<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
Commission file number 1-8824
CLAYTON HOMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-0794407
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 15169
623 Market Street
Knoxville, Tennessee 37902
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (zip code)
423-970-7200
- ----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of common stock $.10 par value, outstanding on
December 31, 1995 - 94,915,966
1
<PAGE> 2
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
REVENUES 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $177,529 $148,037 $355,313 $286,752
Financial services 23,668 20,974 52,265 43,569
Rental and other income 9,986 8,468 18,918 15,611
-------- -------- -------- --------
Total Revenues 211,183 177,479 426,496 345,932
EXPENSES
Cost of sales 120,060 103,491 241,085 199,924
Selling, general and administrative 54,227 44,302 111,383 86,510
Financial services interest 910 1,494 1,930 3,106
Provision for credit losses and
contingencies 1,000 1,000 2,000 2,000
-------- -------- -------- --------
Total Expenses 176,197 150,287 356,398 291,540
-------- --------- -------- --------
OPERATING INCOME 34,985 27,192 70,098 54,392
Interest income, net 1,327 1,073 2,377 1,798
-------- -------- -------- --------
Income before income taxes 36,312 28,265 72,475 56,190
Provision for income taxes 13,600 10,100 27,200 19,800
-------- -------- -------- --------
NET INCOME $ 22,712 $ 18,165 $ 45,275 $ 36,390
======== ======== ======== ========
Earnings per share: $ .24 $ .19* $ .48 $ .38*
Dividends paid per share $ .02 $ .02* $ .04 $ .02*
Average shares outstanding: 95,312 94,606* 95,249 94,839*
</TABLE>
* Adjusted for the December 13, 1995 5-for-4 stock split.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Audited)
December 31, June 30,
1995 1995
------------ ---------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 65,362 $ 69,755
Receivables, net 316,574 343,408
Inventories 102,031 88,455
Property, plant and equipment, net 183,669 166,048
Other assets 133,316 93,485
-------- --------
TOTAL ASSETS $800,952 $761,151
======== ========
Liabilities and Shareholders' Equity:
Accounts payable and accrued liabilities $ 48,396 $ 63,949
Long-term obligations 39,035 48,737
Deferred income taxes 6,278 9,382
Other liabilities 117,300 94,896
Shareholders' equity 589,943 544,187
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $800,952 $761,151
======== ========
</TABLE>
2
<PAGE> 3
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 45,275 $ 36,390
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,079 3,706
Gain on sale of installment contract
receivables, net of amortization (4,415) (3,392)
Provision for credit losses 2,000 2,000
(Decrease) increase in deferred income taxes (3,104) 4,275
Decrease (increase) in other receivables 773 (29,315)
Change in other operating assets and
liabilities (27,646) (8,147)
Increase (decrease) in other liabilities, net
of other assets 14,983 (29,098)
--------- ---------
Cash provided (used) by operations 31,945 (23,581)
Origination of installment
contract receivables (212,823) (166,870)
Proceeds from sales of originated
installment contract receivables 202,028 179,607
Principal collected on originated
installment contract receivables 12,907 23,332
--------- ---------
Net cash provided by operations 34,057 12,488
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of installment contract receivables (5,110) (707)
Proceeds from sales of acquired installment
contract receivables 25,832 3,161
Principal collected on acquired installment
contract receivables 5,643 8,896
Acquisition of property, plant and equipment (21,700) (23,070)
(Increase) Decrease in restricted cash
and investments (32,411) 12,434
--------- ---------
Net cash (used) provided by investing
activities (27,746) 714
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (3,033) (1,541)
Proceeds from short term borrowings 24,295 48,206
Repayment of short term borrowings (24,295) (58,206)
Repayment of debt collateralized by
installment contract receivables (9,702) (11,516)
Proceeds (Repurchase) of stock issued for
incentive plans and other 2,031 (2,965)
--------- ---------
Net cash used by financing activities (10,704) (26,022)
--------- ---------
Net decrease in cash and cash equivalents (4,393) (12,820)
Cash and cash equivalents at beginning of year 69,755 38,922
--------- ---------
Cash and cash equivalents at end of period $ 65,362 $ 26,102
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,131 $ 3,414
Income taxes $ 32,022 $ 30,358
</TABLE>
3
<PAGE> 4
Notes to Condensed Consolidated Financial Statements
(unaudited)
Clayton Homes, Inc.
1. The condensed consolidated financial statements of Clayton
Homes, Inc. and its subsidiaries have been prepared by the
Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with Generally
Accepted Accounting Principles have been omitted. The
condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's Annual Report to Shareholders for
the year ended June 30, 1995.
