit losses
and contingencies -- -- 571
Income taxes 17,200 14,360 10,560
- - ------------------------------------ ------- ------- -------
50,591 37,622 44,315
- - ------------------------------------ ------- ------- -------
Net income $34,066 $27,062 $20,211
==================================== ======= ======= =======
</TABLE>
VMF paid CHI endorsement fees of $10,414,000 in 1994; $8,222,000 in
1993; and $6,390,000 in 1992. VMF also paid interest to CHI of $7,136,000 in
1994; $4,555,000 in 1993; and $4,652,000 in 1992. Such intercompany payments
have been eliminated in the consolidated financial statements but are expensed
on VMF's separate financial statements to arrive at operating income for the
Financial Services Group.
Estimated principal receipts under installment contract receivables
for each of the five fiscal years subsequent to 1994 are as follows:
<TABLE>
<S> <C>
1995 $180,000,000
1996 18,000,000
1997 17,000,000
1998 16,000,000
1999 14,000,000
</TABLE>
The estimated principal receipts are based on the scheduled payment
and estimated prepayment of principal of the installment contract receivables.
Principal receipts during the year ending June 30, 1994, include amounts
relating to the sale of $164 million of installment contract receivables in
August 1994.
19
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
VMF provides servicing for investors in installment contract
receivables. Total contracts serviced at June 30, 1994, and 1993, including
contracts held for investment, were approximately $1,316 million and $961
million, respectively.
INCOME RECOGNITION
Sales to independent dealers of homes produced by CHI are recognized
as revenue upon shipment. Retail sales are recognized when cash payment is
received, or in the case of credit sales, which represent the majority of
retail sales, when a down payment is received and the customer enters into an
installment sales contract. Most of these installment sales contracts, which
are normally payable over 36 to 180 months, are sold to VMF.
As is customary in the manufactured housing industry, CHI receives
from VMF and other financial institutions endorsement fees over the lives of
installment contract receivables in consideration for CHI's guaranty of such
installment contract receivables. Additionally, CHI receives agent's
commissions on physical damage and credit life insurance sold to manufactured
home purchasers. Premiums from credit life and physical damage insurance
policies reinsured by CV, VLAC and VPC, which represent single payment
contracts with terms of one to five years, are recognized as income over the
terms of the contracts. Claims and expenses are matched to recognize profits
over the life of the contracts. This matching is accomplished by means of the
provision for unearned premiums and the deferral and subsequent amortization of
policy acquisition costs.
Installment contract receivables originated or purchased by VMF are
sold to investors or pledged as collateral to long-term lenders. VMF retains
servicing in both cases. Profit (loss) on installment contract receivables
sold to investors is recorded at the time of sale and represents the discounted
present value of the excess (deficiency) of principal and interest to be
collected during the expected normal life of the contracts over: 1) the amount
required to be remitted to investors; 2) the normal service spread of
comparable contracts; and 3) the estimated net credit losses. Profit from
installment contract receivables sold without recourse is increased, in certain
cases, by the reversal of the reserve for credit losses attributable to the
receivables sold.
Certain of the installment contract receivables are purchased in bulk
at a discount. The purchase discounts are allocated between unamortized
discount and the reserve for credit losses based on management's assessment of
risks existing in the portfolio. Unamortized discount is amortized into
revenue over the life of the related portfolio after giving consideration to
prepayments. Adjustments between the reserve for credit losses and unamortized
discount are made to reflect changes in the estimated collectibility of each
portfolio purchased.
Most of the installment contract receivables are with borrowers in the
southern portion of the United States and are collateralized by manufactured
homes.
Interest income on installment contract receivables is recognized by a
method which approximates the interest method. Service fee income is
recognized as the service is performed.
Inventories - Manufactured Housing
New homes and raw materials are valued at the lower of cost, using the
last-in, first-out (LIFO) method of inventory valuation, or market.
