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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission file number 1-8824
CLAYTON HOMES, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0794407
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 15169
623 Market Street
Knoxville, Tennessee 37902
- - ---------------------------------------- -----------------------------------
(Address of principal executive offices) (zip code)
615-970-7200
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of common stock $.10 par value, outstanding on September 30,
1994 - 60,039,043
1
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1994 1993
-------- --------
<S> <C> <C>
REVENUES
Net sales $138,715 $111,904
Financial services 22,596 19,828
Rental and other income 7,143 4,227
-------- --------
Total Revenues 168,454 135,959
EXPENSES
Cost of sales 96,434 77,697
Selling, general and administrative 42,208 30,933
Financial services interest 1,612 2,280
Provision for credit losses and contingencies 1,000 1,000
-------- --------
Total Expenses 141,254 111,910
-------- --------
OPERATING INCOME 27,200 24,049
Interest income (expense) 725 (721)
-------- -------
Income before income taxes and cumulative effect
of change in method of accounting for
income taxes 27,925 23,328
Provision for income taxes 9,700 8,500
-------- --------
INCOME BEFORE ACCOUNTING CHANGE 18,225 14,828
Cumulative effect as of July 1, 1993 of change
in method of accounting for income taxes 0 3,000
-------- --------
NET INCOME $ 18,225 $ 17,828
======== ========
Income per share before accounting change:(1)
Primary $ .30 $ .26
Fully diluted (2) $ .30 $ .25
Net income per share:(1)
Primary $ .30 $ .31
Fully diluted (2) $ .30 $ .30
Average shares outstanding: (1)
Primary 60,846 57,335
Fully diluted (2) 60,846 61,321
</TABLE>
(1) Adjusted for the December 8, 1993 5-for-4 stock split.
(2) Computed assuming conversion of convertible subordinated debentures.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited Audited
Sept. 30, June 30,
1994 1994
--------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 94,109 $ 38,922
Receivables, net 267,601 354,114
Inventories 73,797 77,317
Property, plant and equipment, net 134,451 129,883
Other assets 104,086 100,912
-------- --------
TOTAL ASSETS $674,044 $701,148
======== ========
Liabilities and Shareholders' Equity:
Accounts payable and accrued liabilities $ 42,721 $ 55,844
Long-term obligations 64,600 70,680
Deferred income taxes 5,178 7,258
Other liabilities 79,149 105,212
Shareholders' equity 482,396 462,154
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $674,044 $701,148
======== ========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements)
2
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 18,225 $ 17,828
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,012 1,570
Cumulative effect of change in method of accounting
for income taxes 0 (3,000)
Provision for credit losses and contingencies 1,000 1,000
Gain on sale of installment contract
receivables, net of amortization (2,804) (890)
Increase in other receivables (9,148) (1,039)
Change in other operating assets and
liabilities (9,459) (1,151)
Decrease in other liabilities net
of other assets (15,739) (6,852)
-------- --------
Cash (used) provided by operations (16,913) 7,466
Origination of installment
contract receivables (67,924) (58,948)
Proceeds from sales of originated
installment contract receivables 164,769 15,225
Principal collected on originated
installment contract receivables 11,077 9,503
-------- --------
Net cash provided (used) by operations 91,009 (26,754)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract receivables (9,551) 0
Proceeds from sales of acquired installment
contract receivables 3,161 0
Principal collected on acquired installment
contract receivables 3,835 7,586
Acquisition of property, plant and equipment (5,580) (7,150)
Decrease (increase) in restricted cash
and investments 1,376 (4,351)
-------- --------
Net cash used by investing activities (6,759) (3,915)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term borrowing 0 22,798
Repayment of short term borrowing (25,000) (2,202)
Repayment of debt collateralized by
installment contract receivables (6,080) (6,674)
Proceeds from stock issued for incentive and
employee benefit plans and other 2,017 1,147
-------- --------
Net cash (used) provided
by financing activities (29,063) 15,069
-------- --------
Net increase (decrease) in cash and
cash equivalents 55,187 (15,600)
Cash and cash equivalents at beginning of year 38,922 28,668
-------- --------
Cash and cash equivalents at end of period $ 94,109 $ 13,068
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,846 $ 3,830
Income taxes 10,295 5,367
</TABLE>
(See accompanying notes to the condensed consolidated financial statements)
3
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Clayton Homes, Inc.
Notes to Quarterly Financial Statements
(unaudited)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its subsidiaries have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with Generally Accepted Accounting Principals
have been omitted. The condensed financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report to Shareholders for the year ended June 30, 1994.
The information furnished reflects all adjustments which, in management's
opinion, are necessary for a fair presentation of the Company's financial
position as of September 30, 1994, and the results of its operations for the
three month periods ended September 30, 1994 and 1993, and the changes in its
cash position for the same periods. All such adjustments are of a normal,
recurring nature, with the exception of the adoption of SFAS 109 during the
first quarter of fiscal 1994. The June 30, 1994 Condensed Consolidated Balance
Sheet was derived from the audited balance sheet of the Company for the year
then ended.