The information furnished reflects all adjustments which are
necessary for a fair presentation of the Company's financial
position as of December 31, 1995 and the results of its
operations for the six months and quarters ended December 31,
1995 and 1994 and the changes in its cash position for the six
months ended December 31, 1995 and 1994.
2. The results of operations for the six months and second
quarter ended December 31, 1995 are not necessarily indicative
of the results to be expected for the full year.
3. Certain reclassifications have been made to the fiscal 1994
financial statements to conform to the fiscal 1995
presentation.
4
<PAGE> 5
PART 1 - - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
See Pages 2 through 4.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994:
The following table shows the percentage changes in retail sales by
the Company's retail and community sales centers and in wholesale sales to
independent dealers. It also shows percentage increases in the average number
of company-owned retail sales centers, communities and independent dealers.
Comparative percentages are given for the six month periods ended December 31,
1995 and 1994:
<TABLE>
<CAPTION>
First Six Months of
Fiscal 1996 vs 1995
-------------------
<S> <C>
Retail:
Dollar sales +22.6%
Average number of sales centers +17.8%
Average dollar sales per sales center + 4.1%
Average home price + 8.3%
Wholesale:
Dollar sales +25.9%
Average number of independent dealers +26.6%
Average dollar sales per
independent dealer - 0.6%
Average home price - 2.0%
Communities:
Dollar Sales +26.1%
Average number of communities +18.0%
Average dollar sales per community + 6.8%
Average home price +10.6%
</TABLE>
Total revenues for the six months ended December 31, 1995, increased 23%
to $426 million. This was a result of the 24% increase in manufactured housing
sales to $355 million,the 20% increase in financial services income to $52
million, and the 21% increase in rental and other income to $19 million.
Net sales of the Retail Group rose 23% to $212 million due to the 8%
rise in the average home price and the 18% increase in company-owned sales
centers. This was partially offset by a 5% decrease in the average number of
homes sold per sales center. The rise in the average home price is primarily
attributable to increased costs and to market factors affecting supply and
demand. These market factors allow the Company, in certain cases, to raise
retail prices on individually negotiated transactions.
5
<PAGE> 6
Net sales of the Manufacturing Group increased 26% to $129 million on
a 28% rise in the number of homes sold. This was offset by a 2% decrease in
the average wholesale price to independent dealers as the product mix shifted
slightly toward single-section homes.
Net sales of the Communities Group rose 26% to $14 million; while the
average number of communities owned was up 18%; and the average home price
increased 11%. This was partially offset by a 3% decrease in units sold per
community. The price increase is related to a shift in product mix toward new
multi-section homes from single-section homes.
Financial services income increased 20% to $52 million. Insurance
related revenues rose $3 million, and interest and loan servicing revenues
increased $4 million. Gains on the sale of installment contract receivables
increased by $1 million over the prior year.
Rental and other income increased 21% as the average number of
community sites owned rose 18%, and the occupancy rate grew 3%.
The following table shows the fluctuations in interest and loan
servicing revenues 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 related to
the retail sale of homes by the Company or are purchased from independent
dealers and unrelated financial institutions. Receivables owned generate
interest income and are used to collateralize debt or, in certain cases,
represent the Company's subordinated interest in a pool of receivables
accounted for by the consolidated method. Receivables sold are pooled, sold and
generate gains representing the discounted present value of the excess of
principal and interest collected over the amount required to be remitted to
investors. Servicing is retained by the Company in all cases. The change due
to both rate and volume has been allocated to rate and volume fluctuations in
proportion to the relationship of the absolute dollar amounts of the change in
each. Comparative fluctuations are given between the first six months ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
First Six Months of
Fiscal 1996 vs 1995
Increase (Decrease) Due to
----------------------------------------
Rate Volume Total
---- ------ -----
(in thousands)
<S> <C> <C> <C>
Interest and loan servicing
revenues:
Receivables owned $1,913 $(1,295) $ 618
Receivables sold (702) 4,045 3,343
Master Servicing Contracts 1,063 (1,477) (414)
------ ------- ------
$2,274 $ 1,273 $3,547
====== ======= ======
</TABLE>
Interest and loan servicing revenues increased 12% to $33 million.
The average balance of receivables owned decreased 9% to $206 million with an
increase in the weighted average interest rate to 13.9% from 12.2%. The
average balance of receivables sold with servicing retained increased 30% to
$1.06 billion with a decrease in the weighted average loan service spread to
3.3% from 3.5%.