Previously-owned manufactured homes are valued at estimated wholesale prices,
which are not in excess of net realizable value.
Property, Plant and Equipment - Manufactured Housing
Land and improvements, buildings, and furniture and equipment are
valued at cost. Major renewals and improvements are capitalized while
replacements, maintenance and repairs, which do not improve or extend the life
of the respective assets, are expensed currently. When depreciable assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in earnings for the period.
Depreciation is computed primarily by the straight-line method with estimated
useful lives as follows:
<TABLE>
<S> <C>
Land improvements . . . . . . . . . . 3-28 years
Buildings . . . . . . . . . . . . . . 7-25 years
Furniture and equipment . . . . . . . 3-10 years
</TABLE>
Warranty Obligation - Manufactured Housing
Manufactured Housing warrants its homes against manufacturing defects
for a period of one year commencing at the time of the retail sale. Warranty
costs are accrued for sales to independent dealers. Warranty costs related to
the sales at company-owned retail centers are not material and are recognized
as incurred.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the asset or liability from
period to period. The adoption resulted in a decrease in the deferred tax
liability of $3 million.
Reserves for Credit Losses and Contingent Liabilities
Reserves for credit losses are established related to installment
contract receivables. Actual credit losses are charged to reserves when
incurred. The reserves established for such losses are determined based on the
Company's historical loss experience after adjusting for current economic
conditions. Management, in assessing loss experience and economic conditions,
adjusts reserves through periodic provisions. The Company also maintains a
reserve for contingent liabilities related to guarantees of installment
contract receivables sold with recourse. Reserves and the applicable
provisions related to guarantees are considered as part of the Manufactured
Housing business segment.
20
<PAGE> 11
Net Income Per Share
Primary earnings per share are computed based on the weighted average
number of shares of common stock outstanding during the periods presented,
including common share equivalents arising from stock options. Fully diluted
earnings per share have been computed assuming conversion of the Company's
convertible subordinated debentures. The fully diluted computation adds to net
income the interest expense (net of income tax) on the debentures.
Cash Equivalents
For purposes of the statement of cash flows, all unrestricted highly
liquid debt instruments purchased with a maturity of three months or less are
considered to be cash equivalents.
Other
Certain reclassifications have been made to the 1993 and 1992
financial statements to conform to the 1994 presentation.
Per share and share data have been retroactively adjusted to reflect a
5-for-4 stock split effected as a 25% stock dividend in December 1993.
NOTE 2 - INVENTORIES
Inventories at June 30, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
========================= ======= =======
<S> <C> <C>
Manufactured homes:
New $55,651 $45,592
Previously-owned 10,953 8,642
Raw materials 10,713 10,493
- - ------------------------- ------- -------
$77,317 $64,727
========================= ======= =======
</TABLE>
If the first-in, first-out (FIFO) method of inventory valuation had
been used, inventories would have been higher by $11,972,000 and $8,510,000 at
June 30, 1994, and 1993, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1994, and 1993 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
=================================================== ======== ========
<S> <C> <C>
Land and improvements $ 92,277 $ 71,626
Buildings 49,395 36,990
Furniture and equipment 15,393 13,324
- - --------------------------------------------------- -------- --------
157,065 121,940
Less: accumulated depreciation and amortization (27,182) (21,002)
- - --------------------------------------------------- -------- --------
$129,883 $100,938
=================================================== ======== ========
</TABLE>
Depreciation charged to operations was $6,656,000, $4,900,000, and
$3,442,000 for each of the years ended June 30, 1994, 1993, and 1992,
respectively. Included in Property, Plant and Equipment are $11 million of
assets acquired from the Company's principal shareholder during 1994.
