<PAGE> 1
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, 1995
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)
</TABLE>
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
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 18, 1995, was approximately $1,212,845,315 (55,763,003
shares at closing price on the NYSE of $21.75). 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 18, 1995, were
75,757,052.
Exhibit index appears on pages 14-15.
<TABLE>
<S> <C>
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, 1995
Part III Proxy Statement relating to
Company's Annual Meeting of Shareholders on
November 8, 1995
</TABLE>
1
<PAGE> 2
CLAYTON HOMES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Clayton Homes, Inc. and its subsidiaries (The Company) produces, sells,
finances and insures primarily low to medium priced manufactured homes. The
Company's 16 manufacturing plants produce homes which are marketed in 28 states
through 668 retail dealers, of which 192 are Company-owned sales centers and 55
are Company-owned community 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, Vanderbilt Mortgage and Finance, Inc. The
Company acts as agent, earns commissions 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. Its 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,
1995 1994 1993
<S> <C> <C> <C>
Sales by Company-owned retail centers
and communities.......................... 53% 54% 56%
Sales to independent dealers.............. 29 27 25
Financial services and other.............. 18 19 19
---- ---- ----
Total..................................... 100% 100% 100%
==== ==== ====
</TABLE>
For information relating to the Company's three major business segments, see
Note 11 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 30% 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 truck, the home is mounted on
wheels attached to its frame. Manufactured homes are designed to be permanent,
primary residences sited and attached to utilities.
The Company manufactures a variety of single and multi-section homes in a wide
price range. Retail prices range from $13,000 to $75,000 with sizes from 675
to 1,900 square feet.
The Company markets homes under a variety of model names. Homes include as
standard equipment central heating, range, refrigerator, and color-coordinated
window, wall and floor coverings. Optional features include central air
conditioning, wood-burning fireplaces, bay windows, hardwood floors, whirlpool
tubs, skylights, and furniture.
2
<PAGE> 3
MANUFACTURING OPERATIONS
The Company owns or leases 16 manufacturing plants, ranging in size from
53,000 to 226,000 square feet. Plants are located in Andersonville, Ardmore,
two in Bean Station, Halls, Maynardville, Rutledge, Savannah and White Pine,
Tennessee; in Henderson, Oxford and Richfield, North Carolina; in Waycross,
Georgia and one in Bonham 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 against orders received from independent 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 31,000 homes per
year. During the fiscal year ended June 30, 1995, the Company produced 18,713
homes.
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, 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, 1995, and June 30, 1994, amounted to approximately
$9,420,000 and $7,510,000, respectively.
The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $68,700,000 and
$42,300,000 on June 30, 1995, and 1994, respectively. Based on the Company's
current production rate, approximately seven weeks would be required to fill
backlog orders at June 30, 1995.
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,
1995 1994 1993
<S> <C> <C> <C>
Number of homes sold to independent dealers . . . . . . . . . . . . . . 11,025 9,389 6,890
Number of homes shipped to Company-owned retail centers . . . . . . . . 7,917 6,948 6,155
------ ------ ------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,942 16,337 13,045
====== ====== ======
Number of plants operating . . . . . . . . . . . . . . . . . . . . . . 16 13 13
Number of independent dealers . . . . . . . . . . . . . . . . . . . . . 421 372 371
Number of Company-owned communities . . . . . . . . . . . . . . . . . . 55 46 33
Number of Company-owned retail centers . . . . . . . . . . . . . . . . 192 165 143
</TABLE>
INDEPENDENT DEALERS
In the years ended June 30, 1995, and 1994, 58% and 57%, respectively, of homes
manufactured by the Company were sold to its independent dealers. As of June
30, 1995, the Company had 421 independent dealers in 25 states. The Company's
independent dealer network enables it to distribute homes to more markets, more
quickly, without as large an investment in management resources and overhead
expenses 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.
3
<PAGE> 4
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.
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.
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 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 losses 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, 1995, the Company sold homes through 192 Company-owned retail
centers in 18 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,
1995 1994 1993
<S> <C> <C> <C>
Number of Company-owned centers . . . . . 192 165 143
Number of new homes sold (including homes
built by the Company and by other
manufacturers) . . . . . . . . . . . . 11,352 10,071 8,752
Average retail price of new homes sold . $30,565 $29,103 $26,434
Number of previously-owned homes sold . . 2,746 2,523 2,126
</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.
4
<PAGE> 5
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 and setup of the
home at the retail purchaser's site. Electrical, water and gas connections are
done by licensed technicians at the home owner's expense.
FINANCIAL SERVICES
The Company believes that 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 and finance 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,
1995 1994 1993
<S> <C> <C> <C>
VMF . . . . . . . . . . . . . . . . 72% 74% 74%
Conventional lenders . . . . . . . 5 5 4
Customer arranged or cash . . . . . 23 21 22
---- ---- ----
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
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 can 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 large dollar
amounts or those which in their judgment, tend to rank lower in terms of
underwriting criteria. Generally, the sum of the monthly installment housing
obligation, which includes the manufactured home loan payment and monthly site
costs, should not exceed 28% 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
5
<PAGE> 6
conditions. The value of real property pledged as additional collateral is
estimated by dealer personnel, 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 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. The Company also offers 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 eight 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 1995, VMF originated 13,857 contracts.
At June 30, 1995, VMF was servicing approximately 90,000 contracts with an
aggregate dollar amount of $1,434 million of which VMF has ownership interest
or contingent liability on approximately 67,000 contracts with an aggregate
dollar amount of $1,201million. 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,
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Principal Balance of Contracts
Originated (in thousands) . . . . . $345,260 $292,435 $230,733
Number of Contracts Originated . . . 13,857 12,401 10,880
Average Contract Size (1) . . . . . . $ 24,916 $ 23,582 $ 21,207
Average Interest Rate (1) . . . . . . 12.24% 10.84% 11.61%
</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,
1995 1994 1993
<S> <C> <C> <C>
Total Number of Contracts Being
Serviced . . . . . . . . . . . . . . 66,960 60,165 52,433
Originated by VMF . . . . . . . . . 55,923 47,944 42,656
Acquired from other
institutions . . . . . . . . . . . 11,037 12,221 9,777
</TABLE>
VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans. After short-term warehousing, VMF transfers or
pledges these loans, generally in pools, to institutional investors or
long-term lenders.
6
<PAGE> 7
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 principally used to repay short-term
borrowings. VMF retains servicing in both cases.
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 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,
1995, VMF originated installment sales contracts eligible for financing under
the GNMA program having aggregate principal balances of $58 million. As of
June 30, 1995, VMF was servicing 238 GNMA pools totaling $158 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, increases 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 $49 million as of June 30, 1995.
See Note 6 to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders.
The interest rates on 99% 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 1% 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, changes in interest rates will not materially effect 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 and 1994, VMF became the servicer of 15,409 and 20,180
manufactured housing installment sales contracts with an approximate principal
balance of $199 million and $285 million, respectively. VMF acts solely as
servicer with respect to these contracts and, thus, has no ownership interest
nor contingent liability related to this portfolio. At June 30, 1995, VMF was
servicing approximately 22,565 of these installment sales contracts with an
approximate principal balance of $240 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.