2. The results of operations for the three months ended September 30,
1994 and 1993, are not necessarily indicative of the results to be expected for
the respective full years.
3. Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 presentation.
4. Effective for the fiscal year beginning July 1, 1993, the Company
adopted Financial Accounting Standards Statement No. 109 that revised the
accounting for income taxes. The effect of the adoption of this standard was
to increase net income by $3 million and is reported in the Condensed
Consolidated Statements of Income as the cumulative effect as of July 1, 1993,
of change in method of accounting for income taxes.
4
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PART 1 - - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
See Pages 2 through 4.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Three Months Ended September 30, 1994 and 1993:
The following table reflects the percentage changes in retail sales by
the Company's retail and community sales centers and in wholesale sales to
independent dealers. It also shows the percentage increases in the average
number of company-owned retail centers and communities and the percentage
decrease in independent dealers. Comparative percentages are given between the
first quarter ended September 30, 1994 and 1993:
First Quarter
Fiscal year 1995 vs 1994
Retail:
Dollar sales +13.8%
Average number of retail centers +15.6%
Average dollar sales per
retail center - 1.6%
Average home price + 5.8%
Wholesale:
Dollar sales +46.2%
Average number of independent
dealers - 1.2%
Average dollar sales to
independent dealers + 48.0%
Average home price + 18.6%
Communities:
Dollar Sales +18.8%
Average number of communities +35.3%
Average dollar sales per community -12.2%
Average home price +5.5%
Total revenues for the three months ended September 30, 1994,
increased 24% primarily because of a 24% increase in manufactured housing sales
to $139 million. The balance of revenue growth resulted from a 14% increase in
financial services income to $23 million and a 69% increase in rental and other
income to $7 million.
Net sales of the Retail Group rose 14% to $83 million primarily due to
a 6% rise in the average home price and a 16% increase in the average number of
company-owned retail centers offset by a 7% decrease in the average number of
homes sold per retail center. The Company increased prices, in certain cases,
on retail sales, which are individually negotiated transactions, in response to
market factors and due to an increase in lumber prices over the prior year.
5
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Net sales of the Manufacturing Group increased 46% to $50 million due
to a 23% rise in the number of homes sold and a 19% increase in the average
wholesale price to independent dealers. Average price increased in response to
market factors such as an increase in lumber prices over the prior year.
Net sales of the Communities Group rose 19% to $5 million due to a 35%
increase in the average number of communities owned and a 6% increase in the
average home price. This was partially offset by a 12% decrease in the average
number of homes sold per community.
Financial services income increased 14% primarily due to a $1.9
million increase related to gains on the sales of installment contract
receivables compared to the prior year and to an 89% increase in insurance
premiums and commissions.
Rental and other income increased 69% primarily due to a 28% increase
in the average number of sites owned in communities and to an increase in site
occupancy to 64.5% from 60.2% in the prior year.
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 and receivables sold. Note that receivables owned or sold
are installment contract receivables related to the retail sale of homes by the
Company or those purchased from independent dealers and 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 sold and generate loan service revenues equal
to the excess of principal and interest collected over the amount required to
be remitted to investors. Servicing is retained by the Company in all cases.
The change due to both rate and volume has been allocated to rate and volume
fluctuations in proportion to the relationship of the absolute dollar amounts
of the change in each. Comparative fluctuations are given between the first
quarter ended September 30, 1994 and 1993:
First Quarter
Fiscal year 1995 vs 1994
Increase (Decrease) Due to
-----------------------------------------
Rate Volume Total
------- ------- -------
(in thousands)
Interest and loan servicing
revenues:
Receivables owned $ (781) $(2,547) $(3,328)
Receivables sold 317 1,142 1,459
Master Servicing Contracts (1,186) 1,981 795
------- ------- -------
$(1,650) $ 576 $(1,074)
======= ======= =======
6
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Interest and loan servicing revenues were $14 million. The average
balance of receivables owned decreased 29% to $215 million with a decrease in
the weighted average interest rate to 11.6% from 12.7%. The average balance of
receivables sold increased 20% to $805 million with a decrease in the weighted
average loan service spread to 3.5% from 3.9%. In October 1993, a financial
institution contracted for the Company to act as master servicer for $283
million of manufactured housing contract receivables.
Financial services interest expense decreased $.6 million, or 28%, to
$1.6 million. Average debt collateralized by installment contract receivables
dropped 24% to $64 million with a decrease in the weighted average interest
rate to 10.2% from 10.7%.
Gross profit margins decreased slightly to 30.5% from 30.6% in last
year's first quarter. The decrease is primarily attributable to a slight shift
in the mix of total sales toward wholesale sales.
Selling, general and administrative expenses were 30.4% of sales
versus 27.6% in the prior comparable period. This increase is due primarily to
a 200% increase in insurance related costs and to an increase in home delivery
and setup expenses.