NOTE 4 - LONG-TERM OBLIGATIONS
Long-term obligations at June 30, 1994, and 1993 are summarized as
follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
========================================== ======= ========
<S> <C> <C>
CHI
Convertible subordinated debentures:
7.75%, due 2003 $ -- $ 40,000
10% note payable due June 1, 1998 4,960 4,960
Other notes payable 273 206
- - ------------------------------------------ ------- --------
5,233 45,166
VMF
Debt collateralized by installment
contract receivables:
Demand note payable to Clayton
Employees Savings Plan at .5%
above prime 3,000 3,000
Maturing in fiscal years through:
1995 to 2004: average interest
rate of 10.00% at June 30, 1994 40,623 49,735
1995 to 2005:9.4%REMIC
trust senior certificates 13,699 26,068
1995 to 2003: adjustable rates,
average interest 9.95% at June 30,
1994, average maximum rate
14.97% at June 30, 1994 4,768 8,376
1996 to 2001: adjustable rates,
5.54% at June 30, 1994, no
maximum rate 3,357 4,693
- - ------------------------------------------ ------- --------
65,447 91,872
- - ------------------------------------------ ------- --------
Total $70,680 $137,038
========================================== ======= ========
</TABLE>
The aggregate maturities of long-term debt of CHI for fiscal years
subsequent to 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 144,000
1996 113,000
1997 90,000
1998 81,000
1999 87,000
Thereafter 4,718,000
</TABLE>
Expected principal payments of long-term debt of VMF for the five
fiscal years subsequent to 1994 are as follows:
<TABLE>
<S> <C>
1995 $11,000,000
1996 10,000,000
1997 9,000,000
1998 10,000,000
1999 7,000,000
</TABLE>
The estimated principal payments on the debt of VMF are based on the
scheduled payment and estimated prepayment of principal of the installment
contract receivables collateralizing such debt. Certain debt agreements
require fixed payments which approximate the scheduled payments of the
underlying installment contract receivables.
On March 1, 1994, the Company called for redemption all of its 7.75%
convertible subordinated debentures due 2003. Substantially all of the $40
million of such debentures converted into approximately 4 million shares of
common stock.
Certain of the long-term obligations have various covenants relating
to working capital, total indebtedness and dividend payments. At June 30,
1994, the aggregate amount of earnings available for cash dividends or for
repurchase of Company stock was approximately $281 million.
21
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5 - RESERVES FOR CREDIT LOSSES AND CONTINGENT LIABILITIES
An analysis of the reserve for losses on installment contract
receivables and reserve for contingent liabilities for the years ended June 30,
1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
=================================== ======= ======= =======
<S> <C> <C> <C>
Balance, beginning of year $17,229 $25,279 $26,591
Provision -- -- 3,300
Losses, net of recoveries
applicable to installment
contract receivables:
Purchased (2,230) (4,092) (5,107)
Other (526) (1,126) (2,141)
Reserves transferred from
(to) unamortized discount (1,598) 690 --
Reserves applicable to
installment contract
receivables purchased
(sold) 1,207 (3,522) 2,636
- - ----------------------------------- ------- ------- -------
Balance, end of year $14,082 $17,229 $25,279
=================================== ======= ======= =======
Reserve for credit losses $ 9,877 $11,692 $16,457
Reserve for contingencies 4,205 5,537 8,822
- - ----------------------------------- ------- ------- -------
$14,082 $17,229 $25,279
=================================== ======= ======= =======
</TABLE>
The reserve for credit losses is netted against receivables and the
reserve for contingencies is included in other liabilities on the consolidated
balance sheet.
The Company is contingently liable as guarantor on installment
contract receivables sold with recourse. The installment contract receivables
and related contingent liabilities are shown in the table below.
<TABLE>
<CAPTION>
Total Installment Contingent
Contract Receivables Contingent Liabilities
(in thousands) Liability % (in thousands)
==============================================================
<S> <C> <C>
June 30, 1994
$ 20,000 100% $20,000
122,000 11% - 30% 28,000
147,000 10% and below 15,000
- - --------------------------------------------------------------
$289,000 $63,000
==============================================================
June 30, 1993
$ 29,000 100% $29,000
162,000 11% - 30% 39,000
153,000 10% and below 15,000
- - --------------------------------------------------------------
$344,000 $83,000
==============================================================
</TABLE>
Proceeds from receivables sold with recourse amounted to $20 million,
$34 million and $120 million, during 1994, 1993 and 1992, respectively.