7
<PAGE> 8
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 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
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total delinquencies as percentage of
contracts outstanding:
All contracts . . . . . . . . . . . . . . . . 2.03% 1.97% 1.63%
Contracts originated by VMF . . . . . . . . . 1.67 1.16 1.39
Contracts acquired from other institutions . . 4.04 5.14 2.68
</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
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net losses as percentage of
Average loans outstanding:
All contracts . . . . . . . . . . . . . . . . . . . . . 0.2% 0.3% 0.6%
Contracts originated by VMF . . . . . . . . . . . . . . 0.0% 0.1% 0.2%
Contracts acquired from other institutions. . . . . . . 2.2% 1.8% 2.9%
Number of contracts in repossession:
Total . . . . . . . . . . . . . . . . . . . . . . . . . 540 565 523
Contracts originated by VMF . . . . . . . . . . . . . . 422 388 333
Contracts acquired from other institutions. . . . . . . 118 177 190
Total number of contracts in repossession as
percentage of total contracts . . . . . . . . . . . . . 0.81% 0.94% 1.00%
</TABLE>
Generally, the Company pays off the related installment sales 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 6 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, 1995, the Company acted as the agent on physical damage and credit life
insurance policies on approximately 73% and 45%, respectively, of Company
retail sales. Physical damage policies issued through the Company's agency are
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 are
reinsured through Vanderbilt Life and Casualty Insurance Co., LTD, (VLCIC) a
majority-owned subsidiary of the Company.
8
<PAGE> 9
MANUFACTURED HOUSING COMMUNITIES
In fiscal 1995 the Communities Group acquired 2,538 sites in nine communities
bringing total sites owned to 15,541 at June 30, 1995, a 20% increase from the
prior year. See "Properties. (item 2)". 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
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Home sites owned 15,541 13,003 9,950
Exclusive marketing 0 0 480
------ ------ ------
Total 15,541 13,003 10,430
====== ====== ======
Occupancy rate 68% 64% 60%
====== ===== =====
</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. 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 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, 1995, the Company employed 4,728 persons. Of these, 1,218 were
employed in retail sales, 2,872 in manufacturing, 269 in financial services,
305 in communities and 64 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
For the fiscal year ended June 30, 1995, all Forms 3, 4 and 5, as required by
the Securities and Exchange Commission Rules under Section 16 of the Securities
Exchange Act of 1934, were filed on time, except that amendments to Form 4
filed by Kevin T. Clayton for the sale of Common Stock in August 1994 and for
the acquisition of Common Stock in April 1995, were 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.
<TABLE>
<CAPTION>
LOCATION OF PROPERTY
APPROXIMATE
MANUFACTURING OPERATIONS SQUARE FEET
<S> <C>
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
Andersonville 126,000
White Pine 130,000
North Carolina
Henderson 100,000
Oxford 80,000
Richfield 226,000
Georgia
Waycross 80,000
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
APPROXIMATE
MANUFACTURING OPERATIONS(CON'T) SQUARE FEET
<S> <C>
Texas
Waco #1 93,000
Waco #2 80,000
Bonham 113,000
Leased
Halls, Tennessee 69,000
<CAPTION>
APPROXIMATE
COMMUNITIES ACRES
<S> <C>
Owned by company
Arizona
Phoenix 47
Colorado
Denver 125
Thornton 184
Florida
Gainesville (2) 132
Jacksonville (2) 85
Kissimmee 41
Mulberry 28
Georgia
Douglasville (2) 97
Iowa
Carter Lake 41
Missouri
Independence 90
Michigan
Kalamazoo 126
North Carolina
Greensboro 83
Oklahoma
Norman 44
Tennessee
Farragut 23
Knoxville (3) 147
LaVergne 76
Morristown 12
Maryville (2) 67
Powell 23
Rockford 13
Tullahoma 18
Texas
Arlington 43
Dallas (2) 84
Denton (3) 201
Fort Worth (4) 104
Flower Mound 18
Greenville 25
Houston (3) 115
Humble 55
Little Elm 48
Mesquite 27
Pearland 30
San Angelo 90
San Antonio (4) 206
Schertz 71
Wylie (2) 179
Virginia
Evington 70
</TABLE>
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 192 retail centers, 86
are owned and 106 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.
11
<PAGE> 12
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, 1993 to June 30, 1995,
the range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.
<TABLE>
<CAPTION>
Fiscal Fiscal
1995 1994
QUARTER ENDED HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
September $18.60 $14.20 $19.68 $14.72
December 15.90 12.30 19.40 14.56
March 18.13 14.00 21.30 15.70
June 18.00 15.38 18.00 13.60
</TABLE>
(b) As of August 18, 1995, there were 1,991 holders of record (approximately
27,000 beneficial holders) of the Company's Common Stock.
(c) It is the policy of the Board of Directors of the Company to reinvest
substantially all earnings in its business. The Board of Directors initiated
the payment of cash dividends at the November 9, 1994 shareholders meeting of
$.02 per share per quarter. 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,
1995, the aggregate amount of earnings available for cash dividends or for
repurchase of the Company's stock was $368,000,000.
The following portions of the Company's 1995 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 12-18.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- Quarterly Results (unaudited) on page 13.
- Report of Independent Accountants on page 16.
- Consolidated Balance Sheets on page 16.
- Consolidated Statements of Income on page 17.
- Consolidated Statements of Changes in Shareholders' Equity on page 17.
- Consolidated Statements of Cash Flows on page 18.
- Notes to the Consolidated Financial Statements on pages 19-36.
12
<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
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James L. Clayton 61 Chairman of the Board and
Chief Executive Officer
Joseph H. Stegmayer 44 President and Chief Operating Officer (a)
David M. Booth 42 Executive Vice President - Retail
Kevin T. Clayton 32 Secretary (b)
Timothy R. Rhoades 43 Treasurer (c)
</TABLE>
(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) Secretary since December 1993. Prior to December 1993, he was in various
management positions within The Company.
(c) 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.
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.
13
<PAGE> 14
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
1995 Annual Report to Shareholders for the year ended
June 30, 1995.
Report of Independent Accountants.
Consolidated Balance Sheets - June 30, 1995 and 1994.
Consolidated Statements of Income - years ended June
30, 1995, 1994 and 1993.
Consolidated Statements of Changes in Shareholders'
Equity - years ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows - years ended
June 30, 1995, 1994 and 1993.
Notes to the Consolidated Financial Statements.
3. Exhibits:
3. (a) Restated charter as amended.(A)
(b) Bylaws.(B)
(c) Amendment to Bylaws. (A)
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)
(d) Clayton Homes, Inc. 1985 Stock Option Plan.(F)
(e) 1991 Employee Stock Incentive Plan.(H)
(f) Directors' Equity Plan.(H)
(g) Directors' Equity Plan.(I)
(h) Directors' Equity Plan.(J)
14
<PAGE> 15
(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,
1995.(D)
21. List of Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P.
27. Financial Data Schedule (for SEC use only).
- -------------------------------------------
(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 21, 1995.