6
<PAGE> 7
Financial Services interest expense decreased $1.2 million, or 38%, to
$1.9 million. Average debt collateralized by installment contract receivables
dropped 38% from $58 million to $36 million, while the weighted average
interest rate decreased from 10.8% to 10.7%. The terms of the debt preclude
the Company from prepaying it.
Gross profit margins increased to 32.1% from 30.3% in the prior year's
first half. The increase is largely attributable to an increase in vertical
retail sales of Clayton produced product. Raw material prices have remained
stable.
Selling, general and administrative expenses were 31.3% of sales
versus 30.2% in the prior comparable period. Increased insurance claims from
hurricane activity and costs associated with the first quarter purchase of
eight new communities accounted for most of the increase.
The provision for credit losses declined as a percent of sales to 0.6%
from 0.7% last year as the trend of credit losses as a percent of average
loans outstanding continued to decline.
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
on December 31
1995 1994
---- ----
<S> <C> <C>
Total delinquencies as percentage
of contracts outstanding:
All contracts 2.26% 2.37%
Contracts originated by VMF 2.40% 1.81%
Contracts acquired from other
institutions 3.85% 4.80%
</TABLE>
The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the Company is
either contingently liable or owner:
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience
for the six months ended
December 31
1995 1994
---- ----
<S> <C> <C>
Net losses as percentage of average
loans outstanding (annualized):
All contracts 0.2% 0.3%
Contracts originated by VMF 0.0% 0.0%
Contracts acquired from
other institutions 3.6% 2.6%
Number of contracts in repossession:
Total 677 568
Contracts originated by VMF 548 432
Contracts acquired from other
institutions 129 136
Total number of contracts in repossession
as percentage of total contracts 0.96% 0.90%
</TABLE>
7
<PAGE> 8
The $13.6 million increase in inventories as of December 31, 1995 from June 30,
1995 is explained as follows:
<TABLE>
<S> <C>
Manufacturing Group (in millions)
------------------- -------------
Increase in finished goods $ 2.2
Decrease in raw materials (4.5)
Retail Group
------------
Increase in average inventory
levels at 192 company-owned
sales centers at June 30, 1995 7.3
Inventory added to 19 new
company-owned sales centers 8.1
Communities Group
-----------------
Decrease in average inventory at 55
company-owned communities at June 30, 1995 (.7)
Increase in inventory from eight new
company-owned communities 1.2
-----
$13.6
=====
</TABLE>
On December 31, 1995, order backlogs for the Manufacturing Group
(consisting of company-owned and independent dealer orders) totaled $51.4
million, up 59% from last year's $32.3 million backlog.
Liquidity and Capital Resources
Cash at December 31, 1995, was $65.4 million as compared to $69.8
million on June 30, 1995. The Company anticipates meeting cash needs with cash
flows from operations, current cash balances, and the sale of installment
contracts receivable and GNMA certificates.
8
<PAGE> 9
SECOND QUARTER ENDED DECEMBER 31, 1995 AND 1994:
The following table reflects the percentage changes in retail sales by
company-owned sales centers and in wholesale sales to independent dealers. It
also shows the percentage increases in the average number of company-owned
sales centers and in independent dealers. Comparative percentages are given
for the second quarters ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Second Quarter of
Fiscal 1996 vs 1995
-------------------
<S> <C>
Retail:
Dollar sales +16.4%
Average number of sales centers +18.0%
Average dollar sales per sales center - 1.3%
Average home price + 7.1%
Wholesale:
Dollar sales +27.5%
Average number of independent dealers +34.3%
Average dollar sales per independent dealer - 5.1%
Average home price + 0.8%
Communities:
Dollar Sales + 6.2%
Average number of communities +27.3%
Average dollar sales per community -16.6%
Average home price + 6.1%
</TABLE>
Total revenues for the quarter ended December 31, 1995 increased 19%
on a 20% increase in manufactured housing sales to $178 million, a 13% increase
in financial services income to $24 million, and an 18% increase in rental and
other income to $10 million.
Net Retail sales rose 16% to $105 million due to the 7% rise in the
average home price and the 18% increase in the average number of company-owned
sales centers. This was partially offset by an 8% decrease in the average
number of homes sold per company-owned sales center. The rise in average home
price is primarily attributable to an increase in the number of multi-section
homes sold as a percent of total units sold.
Net sales of the Manufacturing Group increased 28% to $67 million on a
27% rise in the number of homes sold and the 1% increase in the average
wholesale price to independent dealers. Units sold increased on the addition
of two new plants and efficiency improvements at existing plants.
Net sales of the Communities Group increased 6% to $6 million as the
number of communities owned grew 19% and the average home price increased 6%.
This was offset by the 17% decrease in average dollar sales per community.