Approximately 90% of the installment contract receivables both owned
and sold with recourse have fixed rates of interest and approximately 10% are
at variable rates of interest based on either the prime rate or the U.S.
Treasury rates.
Approximately 98% of the Company's servicing arrangements are based on
interest spreads with fixed rates or variable rates with ceilings while the
remaining 2% have variable rates which provide for no minimum or maximum rate
of interest.
NOTE 6 - SHAREHOLDERS' EQUITY
Stock Option Plan
In 1983, 1985 and 1991, the Company established Stock Option Plans for
a total of 4,411,816 shares of common stock which provide for granting
"incentive stock options" or "non-qualified options" at not less than the fair
market value as of the date of grant and stock appreciation rights to officers
and key employees of the Company. Options are exercisable after one or more
years and expire no later than 10 years from the date of grant.
Non-eligible members of the Board of Directors have granted options to
purchase shares of common stock to the Company's non-management directors. The
option prices were established at not less than the fair market value either as
of the date of grant, or as of February 1988. The option prices and provisions
for exercise were approved by shareholders. Options are exercisable after one
or more years and expire no later than 10 years from the date of grant.
Activity and price information regarding the plan follows:
<TABLE>
<CAPTION>
Stock Option
Shares Price Range
=================================================================
<S> <C> <C>
Balance June 30, 1991 1,682,943 $ 1.64 - $ 9.02
Granted 456,640 $ 8.90 - $12.32
Exercised (203,235) $ 1.64 - $ 4.35
Canceled (19,083) $ 2.14 - $ 8.90
- - -----------------------------------------------------------------
Balance June 30, 1992 1,917,265 $ 1.64 - $12.32
Granted 254,814 $12.32 - $18.08
Exercised (196,091) $ 1.64 - $ 9.34
Canceled (98,334) $ 1.64 - $18.08
- - -----------------------------------------------------------------
Balance June 30, 1993 1,877,654 $ 1.64 - $18.08
GRANTED 485,325 $18.40 - $25.25
EXERCISED (353,264) $ 1.64 - $18.08
CANCELED (33,120) $ 1.64 - $25.25
- - -----------------------------------------------------------------
BALANCE JUNE 30, 1994 1,976,595 $ 1.64 - $25.25
=================================================================
</TABLE>
Options available for future grant at June 30, 1994 and 1993 were
1,086,532 and 1,501,215, respectively.
At June 30, 1994, and 1993 options for 473,286 and 617,594 shares,
respectively, were exercisable. Options were held by 333 persons at June 30,
1994.
Stock Purchase Plan
In 1986 the Company established an employee stock purchase plan for a
total of 1,907,350 shares of common stock which provide for granting options at
85% of the lower of the closing market price on the first trading day of the
plan period or the closing market price on the last trading day of the plan
period. A plan period is six months beginning each January 1 and July 1 of
each plan year. The Stock Purchase Plan was suspended during 1992. There were
105,506 shares issued in 1992 at an average price of $7.41 per share. At June
30, 1994, there were 996,993 shares reserved for the plan.