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>
<S> <C> <C>
s/James L. Clayton September 21, 1995 Chairman of the Board and
- ------------------------ Chief Executive Officer
James L. Clayton (Principal Executive Officer)
s/Joseph H. Stegmayer September 21, 1995 President, Chief Operating Officer
- ------------------------ and Director
Joseph H. Stegmayer
s/Timothy R. Rhoades September 21, 1995 Treasurer (Principal Accounting
- ------------------------ Officer)
Timothy R. Rhoades
s/Kevin T. Clayton September 21, 1995 Secretary
- ------------------------
Kevin T. Clayton
s/B. Joe Clayton September 21, 1995 Director
- ------------------------
B. Joe Clayton
s/James D. Cockman September 21, 1995 Director
- ------------------------
James D. Cockman
s/Wallace C. Doud September 21, 1995 Director
- ------------------------
Wallace C. Doud
s/Dan W. Evins September 21, 1995 Director
- ------------------------
Dan W. Evins
s/Wilma H. Jordan September 21, 1995 Director
- ------------------------
Wilma H. Jordan
s/C. Warren Neel September 21, 1995 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)
1995 1994 1993
<S> <C> <C> <C>
Reported income before accounting
change (primary) $87,000 $69,285 $53,756
Add: Convertible debentures
interest expense, net of tax 0 1,211 1,931
------- ------- -------
Net income before accounting
change (fully diluted) $87,000 $70,496 $55,687
======= ======= =======
Reported net income (primary) $87,000 $72,285 $53,756
Add: Convertible debentures interest
expense, net of tax 0 1,211 1,931
------- ------- -------
Net income after accounting change,
(fully diluted) $87,000 $73,496 $55,687
======= ======= =======
Weighted average shares
outstanding (primary) 75,922 73,649 71,360
Shares issuable upon
conversion of all debentures 0 3,087 4,983
------- ------- -------
Weighted average shares
outstanding (fully diluted) 75,922 76,736 76,343
======= ======= =======
Net Income per share before accounting
change:
Primary $ 1.15 $ .94 $ .75
Fully diluted 1.15 .92 .73
Net Income per share:
Primary $ 1.15 $ .98 $ .75
Fully diluted 1.15 .96 .73
</TABLE>
17
<PAGE> 1
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,
---------------------------
1995 vs 1994 1994 vs 1993
------------ ------------
<S> <C> <C>
Retail
Dollar sales . . . . . . . . . . +17.8% +26.1%
Average number of retail centers +15.9% +14.9%
Average dollar sales per
retail center . . . . . . . . . +1.7% +9.7%
Average home price . . . . . . . +5.3% +8.9%
Wholesale
Dollar sales . . . . . . . . . . +28.7% +47.2%
Average number of independent
dealers . . . . . . . . . . . . +6.6% +11.6%
Average dollar sales per
independent dealer . . . . . . +20.8% +32.0%
Average home price . . . . . . . +9.6% +8.0%
Communities
Dollar sales . . . . . . . . . . . +24.9% +29.6%
Average number of communities . . +27.8% +36.2%
Average dollar sale per
community . . . . . . . . . . . -2.3% -4.8%
Average home price . . . . . . . . +0.9% +7.8%
</TABLE>
Fiscal 1995 compared to Fiscal 1994
Total revenues for the year ended June 30, 1995, increased 21% because of
the 22% increase in manufactured housing sales and the 16% rise in financial
services and other income.
Net sales of the Retail Group rose 18% to $374 million on a 16% rise in
the average number of Company-owned retail centers open during the year and a
5% increase in the average home price. This was partially offset by a slight
decrease in the average number of homes sold per Company retail center.
During the year, the Company acquired or opened 29 retail locations while
two unprofitable retail centers were closed. The Company constantly evaluates
specific local markets and opens, acquires, or closes retail centers as
conditions warrant.
12
<PAGE> 2
Net sales of the Manufacturing Group to independent dealers increased 29%
to $222 million based on a 17% increase in the number of homes sold and a 10%
increase in the average wholesale price. The higher average home price
resulted from increased raw materials costs and a shift in the product mix
toward the more expensive multi-section home. Multi-section homes accounted
for 35% of total shipments versus 34% last year.
Net sales of the Communities Group rose 25% to $25 million on a 24% rise
in unit sales and a slight improvement in the average home price.
The 16% increase in financial services and other income to $137 million
from $118 million resulted principally from a $6 million rise in rental
revenues from the Communities operation and from $8 million of 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 and receivables sold. Receivables owned or sold are the
installment contract receivables originated from 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, in
certain cases, have been used to collateralize debt or to create a
subordinated interest for the Company in a pool of receivables accounted for on
a 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, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Rate/Volume Analysis
(in thousands)
1995 vs 1994 1994 vs 1993
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- -------------------
Rate Volume Total Rate Volume Total
---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest and loan
servicing revenues:
Receivables owned $ 1,599 $(5,197) $(3,598) $(4,968) $ 351 $(4,617)
Receivables sold (4,680) 8,344 3,664 1,526 6,657 8,183
Master servicing
contract 1,733 (2,160) (427) (1,466) 2,640 1,174
-------- -------- -------- -------- ------- --------
$(1,348) $ 987 $ (361) $(4,908) $ 9,648 $ 4,740
======== ======== ======== ======== ======= ========
</TABLE>
13
<PAGE> 3
For the year ended June 30, 1995, interest and loan servicing revenues
remained at $60 million. The average balance of receivables owned decreased
17% to $205 million with an increase in the weighted averaged interest rate to
12.7% from 11.6%. The average balance of receivables sold increased 34% to
$881 million with a decrease in the weighted average loan service spread to
3.6% from 4.2%.
Financial Services interest expense decreased $2.5 million, or 31%, to
$5.5 million. Average debt collateralized by installment contract receivables
dropped 30% to $52 million with a decrease in the weighted average interest
rate to 10.6% from 10.8%. Loan covenants preclude prepaying these obligations.
Gross profit margins in 1995 increased to 30.5% from 29.9% last year. The
increase primarily results from a higher percentage of Clayton manufactured
product sold to the Retail Group compared to new retail sales. In 1995,
Manufacturing sales to Retail were 49.8% of new retail sales compared to 48.7%
in 1994.
Selling, general and administrative expenses were 30.4% and 30.1% of sales
for the years ended June 30, 1995 and 1994, respectively. Expenses associated
with the start up of two new plants in the fourth quarter and from additional
reserves in the insurance group were the primary causes of the increase.
No provision for credit losses and contingencies was made in 1995 or 1994
because excellent loss and delinquency experience of receivables for which the
Company is directly or contingently liable. Net losses as a percentage of
loans outstanding for fiscal 1995 dropped to 0.2% from 0.3% last year while
delinquency rates on all loans remained constant at 2.0%. On June 30, 1995
reserves equaled 2.1% of outstanding loans owned or on which the Company has
contingent liability.