Financial services income rose 13% to $24 million benefiting from
increases in interest income on originated receivables and in insurance income.
Rental and other income increased 18% primarily on a 25% increase in
the average number of sites owned in communities and a 1% increase in occupancy
rates.
9
<PAGE> 10
The following table shows the fluctuations in interest and loan
servicing revenues related to changes in interest and servicing rates and
changes in the average balances of receivables owned and receivables sold. The
change due to both rate and volume has been allocated to rate and volume
fluctuations in proportion to the relationship of the absolute dollar amounts
of the change in each. Comparative fluctuations are given between the quarters
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Second Quarter of
Fiscal 1996 vs 1995
Increase (Decrease) Due to
-----------------------------------------
Rate Volume Total
---- ------ -----
(in thousands)
<S> <C> <C> <C>
Interest and loan servicing
revenues:
Receivables owned $ 99 $(1,200) $(1,101)
Receivables sold (564) 2,258 1,694
Master Servicing Contracts 513 (750) (237)
----- ------- -------
$ 48 $ 308 $ 356
===== ======= =======
</TABLE>
Interest and loan servicing revenues increased $.4 million or 2% to
$16 million. The average balance of receivables owned decreased 16% to $200
million with an increase in the weighted average interest rate to 12.8% from
12.7%. The average balance of receivables sold with servicing retained
increased 33% to $1.1 billion with a decrease in the weighted average loan
service spread to 3.3% from 3.5%.
Financial Services interest expense decreased $.6 million, or 39%, to
$.9 million. Average debt collateralized by installment contract receivables
dropped 36% to $35 million while the weighted average interest rate declined
from 10.8% to 10.4%.
Gross profit margins increased to 32.4% from 30.1% in last year's
second quarter. The increase is primarily attributable to an increase in
vertical retail sales of Clayton produced product. Raw material prices have
remained stable.
Selling, general and administrative expenses were 30.5% of sales
versus 29.9% in the prior comparable period. The increase is largely the
result of increased insurance claims from second quarter hurricane activity and
of costs associated with the first quarter purchase of eight new communities.
The provision for credit losses declined as a percent of sales to 0.6% from
0.7% last year as the trend of credit losses as a percent of average loans
outstanding continued to decline.
The following table presents write-off experience for the quarters
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Second Quarter Ended
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Net losses as percentage of average
loans outstanding (annualized):
All contracts 0.2% 0.2%
Contracts originated by VMF 0.0% 0.0%
Contracts acquired from
other institutions 3.8% 2.5%
</TABLE>
10
<PAGE> 11
PART II - - OTHER INFORMATION
ITEM 1 - There were no reportable events for Item 1 through Item 5.
ITEM 6 - - Exhibits and Reports for Form 8-K.
(a) 11. Statement regarding computation of per share
earnings:
27. Financial Data Schedule (for SEC use only)
Net income per share is computed on the weighted average number of
shares outstanding during the quarter after giving effect to the
equivalent shares which are issuable upon the exercise of stock
options determined by the treasury stock method. The calculation of
earnings per share follows:
<TABLE>
<CAPTION>
Quarter Six Months
Ended December 31,
(in thousands except per share data) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (fully diluted) $22,712 $18,165 $45,275 $36,390
Weighted average shares
outstanding (fully diluted) 95,312 94,606 95,249 94,839
Earnings per share:
Fully diluted $ .24 $ .19 $ .48 $ .38
</TABLE>
11
<PAGE> 12
CLAYTON HOMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLAYTON HOMES, INC.
-------------------
(Registrant)
Date: 13/February/1996 /s/Joseph H. Stegmayer
----------------------- -------------------------
Joseph H. Stegmayer
President and
Chief Operating Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLAYTON HOMES, INC. FOR THE QUARTER ENDED DECEMBER 31,
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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 65,362
<SECURITIES> 0
<RECEIVABLES> 329,654
<ALLOWANCES> 13,080
<INVENTORY> 102,031
<CURRENT-ASSETS> 0
<PP&E> 222,473
<DEPRECIATION> 38,804
<TOTAL-ASSETS> 800,952
<CURRENT-LIABILITIES> 0
<BONDS> 39,035
0
0
<COMMON> 181,277
<OTHER-SE> 408,666
<TOTAL-LIABILITY-AND-EQUITY> 800,952
<SALES> 355,313
<TOTAL-REVENUES> 426,496
<CGS> 241,085
<TOTAL-COSTS> 356,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 1,930
<INCOME-PRETAX> 72,475
<INCOME-TAX> 27,200
<INCOME-CONTINUING> 45,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,275
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>