NOTE 7 - INCOME TAXES
Components of income tax provisions for each of the three years ended
June 30, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
================================== ======= ======= =======
<S> <C> <C> <C>
Current tax provisions:
Federal $32,772 $24,798 $20,267
State 3,304 2,602 1,693
- - ---------------------------------- ------- ------- -------
36,076 27,400 21,960
Deferred tax provision (credit) 2,924 2,200 (1,160)
- - ---------------------------------- ------- ------- -------
$39,000 $29,600 $20,800
================================== ======= ======= =======
</TABLE>
The sources and tax effect of temporary differences at June 30, 1994
are as follows:
<TABLE>
<CAPTION>
(in thousands)
=============================================== ========
<S> <C>
Reserve for credit losses and contingencies $ 2,070
Insurance reserves 1,650
- - ----------------------------------------------- --------
Total assets 3,720
Future servicing fees and discounts (6,597)
Deferred costs (1,053)
Other (3,328)
- - ----------------------------------------------- --------
Total liabilities (10,978)
- - ----------------------------------------------- --------
Net deferred tax liability $ (7,258)
=============================================== ========
</TABLE>
22
<PAGE> 13
The provision for income taxes reflected in the financial statements
differs from income taxes calculated at statutory federal income tax rates of
35% in 1994 and 34% in 1993 and 1992 as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
=================================== ======= ======= =======
<S> <C> <C> <C>
Income taxes at statutory rate $37,900 $28,758 $20,448
State income taxes, net of
federal benefit 2,313 1,704 1,117
Other, net (1,213) (862) (765)
- - ----------------------------------- ------- ------- -------
$39,000 $29,600 $20,800
=================================== ======= ======= =======
</TABLE>
In 1993 and 1992, deferred income tax credits and provisions resulted
from timing differences in the recognition of revenues and expenses for tax and
financial statement purposes. The sources of these differences and the tax
effect of each were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
=============================== ====== ========
<S> <C> <C>
Reserves for credit losses
and contingencies $1,184 $ (361)
Future servicing fees 1,330 862
Installment method (398) (1,792)
Insurance reserves (157) 270
Other items 241 (139)
- - ------------------------------- ------ -------
$2,200 $(1,160)
=============================== ====== =======
</TABLE>
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit-sharing plan covering all employees
who meet participation requirements. The amount of the Company's contribution
is discretionary as determined by the Board of Directors, up to the maximum
deduction allowed for federal income tax purposes. Contributions accrued were
$2,171,000, $1,689,000, and $1,425,000, for the years ended June 30, 1994,
1993, and 1992, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
Certain operating properties are rented under non-cancelable operating
leases which expire at various dates through 2001. Total rental expense under
operating leases was $2,159,000 in 1994, $3,100,000 in 1993, and $1,863,000 in
1992. The following is a schedule of minimum rental commitments under
non-cancelable operating leases, primarily for retail centers, in effect at
June 30, 1994:
<TABLE>
<S> <C>
1995 $1,822,000
1996 1,682,000
1997 1,270,000
1998 871,000
1999 and thereafter 548,000
</TABLE>
Repurchase Agreements
Institutions financing independent dealer purchases require the
Company to execute repurchase agreements. As a result of these agreements, the
Company is contingently liable for repurchasing units in the event of a default
by the dealer to the lending institution. These agreements are customary in
the manufactured housing industry, and the Company's losses in the past have
not been significant.
Guarantor of Installment Contract Receivables
Please see discussion of contingencies at Note 5.
NOTE 10 - INDUSTRY SEGMENT INFORMATION
The Company operates in three major business segments: Manufactured
Housing, Financial Services and Communities. The Manufactured Housing segment
is engaged in the production, wholesale and retail sale of manufactured homes.
Financial Services is composed of VMF, which is engaged in retail financing of
manufactured homes, and CV, VLAC and VPC which reinsure risk on credit life and
physical damages insurance policies. Communities is engaged in marketing and
management of manufactured housing communities. Operating profit is total
revenue less cost of sales, operating expenses and financial interest expense.
The following items have not been included in the computation of operating
income: non-operating income and expenses and income taxes. Identifiable
assets are those assets used in the operation of each industry segment.
Corporate assets primarily consist of short-term investments.