14
<PAGE> 4
Inventories increased at June 30, 1995 from June 30, 1994:
<TABLE>
<CAPTION>
Change
Manufacturing Division (in millions)
----------------------
<S> <C>
Increase in raw materials $ .7
Decrease in finished goods (.9)
Retail Division
---------------
Net increase of 27 Company-owned sales centers 10.1
Increase in average inventory levels at 165
Company-owned sales centers 1.3
Communities Division
--------------------
Acquisition of nine manufactured housing
communities and related inventory 1.5
Decrease in average inventory levels at
46 manufactured housing communities (1.6)
-----
$11.1
=====
</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 on 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 the 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 as the number of homes sold rose 36% and the average wholesale
price climbed 8%. The increase in the average home price came mainly from
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 on a 20% rise
in unit sales and an 8% improvement in the average home price.
15
<PAGE> 5
The 29% growth 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.
For the year ended June 30, 1994, interest and loan servicing revenues
were up $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 improvement 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 2.3% of outstanding loans owned or on which the Company has
contingent liability.
16
<PAGE> 6
Inventories increased at June 30, 1994 from June 30, 1993:
<TABLE>
<CAPTION>
Manufacturing Division (in millions)
----------------------
<S> <C>
Increase in raw materials $0.2
Increase in finished goods 2.5
Retail Division
---------------
Net increase of 22 Company-owned sales centers 8.0
Increase in average inventory levels at 143
Company-owned sales centers 1.0
Communities Division
--------------------
Acquisition of 13 manufactured housing
communities and related inventory 2.6
Decrease in average inventory levels at
33 manufactured housing communities
and related inventory (1.7)
------
$12.6
======
</TABLE>
Fourth Quarter Results
The increase in revenues and net income during the fourth quarters of
fiscal 1995 and 1994 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 1995, the Company originated and acquired approximately
$371 million of installment contract receivables. The Company financed these
originations and acquisitions primarily with $377 million in proceeds from the
pooling and sale of approximately $354 million of installment contract
receivables. Additional funding came from operating cash flows and collections
of installment contract receivables. The Company invested approximately: $15
million in the acquisition of nine properties for manufactured housing
communities and $11 million in related rental units, $6 million for the opening
of Company-owned retail centers, $18 million for the construction of three new
plants and the improvement of existing manufacturing facilities and $1 million
for other fixed assets using cash generated from operations.
The Company expects to invest approximately $18 million in 1996 in the
acquisition or construction of properties for manufactured housing communities,
up to $8 million for new Company-owned retail centers, up to $6 million for the
construction and improvement of manufacturing facilities and to originate $423
million of installment contract receivables. The Company anticipates meeting
cash needs for 1996 and thereafter with cash flows from operations, current
cash balances, and sales of installment contact
17
<PAGE> 7
receivables and GNMA certificates.
New Accounting Standard
The Financial Accounting Standards Board issued a new accounting standard
(SFAS No. 115) that revises the accounting for investment securities. The
Company adopted SFAS No. 115 effective July 1, 1994. 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.
18
<PAGE> 8
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Sept 30 Dec 31 Mar 31 June 30 Year
(in thousands except per share data)
1995
<S> <C> <C> <C> <C> <C>
Revenues $168,454 $177,478 $179,683 $232,477 $758,092
Operating income 27,200 27,191 35,060 42,447 131,898
Income before
accounting change 18,225 18,165 22,310 28,300 87,000
Net income $ 18,225 $ 18,165 $ 22,310 $ 28,300 $ 87,000
Income per share before
accounting change:
Primary $.24 $.24 $.29 $.38 $1.15
Fully diluted $.24 $.24 $.29 $.38 $1.15
Net Income per share:
Primary $.24 $.24 $.29 $.38 $1.15
Fully diluted $.24 $.24 $.29 $.38 $1.15
Shares outstanding:
Primary 76,058 75,685 75,873 76,073 75,922
Fully diluted 76,058 75,685 75,873 76,073 75,922
Price range of common stock:
High $ 18.60 $ 15,90 $ 18.13 $ 18.00 $18.60
Low 14.20 12.30 14.00 15.38 12.30
Close $ 15.20 15.75 17.13 16.38 16.38
Dividends per common share -- $ .02 $ .02 $ .02 $ .06
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
Income per share
before accounting change:
Primary $.21 $.21 $.23 $.29 $.94
Fully diluted $.20 $.20 $.23 $.29 $.92
Net Income per share:
Primary $.25 $.21 $.23 $.29 $.98
Fully diluted $.24 $.20 $.23 $.29 $.96
Shares outstanding:
Primary 71,669 71,929 74,371 76,628 73,649
Fully diluted 76,651 76,839 76,826 76,628 76,736
Price range of common stock:
High $19.68 $19.40 $21.30 $18.00 $21.30
Low 14.72 14.56 15.70 13.60 13.60
Close $17.36 $19.40 $16.90 $14.10 $14.10
Dividends per common share -- -- -- -- --
</TABLE>
13
<PAGE> 9
Ten Year Review
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
INCOME STATEMENT DATA: (in thousands except per share and OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $621,351 $510,153 $384,491 $296,849 $257,557 $219,443 $208,624 $196,110 $166,272 $152,742
Financial services
and other income 136,741 118,083 91,750 74,330 62,392 40,316 33,270 28,671 20,659 15,709
-------- -------- -------- -------- -------- -------- ------- ------- ------- --------
758,092 628,236 476,241 371,179 319,949 259,759 241,894 224,781 186,931 168,451
Cost and expenses:
Cost of sales 431,826 357,698 267,201 206,049 176,374 153,786 147,982 138,468 117,538 108,886
Selling, general
and administrative 188,835 153,698 113,695 84,785 76,420 60,220 55,456 50,781 40,222 36,914
Financial services
interest 5,533 8,196 11,819 16,585 18,198 11,595 9,911 10,127 6,628 5,658
Provision for credit
losses and
contingencies 0 0 0 3,300 3,772 2,213 1,539 2,010 1,863 1,600
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
626,194 519,592 392,715 310,719 274,764 227,814 214,888 201,386 166,251 153,058
-------- ------- ------- -------- ------- ------- ------- ------- ------- -------
Operating income 131,898 108,644 83,526 60,460 45,185 31,945 27,006 23,395 20,680 15,393
Interest income (expense) 3,902 (359) (170) (317) (592) (575) (1,042) (1,073) (838) (276)
-------- ------- ------- --------- -------- -------- -------- -------- -------- --------
Income before income
taxes 135,800 108,285 83,356 60,143 44,593 31,370 25,964 22,322 19,842 15,117
Provision for income
taxes (48,800) (39,000) (29,600) (20,800) (16,000) (11,500) (9,714) (8,370) (9,486) (6,741)
--------- -------- ------- --------- -------- ------- ------- ------- ------- --------
Income before
accounting change 87,000 69,285 53,756 39,343 28,593 19,870 16,250 13,952 10,356 8,376
Cumulative effect of
accounting change 0 3,000 0 0 0 0 0 0 0 0
-------- ------- ------- -------- -------- -------- ------- ------- ------- ------
Net income $ 87,000 $72,285 $ 53,756 $ 39,343 $ 28,593 $ 19,870 $16,250 $13,952 $10,356 $8,376
======== ======= ======== ======== ======== ======== ======= ======= ======= ======
Income before accounting
change per share:
Primary $1.15 $ .94 $ .75 $ .58 $ .52 $ .40 $ .34 $ .29 $ .21 $ .18
Fully diluted $1.15 $ .92 $ .73 $ .57 $ .47 $ .36 $ .30 $ .26 $ .19 $ .18
Net income per common share:
Primary $1.15 $ .98 $ .75 $ .58 $ .52 $ .40 $ .34 $ .29 $ .21 $ .18
Fully diluted $1.15 $ .96 $ .73 $ .57 $ .47 $ .36 $ .30 $ .26 $ .19 $ .18
Average shares outstanding:
Primary 75,922 73,649 71,360 67,772 55,624 49,161 48,864 48,775 49,835 49,610
Fully diluted 75,922 76,736 76,343 72,755 64,623 61,551 61,405 61,573 58,388 52,474
Dividends per common share $ .06 -- -- -- -- -- -- -- -- --
BALANCE SHEET DATA:
Total assets $761,151 $701,148 $587,032 $554,780 $488,817 $339,099 $294,754 $275,835 $232,159 $164,835
Long-term obligations 48,737 70,680 137,038 192,931 227,444 177,374 163,471 157,153 132,220 85,225
Shareholders' equity $544,187 $462,154 $348,630 $292,950 $200,992 $108,334 $ 87,462 $ 70,651 $ 58,530 $ 49,257
OTHER DATA:
Company-owned sales centers 192 165 143 127 123 96 99 100 88 86
Independent dealers 421 372 371 312 330 322 269 245 240 218
Manufacturing plants 16 13 13 11 10 10 10 10 8 7
</TABLE>
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Clayton
Homes, Inc. and Subsidiaries as of June 30, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its methods of accounting for securities and income taxes in
1995 and 1994, respectively.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
August 18, 1995
CLAYTON HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 49,394 $ 38,922
Receivables, principally installment
contracts and residual interests,
net of reserves for credit
losses of $ 8,329 and $9,877
and unamortized discount of $9,001
and $12,022 343,408 354,114
Inventories 88,455 77,317
Securities held-to-maturity, approximate
market value of $20,193 and $19,850 20,361 10,850
Property, plant and equipment, net 166,048 129,883
Other assets 93,485 90,062
-------- --------
Total assets $761,151 $701,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 63,949 $ 55,844
Long-term obligations 48,737 70,680
Deferred income taxes 9,382 7,258
Other liabilities 94,896 105,212
-------- --------
Total liabilities 216,964 238,994
Shareholders' equity
Preferred stock, $.10 par value,
authorized 1,000 shares, none issued --- ---
Common stock, $.10 par value,
authorized 100,000 shares, issued
75,570 at June 30, 1995 and
60,240 at June 30, 1994 7,557 6,024
Additional paid-in capital 170,169 171,994
Retained earnings 366,461 284,136
-------- --------
Total shareholders' equity 544,187 462,154
-------- --------
Total liabilities and
shareholders' equity $761,151 $701,148
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 11
CLAYTON HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30,
1995 1994 1993
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Revenues:
Net sales $621,351 $510,153 $384,491
Financial services and
other income 136,741 118,083 91,750
-------- -------- --------
758,092 628,236 476,241
Costs and expenses:
Cost of sales 431,826 357,698 267,201
Selling, general
and administrative 188,835 153,698 113,695
Financial services interest 5,533 8,196 11,819
------- ------- -------
626,194 519,592 392,715
-------- -------- --------
Operating income 131,898 108,644 83,526
Interest income (expense), net 3,902 (359) (170)
-------- -------- ---------
Income before income taxes and
cumulative effect of change
in method of accounting 135,800 108,285 83,356
Provision for income taxes (48,800) (39,000) (29,600)
-------- -------- --------
Income before change in method
of accounting 87,000 69,285 53,756
Change in method of accounting
for income taxes --- 3,000 ---
-------- ------- -------
Net Income $ 87,000 $72,285 $53,756
======== ======= =======
Income per common share
before change in method of
accounting:
Primary $ 1.15 $ .94 $ .75
Fully diluted $ 1.15 $ .92 $ .73
Cumulative effect of change in
method of accounting per
common share:
Primary $ -- $ .04 $ --
Fully diluted $ -- $ .04 $ --
Net income per common share:
Primary $ 1.15 $ .98 $ .75
Fully diluted $ 1.15 $ .96 $ .73
Average shares outstanding:
Primary 75,922 73,649 71,360
Fully diluted 75,922 76,736 76,343
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CLAYTON HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total Additional
Shareholders' Common Paid-in Retained
Equity Stock Capital Earnings
------------ ------ ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance at June 30, 1992 $292,950 $3,567 $131,288 $158,095
Net income 53,756 --- --- 53,756
Five-for-four stock split --- 896 (896) ---
Issuances related to
stock incentive,
employee benefit plans
and other 1,924 19 1,905 ---
-------- ------ -------- --------
Balance at June 30, 1993 348,630 4,482 132,297 211,851
Net income 72,285 --- --- 72,285
Five-for-four stock split --- 1,126 (1,126) ---
Conversion of subordinated
debt 40,265 398 39,867 ---
Purchase of 210 shares of
common stock (4,175) (21) (4,154) ---
Issuances related to
stock incentive,
employee benefit plans
and other 5,149 39 5,110 ---
------- ----- ------- -------
Balance at June 30, 1994 462,154 6,024 171,994 284,136
Net income 87,000 --- --- 87,000
Five-for-four stock split --- 1,505 (1,505) ---
Purchase of 317 shares
of common stock (5,156) (32) (5,124) ---
Dividends declared
($.06 per share) (4,675) --- --- (4,675)
Issuances related to
stock incentive, employee
benefit plans and other 4,864 60 4,804 ---
------- ----- ------- -------
Balance at June 30, 1995 544,187 7,557 170,169 366,461
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 12
CLAYTON HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $87,000 $72,285 $53,756
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 8,296 6,679 4,991
Gain on sale of installment contract
receivables, net of amortization (14,744) (16,276) (9,472)
Stock issued for profit-sharing
401(k) contribution 3,281 2,171 1,682
Deferred income taxes 2,124 2,924 2,200
Cumulative effect of change in
method of accounting for income taxes --- (3,000) ---
Increase in other receivables, net (22,964) (13,290) (12,750)
Increase in inventories (11,138) (12,590) (12,403)
Increase in accounts payable and
accrued liabilities 6,906 21,393 5,116
Other 1,390 28,908 20,529
-------- -------- --------
Cash provided by operations 57,371 89,204 53,649
Origination of installment contract
receivables (345,260) (292,435) (230,733)
Proceeds from sales of originated
installment contract receivables 369,873 262,346 195,037
Principal collected on originated
installment contract receivables 25,003 33,046 34,442
-------- ------- --------
Net cash provided by operations 106,987 92,161 52,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract
receivables (26,074) ( 91,882) ( 21,258)
Proceeds from sales of acquired
installment contract receivables 7,112 57,588 14,371
Principal collected on acquired
installment contract receivables 17,760 15,098 15,376
Acquisition of partnership interest,
net of debt --- --- (9,748)
Acquisition of property, plant and
equipment, net (44,462) (35,601) (22,705)
Decrease (increase) in restricted cash
and investments 3,141 (21,149) ( 4,736)
-------- --------- --------
Net cash used in investing
activities (42,523) ( 75,946) (28,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (3,162) --- ---
Proceeds from short term borrowings 111,394 106,319 2,202
Repayment of short-term borrowings (136,394) (83,521) ---
Repayment of debt collateralized by
installment contract receivables (21,943) (26,368) (60,868)
Issuance of stock for incentive plans
and other (1,269) (1,784) 242
Repurchase of common stock (5,156) (4,175) ---
-------- ------- -------
Net cash used by financing activities (53,992) (5,961) (58,424)
-------- ------- -------
Net increase (decrease) in cash and
cash equivalents 10,472 10,254 (34,729)
Cash and cash equivalents at
beginning of year 38,922 28,668 63,397
-------- ------- -------
Cash and cash equivalents
at end of year $ 49,394 $38,922 $28,668
======== ======= =======
</TABLE>
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 5,823 $10,049 $16,176
Income taxes $ 54,725 $22,441 $25,047
</TABLE>
Supplemental disclosure of non-cash activities: In 1995 and 1994,
pass-through certificates aggregating $9,500 and $10,850, respectively, were
received coincidental with the sale of receivables.