Provisions for credit losses and contingencies decreased as a percent
of sales to .7% from .9% primarily due to the trend of credit losses as a
percent of average loans outstanding continuing to be lower than originally
projected.
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.
Delinquency Percentage
on September 30
1994 1993
----- -----
Total delinquencies as a percentage
of contracts outstanding:
All contracts 2.05% 2.09%
Contracts originated by the Company 1.43% 1.71%
Contracts acquired from
other institutions 4.50% 3.85%
7
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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:
Loan Loss/Repossession Experience
on September 30
1994 1993
---- ----
Net losses as percentage of average
loans outstanding (annualized):
All contracts .3% .4%
Contracts originated by the Company .1% .1%
Contracts acquired from
other institutions 2.7% 2.1%
Number of contracts in repossession:
All contracts 609 556
Contracts originated by the Company 452 385
Contracts acquired from
other institutions 157 171
Contracts in repossession as percentage
of total contracts 1.0% 1.0%
The $3.5 million decrease in inventories at September 30, 1994 from
June 30, 1994 is explained as follows:
Manufacturing Group (in millions)
------------------- -------------
Increase in finished goods $ 1.9
Decrease in raw materials (4.6)
Retail Group
------------
Decrease in average stocking
levels at 168 retail centers
owned by Company at June 30, 1994 (2.3)
Increase of three company-owned
retail centers 1.1
Communities Group
-----------------
Increase in average stocking levels
at 46 communities owned by Company
at June 30, 1994 .4
-----
$(3.5)
=====
On September 30, 1994, order backlogs at the Manufacturing Group,
consisting of company-owned and independent dealer orders, totaled $45 million
compared to $45 million at September 30, 1993. Approximately six weeks would be
required to fill the backlog at September 30, 1994.
Liquidity and Capital Resources
Cash at September 30, 1994, was $94.1 million as compared to $38.9
million on June 30, 1994. The Company anticipates meeting cash needs
8
<PAGE> 9
with cash flows from operations, current cash balances, short-term borrowings
and the issuance of asset-backed securities and GNMA certificates.
On August 17, 1994, the Company sold without recourse $164 million of
manufactured housing receivables through the issuance of asset backed
securities.
PART II - - OTHER INFORMATION
There were no reportable events for Item 1 through Item 5.
ITEM 6 - - Exhibits and Reports on Form 8-K.
(a) 11. Statement Regarding Computation of per share Earnings
27. Financial Data Schedule (for SEC purposes)
9
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CLAYTON HOMES, INC.
SIGNATURES
Pursuant to the requirements 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.
CLAYTON HOMES, INC
------------------
(Registrant)
Date: 10/November/1994 /s/ Joseph H. Stegmayer
-------------------------- ----------------------------
10
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Exhibit 11
CLAYTON HOMES
COMPUTATION OF EARNINGS PER SHARE
Net income per share on a primary basis is computed on the
weighted average number of shares outstanding during the
quarter after giving effect to the equivalent shares which
are issuable upon the exercise of stock options determined by
the treasury stock method. Fully diluted earnings per share is
computed assuming conversion of convertible subordinated
debentures. The calculations of primary and fully diluted
earnings per share follow:
Three Months Ended
September 30,
(in thousands except per share data)
1994 1993
------- -------
Reported income before accounting
change (primary) $18,225 $14,828
Add: Convertible debentures interest
expense, net of tax 0 481
------- -------
Income before accounting change
(fully diluted) $18,225 $15,309
======= =======
Reported net income (primary) $18,225 $17,828
Add: Convertible debentures
interest expense, net of tax 0 481
------- -------
Net income (fully diluted) $18,225 $18,309
======= =======
Weighted average shares
outstanding (primary) 60,846 57,335
Shares issuable upon
conversion of all debentures 0 3,986
------- -------
Weighted average shares
outstanding (fully diluted) 60,846 61,321
======= =======
Income per share before accounting
change:
Primary $ .30 $ .26
Fully diluted $ .30 $ .25
Net Income per share:
Primary $ .30 $ .31
Fully diluted $ .30 $ .30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLAYTON HOMES, INC. FOR THE QUARTER ENDED SEPTEMBER 30,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 94,109
<SECURITIES> 0
<RECEIVABLES> 278,275
<ALLOWANCES> 10,674
<INVENTORY> 73,797
<CURRENT-ASSETS> 0
<PP&E> 162,860
<DEPRECIATION> 28,409
<TOTAL-ASSETS> 674,044
<CURRENT-LIABILITIES> 0
<BONDS> 64,600
<COMMON> 180,035
0
0
<OTHER-SE> 302,361
<TOTAL-LIABILITY-AND-EQUITY> 674,044
<SALES> 138,715
<TOTAL-REVENUES> 168,454
<CGS> 96,434
<TOTAL-COSTS> 138,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 1,612
<INCOME-PRETAX> 27,925
<INCOME-TAX> 9,700
<INCOME-CONTINUING> 18,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,225
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