Information concerning operations by industry segment follows:
<TABLE>
<CAPTION>
Manufactured Financial
(in thousands) Housing Services Communities Corporate Total
================================== ============ ========= =========== ========= =====
<S> <C> <C> <C> <C> <C>
1994
REVENUES $510,329 $ 80,741 $37,166 $ -- $628,236
INTERSEGMENT INCOME 19,630 -- 1,224 (20,854) --
OPERATING INCOME 48,183 53,620 6,841 -- 108,644
IDENTIFIABLE ASSETS 122,101 440,690 99,032 39,325 701,148
DEPRECIATION AND AMORTIZATION 3,982 -- 2,674 -- 6,656
CAPITAL EXPENDITURES 12,777 -- 22,824 -- 35,601
- - ---------------------------------- -------- --------- ------- -------- --------
1993
Revenues $384,235 $ 64,684 $27,322 $ -- $476,241
Intersegment Income 14,162 -- 1,041 (15,203) --
Operating income 37,229 41,422 4,875 -- 83,526
Identifiable assets 104,067 383,371 69,521 30,073 587,032
Depreciation and amortization 3,235 -- 1,756 -- 4,991
Capital expenditures 10,301 -- 27,127 -- 37,428
- - ---------------------------------- -------- --------- ------- -------- --------
1992
Revenues $295,258 $ 64,526 $11,395 $ -- $371,179
Intersegment Income 10,713 -- 329 (11,042) --
Operating income 28,921 30,771 768 -- 60,460
Identifiable assets 85,693 358,207 45,070 65,810 554,780
Depreciation and amortization 2,474 -- 1,059 -- 3,533
Capital expenditures 5,638 -- 13,435 -- 19,073
================================== ======== ========= ======= ======== ========
</TABLE>
23
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 - OTHER ASSETS AND LIABILITIES
At June 30, 1994, and 1993 other assets and liabilities consisted of:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
===================================================== ======== =======
<S> <C> <C>
Other Assets
Restricted cash and investments $ 69,354 $48,205
Interest receivable and future servicing rights 12,672 14,541
Deferred debt costs and prepaid expenses 3,314 2,621
Other 15,572 8,173
- - ----------------------------------------------------- -------- -------
$100,912 $73,540
===================================================== ======== =======
Other Liabilities
Investors payable $ 24,067 $21,293
Reserve for contingencies (Note 6) 4,205 5,537
Escrow deposits 13,904 15,357
Unearned insurance premiums 25,257 13,080
Short-term borrowing 25,000 2,202
Other 12,779 917
- - ----------------------------------------------------- -------- -------
$105,212 $58,386
===================================================== ======== =======
</TABLE>
Restricted cash and investments represent reserves required by: 1)
certain VMF servicing and debt agreements to be maintained until such time as
specified minimum repayments have been made; 2) trust account cash balances
required by certain VMF servicing agreements; and 3) insurance reserves
required by escrow or trust agreements.
CHI and VMF have lines of credit totaling $60 million with $25 million
outstanding at June 30, 1994. This short-term borrowing is included in other
liabilities and bears interest at an average rate of 4.9% based on the banks'
transactional rates at June 30, 1994.
NOTE 12 - FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures About Fair Value of Financial Instruments," requires that the CHI
disclose the estimated fair values of its financial instruments. The following
methodologies and assumptions were used by CHI to estimate its fair value
disclosures for financial instruments.
Cash and Cash Equivalents
The carrying values for cash and cash equivalents, including those
restricted by agreement, equal those assets' fair values.
Future Servicing Rights Receivable
Future servicing rights receivable is calculated using prepayment,
default and interest rate assumptions that CHI believes are appropriate at the
time of the sale of the installment contract receivables. Although projected
performance is monitored after the sale, the Company does not alter the
underlying rate at which the future estimated cash flows are discounted once
the sale has been recorded. The fair value of future servicing rights
receivable primarily revolves around an appropriate discount rate to be applied
to the asset as a whole.
CHI used a discount rate and such other assumptions as it believed to
be used for similar instruments. CHI has estimated the fair value of its future
servicing rights receivable to approximate its carrying value as of June 30,
1994.