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 13
CLAYTON HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Vanderbilt Life Insurance Company (VLIC), 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, VLIC, VLAC and VPC
accounted for on the equity basis is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS June 30,
1995 1994
(in thousands)
<S> <C>
Cash and cash equivalents $47,576 $ 37,905
Receivables 49,210 21,999
Inventories 88,455 77,317
Advances to unconsolidated subsidiaries 48,000 48,000
------- --------
Current assets 233,241 185,221
Investments in and advances to
unconsolidated subsidiaries 230,039 235,056
Property, plant and equipment,
at cost, net 166,048 129,883
-------- --------
Total assets $629,328 $550,160
======== ========
Short-term obligations $ 106 $ 25,144
Accounts payable 41,060 28,803
Accrued expenses and other liabilities 9,924 16,443
Federal and state income taxes 2,824 1,366
------- --------
Current liabilities 53,914 71,756
Long-term obligations less current
maturities 4,991 5,089
Notes payable to unconsolidated
subsidiaries 17,415 7,053
Reserve for credit losses and contingencies 3,825 2,650
Deferred income taxes 4,996 1,458
Shareholders' equity 544,187 462,154
------- --------
Total liabilities and
shareholders' equity $629,328 $550,160
======== ========
</TABLE>
19
<PAGE> 14
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30,
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues:
Net sales $621,351 $510,153 $384,491
Equity in net income of
unconsolidated subsidiaries 19,331 34,066 27,062
Insurance commissions, rent
and other 65,773 34,026 27,659
Interest and dividend income 10,188 5,965 4,252
------- -------- --------
716,643 584,210 443,464
Costs and expenses:
Cost of sales 431,826 357,697 267,201
Selling, general and administrative 162,517 134,773 105,842
Interest --- 655 1,425
-------- -------- --------
594,343 493,125 374,468
-------- -------- --------
Income before income taxes 122,300 91,085 68,996
Provision for income taxes (35,300) (21,800) (15,240)
-------- --------- ---------
Income before accounting change 87,000 69,285 53,756
Cumulative effect of accounting
change --- 3,000 ---
-------- -------- --------
Net income $ 87,000 $ 72,285 $ 53,756
======== ======== ========
</TABLE>
20
<PAGE> 15
- Subsidiaries
The following information is provided for the consolidated financial
services subsidiaries. Such subsidiaries consist of VMF, VLIC, VLAC and VPC.
Through VMF, CHI arranges to finance a portion of its retail sales. VLIC, VLAC
and VPC reinsure risk on credit life and physical damage insurance policies
issued by a non-related insurance company (a ceding company) principally
connected with credit sales. The financial statements of the Manufactured Home
Contracts 1990-1 Trust, CABS, Inc., and Vanderbilt SPC, Inc. special purpose
finance subsidiaries 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,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Installment contract receivables, net
of reserve for credit losses of $5,900
and $7,227 and unamortized discount
of $9,001 and $12,022
(pledged $75,000 and $100,000
at June 30, 1995, and 1994,
respectively) $296,627 $335,785
Other assets 116,445 104,907
-------- --------
Total assets $413,072 $440,692
======== ========
Notes payable collateralized by
installment contract receivables $ 43,640 $ 65,447
Unearned premiums 31,901 25,257
Other liabilities 79,543 77,831
Due to CHI 122,598 155,934
Shareholder's equity 135,390 116,223
-------- --------
Total liabilities and
shareholder's equity $413,072 $440,692
======== ========
</TABLE>
Condensed Combined Statements of Income
<TABLE>
<CAPTION>
Year ended June 30,
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenue $71,936 $84,657 $64,684
Expenses:
Interest expense 10,485 12,422 16,375
Other 28,620 20,969 6,887
Income taxes 13,500 17,200 14,360
------- ------- -------
52,605 50,591 37,622
------- ------- -------
Net income $19,331 $34,066 $27,062
======= ======= =======
</TABLE>
VMF paid CHI endorsement fees of $13,784,000 in 1995; $10,414,000 in 1994;
and $8,222,000 in 1993. VMF also paid interest to CHI of $9,365,000 in 1995:
$7,136,000 in 1994; and $4,555,000 in 1993. 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.
21
<PAGE> 16
Estimated principal receipts under installment contract receivables for
each of the five fiscal years subsequent to 1995 are as follows:
<TABLE>
<S> <C>
1996 $170,000,000
1997 21,000,000
1998 18,000,000
1999 14,000,000
2000 6,000,000
</TABLE>
The estimated principal receipts are based on the scheduled payments and
estimated prepayments of principal of the installment contract receivables.
Estimated principal receipts for the year ending June 30, 1996 include amounts
relating to the sale of $185 million of installment contract receivables in
August 1995.
VMF provides servicing for investors in installment contract receivables.
Total contracts serviced at June 30, 1995 and 1994, including contracts held
for investment, were approximately $1,434 and $1,316 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 financed by 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 VLIC, 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
deferral and recognition of unearned premiums and the deferral and
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.
22
<PAGE> 17
Installment contract receivables held for sale of $154,356,000 and
$189,372,000 in 1995 and 1994, respectively, are carried at the lower of
aggregate cost or market. 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 anticipated 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.
Investment Securities
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), Accounting for Certain Investments
in Debt and Equity Securities. Investments in certain debt and equity
securities are classified as either Held-to-Maturity (reported at amortized
cost), Trading (reported at fair value with unrealized gains and losses
included in earnings), or Available-for-Sale (reported at fair value with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity).
Premiums and discounts on debt securities are recognized in interest
income on the level interest yield method over the period to maturity.
Gains and losses on the sale of securities are determined using the
specific identification method.
Inventories
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.
23
<PAGE> 18
Property, Plant and Equipment
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 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. The adoption resulted in
a decrease in the deferred tax liability and an increase in income of $3
million in fiscal 1994.
Reserves for Credit Losses and Contingent Liabilities
Reserves for credit losses are established related to installment contract
receivables. Actual credit losses are charged to the 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 the 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.