Contracts Held for Sale and as Collateral
Contracts held for sale are generally recent originations or purchased
portfolios which will be sold with limited or no recourse during the following
year. CHI does not charge fees to originate loans, and, as such, its contracts
have origination rates in excess of rates on the securities into which they
will be pooled. CHI estimates the fair value of the contracts held for sale to
be the carrying amount plus the cost of origination.
The carrying values of contracts pledged as collateral to long-term
lenders are estimated using discounted cash flow analyses and interest rates
being offered for similar contracts. The carrying amount of contracts with a
variable rate of interest is estimated to be at fair value. The carrying value
of accrued interest adjusted for credit risk equals its fair value.
Long-term Obligations
Long-term obligations consist primarily of debt collateralized by
contracts with maturities that coincide with the underlying contract
maturities. The fair value of these financial instruments is based on the
current rates offered to CHI for debt of similar maturities using a discounted
cash flow calculation. Loan covenants preclude prepaying VMF obligations.
The carrying amounts and estimated fair values of CHI's financial
assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30, 1994
Carrying Estimated
(in thousands) Amount Fair Value
======================================================================
<S> <C> <C>
Financial assets:
Cash and cash equivalents, including
restricted investments $108,276 $108,276
Future servicing rights receivable 6,243 6,243
Contracts held for sale and as
collateral, including accrued
interest receivable 295,669 299,773
Financial liabilities:
Long-term obligations 70,680 75,126
- - ----------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
The estimates do not reflect any premium or discount that could result from
offering for sale in a single transaction CHI's entire holdings of a particular
financial instrument. The lack of uniform valuation methodologies introduces a
greater degree of subjectivity to these estimated fair values. Comparability
to financial instruments between similar companies may not be reasonable
because of varying assumptions concerning the estimates of fair value.
24
<PAGE> 15
DIRECTORS, OFFICERS AND SHAREHOLDER INFORMATION
<TABLE>
<S> <C> <C> <C>
BOARD OF DIRECTORS
(PHOTO) (PHOTO) (PHOTO) (PHOTO)
JAMES L. CLAYTON B. JOE CLAYTON JAMES D. COCKMAN (1)(2) WALLACE C. DOUD
Chairman of the Board and Chief Executive Officer, Chairman of the Board, Vice President - Commercial and
Chief Executive Officer, Clayton Motors, Inc. Ocean Fresh Express Industry Relations (Retired),
Clayton Homes, Inc. Regional Director, International, Inc. IBM Corporation
Director, Dollar General First Tennessee Bank Director, Dollar General Director, Motorola Corporation
Corporation Corporation and Ryan's
Chairman of the Board, Family Steakhouses, Inc.
BankFirst
(PHOTO) (PHOTO) (PHOTO) (PHOTO)
DAN W. EVINS (1)(2) WILMA H. JORDAN C. WARREN NEEL (1) JOSEPH H. STEGMAYER
Chairman of the Board, Co-Chairman, Dean, College of Business President and Chief Operating
Chief Executive Officer, The Jordan, Edmiston Administration, University Officer, Clayton Homes, Inc.
President Cracker Barrel, Group, Inc. of Tennessee Director, The Cardinal Funds
Inc. Director, LIN Broadcasting Director, O'Charleys, Inc.,
Director, Pricor Corporation Proffitts', Inc., and
Incorporated American Health Corp., Inc.