24
<PAGE> 19
Earnings 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 for 1994 and 1993 have been computed assuming conversion of
the Company's convertible subordinated debentures (called in the third quarter
of fiscal 1994). The fully diluted computation adds to net income the interest
expense (net of income tax) on the debentures.
Cash Equivalents
For purposes of the statements 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 1994 and 1993 financial
statements to conform to the 1995 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 1994.
Note 2 - Inventories
Inventories at June 30, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Manufactured homes:
New $65,735 $55,651
Previously-owned 11,259 10,953
Raw materials 11,461 10,713
------- -------
$88,455 $77,317
======= =======
</TABLE>
If the first-in, first-out (FIFO) method of inventory valuation had been
used, inventories would have been higher by $15,402,000 and $11,972,000 at June
30, 1995, and 1994, respectively.
25
<PAGE> 20
Note 3 - Securities
At June 30, 1995 and 1994, manufactured housing contract
senior/subordinate pass-through certificates have been classified in the
consolidated financial statements according to management's intent.
These securities can be reasonably expected to mature after ten years.
Note 4 - Property, Plant and Equipment
Property, plant and equipment at June 30, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Land and improvements $108,968 $ 92,277
Buildings 71,292 49,395
Furniture and equipment 19,679 15,393
--------- --------
199,939 157,065
Less: accumulated depreciation
and amortization (33,891) (27,182)
--------- --------
$166,048 $129,883
========= ========
</TABLE>
Depreciation charged to operations was $8,296,000, $6,656,000, and
$4,900,000 for each of the years ended June 30, 1995, 1994, and 1993,
respectively. Included in Property, Plant and Equipment are $11 million of
assets acquired from the Company's principal shareholder during fiscal 1994.
Note 5 - Long-Term Obligations
Long-term obligations at June 30, 1995, and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
CHI (in thousands)
<S> <C> <C>
10% note payable due June 1, 1998 4,866 4,960
Other notes payable 231 273
------- -------
5,097 5,233
</TABLE>
26
<PAGE> 21
<TABLE>
<S> <C> <C>
VMF
Debt collateralized by
installment contract receivables:
Demand note payable to Clayton Employees
Savings Plan at prime 3,000 3,000
Maturing in fiscal years through:
1996 to 2004: weighted average
rate of 10.04% at June 30, 1995 33,264 40,623
1995 to 2005: 9.4% REMIC trust
senior certificates 2,855 13,699
1996 to 2002: adjustable rates,
weighted average rate of 10.31% at
June 30, 1995, weighted average
maximum rate 15.03% at June 30, 1995 2,147 4,768
1996 to 2001: adjustable rates,
average rate of 8.03%
at June 30, 1995, no maximum rate 2,374 3,357
------- -------
43,640 65,447
------- -------
Total $ 48,737 $ 70,680
======== ========
</TABLE>
Expected principal payments of long-term debt of VMF for the five fiscal
years subsequent to 1995 and thereafter are as follows:
<TABLE>
<S> <C>
1996 11,000,000
1997 7,000,000
1998 8,000,000
1999 5,000,000
2000 3,000,000
Thereafter 9,640,000
</TABLE>
The estimated principal payments on the debt of VMF are based on the
scheduled payments and estimated prepayments 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 five 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, 1995,
the aggregate amount of earnings available for cash dividends or for repurchase
of Company stock was approximately $368 million.
27
<PAGE> 22
Note 6 - 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, 1995, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $14,082 $17,229 $25,279
Provision --- --- ---
Losses, net of recoveries
applicable to installment
contract receivables:
Purchased (1,900) (2,230) (4,092)
Other (287) (526) (1,126)
Reserves transferred (to)
from unamortized discount --- (1,598) 690
Reserves associated with
receivables purchased (sold) --- 1,207 (3,522)
------- ------- -------
Balance, end of year $11,895 $14,082 $17,229
======= ======= =======
Reserves for credit losses $ 8,329 $ 9,877 $11,692
Reserve for contingencies 3,566 4,205 5,537
------- ------- -------
$11,895 $14,082 $17,229
======= ======= =======
</TABLE>
The reserves for credit losses are netted against receivables and the
reserve for contingencies is included in other liabilities on the consolidated
balance sheets.
28
<PAGE> 23
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, 1995
$ 11,000 87% - 100% $10,000
98,000 11% - 30% 23,000
159,000 10% and below 16,000
-------- -------
$268,000 $49,000
======== =======
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
======== ========
</TABLE>
Proceeds from receivables sold with recourse amounted to $7 million, $20
million and $34 million, during 1995, 1994 and 1993, respectively.
Approximately 97% of the installment contract receivables both owned and
sold with recourse have fixed rates of interest and approximately 3% are at
variable rates of interest based on either the prime rate, U.S. Treasury rates
or LIBOR.
Approximately 99% of the Company's servicing arrangements are based on
interest spreads with fixed rates or variable rates with ceilings while the
remaining 1% have variable rates which provide for no minimum or maximum rate
of interest.
Note 7 -- Shareholders' Equity
Stock Option Plan
In 1983, 1985 and 1991, the Company established Stock Option Plans for a
total of 5,514,770 shares of common stock which provide for granting "incentive
stock options" or "non-qualified options"and stock appreciation rights to
officers and key employees of the Company. In addition, non-eligible members
of the Board of Directors have, with shareholder approval of prices and
provisions for exercise, 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 as of the date of
29
<PAGE> 24
grant. 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 plans follow:
<TABLE>
<CAPTION>
Stock Option
Shares Price Range
<S> <C> <C>
Balance June 30, 1992 2,396,581 $ 1.31 - $ 9.86
Granted 318,518 $ 9.86 - $14.46
Exercised (245,114) $ 1.31 - $ 7.47
Cancelled (122,917) $ 1.31 - $14.46
------------------------------
Balance June 30, 1993 2,347,068 $ 1.31 - $14.46
Granted 606,656 $14.72 - $20.20
Exercised (441,580) $ 1.31 - $14.46
Canceled (41,400) $ 1.31 - $20.20
------------------------------
Balance June 30, 1994 2,470,744 $ 1.31 - $20.20
Granted 378,093 $14.10 - $15.90
Exercised (444,165) $ 1.31 - $14.46
Canceled (170,074) $ 1.81 - $20.20
------------------------------
Balance June 30, 1995 2,234,598 $ 1.81 - $18.60
</TABLE>
Options available for future grant at June 30, 1995 and 1994 were
1,352,642 and 1,358,165, respectively.
At June 30, 1995, and 1994 options for 825,150 and 591,607 shares,
respectively, were exercisable. Options were held by 330 persons at June 30,
1995.
Stock Purchase Plan
In 1986 the Company established an employee stock purchase plan for a
total of 2,384,188 shares of common stock. The Stock Purchase Plan was
suspended during 1992. At June 30, 1995, there were 1,246,241 shares reserved
for the plan.
Note 8 - Income Taxes
Components of the provision for income tax for each of the three years
ended June 30, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current tax provisions:
Federal $41,292 $32,772 $24,798
State 5,384 3,304 2,602
------- ------- -------
46,676 36,076 27,400
</TABLE>
30
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Deferred tax provision 2,124 2,924 2,200
------- ------- -------
$48,800 $39,000 $29,600
======= ======= =======
</TABLE>
The sources and tax effect of temporary differences at June 30, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Reserves for credit losses and contingencies
and discounts $ 8,072 $10,084
Insurance reserves 3,051 1,650
Unearned premiums 3,176 --
------ -------
Total deferred tax assets 14,299 11,734
------ -------
Residual interest in installment
contract receivables (17,876) (14,611)
Deferred costs ( 2,679) (1,053)
Other ( 3,126) (3,328)
------- -------
Total deferred tax liabilities (23,681) (18,992)
------- -------
Net deferred tax liability $(9,382) ($7,258)
======= =======
</TABLE>
The provision for income taxes reflected in the financial statements
differs from income taxes calculated at statutory federal income tax rates of
35% in 1995 and 1994 and 34% in 1993 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes at statutory rate $47,530 $37,900 $28,758
State income taxes, net of
federal benefit 3,769 2,313 1,704
Other, net (2,499) (1,213) (862)
------- ------- -------
$48,800 39,000 $29,600
======= ======= =======
</TABLE>
In 1993, the deferred income provision resulted from timing differences in
the recognition of revenues and expenses for tax and financial statement
purposes principally related to provisions for credit losses and contingencies,
and fees for future servicing.
Note 9 - 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
$3,461,000, $2,171,000, and $1,689,000, for the years ended June 30, 1995,
1994, and 1993, respectively.
31
<PAGE> 26
Note 10 - Commitments and Contingencies
Leases
Certain operating properties are rented under non-cancelable operating
leases which expire at various dates through 2009. Total rental expense under
operating leases was $2,721,000 in 1995, $2,159,000 in 1994, and $3,100,000 in
1993. The following is a schedule of minimum rental commitments under
non-cancelable operating leases, primarily for retail centers, in effect at
June 30, 1995:
<TABLE>
<S> <C>
1996 2,235,000
1997 1,706,000
1998 1,276,000
1999 808,000
2000 421,000
2001 and thereafter 1,608,000
</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 homes 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 6.
32
<PAGE> 27
Note 11 - 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 VLIC, 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 income consists
of total revenues 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
Housing Services Communities Corporate Total
<S> <C> <C> <C> <C> <C>
1995
Revenues $621,474 $ 88,749 $ 47,869 $ --- $758,092
Intersegment income 11,406 274 1,194 (12,874) ---
Operating income 67,898 54,800 9,200 --- 131,898
Identifiable assets 176,632 413,072 122,408 49,039 761,151
Depreciation and amortization 5,132 --- 3,164 --- 8,296
Capital expenditures 21,933 --- 22,529 --- 44,462
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 4,005 --- 2,674 --- 6,679
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
</TABLE>
33
<PAGE> 28
Note 12 - Other assets and liabilities
At June 30, 1995 and 1994, other assets and liabilities consisted of:
<TABLE>
<CAPTION>
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Other Assets
Restricted cash and investments $ 66,214 $69,354
Interest receivable and future
servicing rights 17,373 12,672
Deferred debt costs and prepaid expenses 6,845 3,314
Other 3,053 4,722
-------- -------
$ 93,485 $ 90,062
======== ========
Other Liabilities
Investors payable $ 37,492 $24,067
Reserve for contingencies (Note 6) 3,566 4,205
Escrow deposits 13,721 13,904
Unearned insurance premiums 31,901 25,257
Short-term borrowing --- 25,000
Other 8,216 12,779
-------- --------
$ 94,896 $105,212
======== ========
</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.
The Company has lines of credit totalling $60 million for working capital
and letter of credit needs of which $127,653 in letters of credit was
outstanding at June 30, 1995, and $25 million in working capital draws was
outstanding at June 30, 1994. As of June 30, 1995 the outstanding letters of
credit bore interest at 0.5% and as of June 30, 1994, the $25 million bore
interest at an average rate of 4.9% based on the bank's transactional rates.
Note 13 - 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 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.
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.
34
<PAGE> 29
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
Residual Interest in Installment Contract Receivables - Residual interest
in installment contract receivables are calculated using prepayment, default
and interest rate assumptions that the Company believes are appropriate at the
time of the sale of the installment contract receivables. Projected
performance is monitored after the sale; the Company alters the underlying rate
at which the future estimated cash flows are discounted once the sale has been
recorded. The fair value primarily revolves around an appropriate discount
rate to be applied to the asset as a whole.
The Company used a discount rate and such other assumptions as it believed to
be used for similar instruments. The Company has estimated the fair value of
its residual interests in installment contract receivables to approximate its
carrying value as of June 30, 1995 and 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
using expected future cash flows of the portfolio discounted at the current
origination rate.
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's obligations.
35
<PAGE> 30
The carrying amounts and estimated fair values of CHI's financial assets
and liabilities are as follows:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
(in thousands)
Financial assets:
Cash and cash
equivalents, including
restricted investments
and securities held-to-
maturity $135,969 $135,801 $119,126 $119,126
Residual interests in
installment contract
receivables 89,642 89,642 69,234 69,234
Contracts held for sale
and as collateral,
including accrued
interest receivable 230,075 233,122 295,669 299,773
Financial liabilities:
Long-term obligations $ 48,737 $ 51,710 $ 70,680 $ 75,126
</TABLE>
36
<PAGE> 1
EXHIBIT 21. List of subsidiaries and partnerships of the Registrant.
<TABLE>
<CAPTION>
SUBSIDIARY STATE OR COUNTRY OF INCORPORATION ORGANIZATION
---------- ----------------------------------------------
100% Owned Entities
<S> <C>
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. (2) Tennessee
CMH Parks, Inc. Tennessee
JH Properties, Inc. (1) Texas
CMH Capital, Inc. Delaware
Vanderbilt SPC, Inc. (2) 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
Community Sales, Inc. (1) Colorado
(1) Owned 100% by CMH Parks, Inc.
(2) Owned 100% by Vanderbilt Mortgage & Finance, Inc.
<CAPTION>
PARTNERSHIP
-----------
50% to 99% Owned Entities
<S> <C>
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>
18
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Vanderbilt Mortgage and Finance, Inc. and Clayton Homes, Inc. on Form S-3 (File
No. 33-88238) of our report dated August 18, 1995, on our audits of the
consolidated financial statements of Clayton Homes, Inc. as of June 30, 1995
and 1994, and for the years ended June 30, 1995, 1994 and 1993, which report is
included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
September 28, 1995
<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, 1995 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-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 49,394
<SECURITIES> 0
<RECEIVABLES> 351,737
<ALLOWANCES> 8,329
<INVENTORY> 88,455
<CURRENT-ASSETS> 0
<PP&E> 174,344
<DEPRECIATION> 8,296
<TOTAL-ASSETS> 761,151
<CURRENT-LIABILITIES> 0
<BONDS> 48,737
<COMMON> 177,726
0
0
<OTHER-SE> 366,461
<TOTAL-LIABILITY-AND-EQUITY> 761,151
<SALES> 621,351
<TOTAL-REVENUES> 758,092
<CGS> 431,826
<TOTAL-COSTS> 626,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,533
<INCOME-PRETAX> 135,800
<INCOME-TAX> 48,800
<INCOME-CONTINUING> 87,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,000
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