(1) Audit Committee
(2) Compensation Committee
CORPORATE OFFICERS
JAMES L. CLAYTON DAVID BOOTH RICHARD B. RAY TIMOTHY R. RHOADES
Chairman of the Board and Executive Vice President Executive Vice President - Treasurer
Chief Executive Officer Retail Group Finance
Chief Financial Officer
JOSEPH H. STEGMAYER TIMOTHY W. WILLIAMS JAMES R. CONNER KEVIN T. CLAYTON
President and Chief Executive Vice President Vice President Secretary
Operating Officer Financial Services Computer Services
SHAREHOLDER INFORMATION
FORM 10-K COUNSEL COMMON SHARE INFORMATION ANNUAL MEETING
Clayton's Form 10-K Annual Bernstein, Stair & McAdams The Company's common shares The annual meeting of shareholders
Report to the Securities Knoxville, Tennessee (symbol CMH) are listed on the will be held on November 9, 1994 at
and Exchange Commission is New York Stock Exchange. 10:30 a.m. (EST) at the Appalachia
available without charge to S.E.C. COUNSEL Homes Plant, 1420 Mountain Road,
shareholders upon written Baker, Worthington, SHAREHOLDERS Andersonville, Tennessee.
request to: Crossley and Stansberry There were approximately 28,700 Shareholders of record at close of
Investor Relations Nashville, Tennessee beneficial holders of common business on September 12, 1994
Clayton Homes, Inc. stock on June 30, 1994. will be entitled to vote.
P.O. Box 15169 INDEPENDENT ACCOUNTANTS
Knoxville, Tennessee 37901 Coopers & Lybrand L.L.P. REGISTRAR AND TRANSFER AGENT
Knoxville, Tennessee Trust Company Bank
P.O. Box 4625
Atlanta, Georgia 30302
(404) 581-1579
</TABLE>
<PAGE> 16
DIFFERENCES BETWEEN THE ELECTRONIC FILING AND THE PRINTED BOOK
On page 25 of the printed Annual Report, photographs of the Board of
Directors appear, while the electronic filing replaces each photograph with the
word '(PHOTO)'.
<PAGE> 1
EXHIBIT 21. List of subsidiaries and partnerships of the Registrant.
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR COUNTRY OF INCORPORATION ORGANIZATION
----------- ----------------------------------------------
<S> <C>
100% Owned Entities
CMH Manufacturing, Inc. Tennessee
CMH Homes, Inc. Tennessee
Vanderbilt Mortgage & Finance, Inc. Tennessee
Clayton-Vanderbilt, Inc. Arizona
Vanderbilt Property and Casualty Insurance Co., LTD British Virgin Islands
CMH Insurance Agency, Inc. Tennessee
CABS, Inc. Tennessee
CMH Parks, Inc. Tennessee
JH Properties, Inc. (1) Texas
CMH Capital, Inc. Delaware
50% to 99% Owned Entities
Blevins Mobile Homes, Inc. Tennessee
Clayton's - Tullahoma, Inc. Tennessee
Vanderbilt Life and Casualty Insurance Co., LTD British Virgin Islands
(1) Owned 100% by CMH Parks, Inc.
PARTNERSHIP
-----------
50% to 99% Owned Entities
Blevins Partnership Tennessee
Clayton-Cambridge, J/V Tennessee
Redwood Partners Limited Colorado
Pine Lake West Associates Limited Partnership Georgia
Clayton Heritage, J/V Tennessee
Southgate Mobile Home Park Tennessee
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Clayton Homes, Inc. for the year ended June 30, 1994 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<EXCHANGE-RATE> 1
<CASH> 38,922
<SECURITIES> 0
<RECEIVABLES> 363,991
<ALLOWANCES> 9,877
<INVENTORY> 77,317
<CURRENT-ASSETS> 0
<PP&E> 157,065
<DEPRECIATION> 27,182
<TOTAL-ASSETS> 701,148
<CURRENT-LIABILITIES> 0
<BONDS> 70,680
<COMMON> 178,018
0
0
<OTHER-SE> 284,136
<TOTAL-LIABILITY-AND-EQUITY> 701,148
<SALES> 510,153
<TOTAL-REVENUES> 628,236
<CGS> 357,698
<TOTAL-COSTS> 519,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 108,285
<INCOME-TAX> 39,000
<INCOME-CONTINUING> 69,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 3,000
<NET-INCOME> 72,285
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.20
</TABLE>
