<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 March 31, 1996
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 March 31, 1996 -
94,979,264
1
<PAGE> 2
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Net sales $169,117 $139,635 $524,430 $426,387
Financial services 28,630 30,922 80,895 74,491
Rental and other income 13,627 9,126 32,545 24,737
-------- -------- -------- --------
Total Revenues 211,374 179,683 637,870 525,615
EXPENSES
Cost of sales 114,976 95,842 356,061 295,767
Selling, general and administrative 57,224 46,459 168,607 132,969
Financial services interest 774 1,322 2,704 4,428
Provision for credit losses and
contingencies 1,000 1,000 3,000 3,000
-------- -------- -------- --------
Total Expenses 173,974 144,623 530,372 436,164
-------- -------- -------- --------
OPERATING INCOME 37,400 35,060 107,498 89,451
Interest income (expense) 854 150 3,231 1,948
-------- -------- -------- --------
Income before income taxes and cumulative
effect of change in method of accounting
for income taxes 38,354 35,210 110,729 91,399
Provision for income taxes 14,300 12,900 41,500 32,700
-------- -------- -------- --------
NET INCOME $ 23,954 $ 22,310 $ 69,229 $ 58,699
======== ======== ======== ========
Earnings per share: $ .25 $ .24 * $ .73 $ .62 *
Dividends paid per share: $ .02 $ .02 * $ .06 $ .05 *
Average shares outstanding: 95,786 94,841 * 95,387 94,840 *
</TABLE>
*Adjusted for the December 13, 1995 5-for-4 stock split.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AUDITED)
(in thousands) MARCH 31, JUNE 30,
1996 1995
----------- --------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 12,274 $ 69,755
Receivables, net 416,196 343,408
Inventories 123,666 88,455
Property, plant and equipment, net 192,707 166,048
Other assets 154,623 93,485
-------- --------
TOTAL ASSETS $899,466 $761,151
======== ========
Liabilities and Shareholders' Equity:
Accounts payable and accrued liabilities $ 46,262 $ 63,949
Long-term obligations 37,035 48,737
Deferred income taxes 3,590 9,382
Other liabilities 199,205 94,896
Shareholders' equity 613,374 544,187
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $899,466 $761,151
======== ========
</TABLE>
2
<PAGE> 3
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 69,229 $ 58,699
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 6,378 5,792
Gain on sale of installment contract
receivables, net of amortization (4,505) (12,329)
Provision for credit losses 3,000 3,000
Decrease in deferred income taxes (5,792) (2,851)
Increase in other receivables (2,660) (41,688)
Increase in other operating assets, net
of other operating liabilities (49,865) (15,868)
Increase (decrease) in other liabilities, net
of other assets 8,373 (11,663)
-------- --------
Cash provided (used) by operations 24,158 (16,908)
Origination of installment
contract receivables (313,333) (243,983)
Proceeds from sales of originated
installment contract receivables 206,355 337,012
Principal collected on originated
installment contract receivables 16,269 30,119
-------- --------
Net cash provided by operations (66,551) 106,240
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract receivables (20,659) (1,236)
Proceeds from sales of acquired installment
contract receivables 30,065 7,112
Principal collected on acquired installment
contract receivables 12,681 12,526
Acquisition on property, plant and equipment (33,037) (31,686)
(Increased) decrease in restricted cash
and investments (36,142) 15,490
-------- --------
Net cash (used) provided by investing activities (47,092) 2,206
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,933) (1,541)
Proceeds from short term borrowings 169,752 111,394
Repayment of short term borrowings (98,812) (136,394)
Repayment of debt collateralized by
installment contract receivables (11,702) (16,192)
Proceeds (repurchase) of stock issued for
incentive plans and other 1,857 (2,205)
-------- --------
Net cash provided (used) by financing activities 56,162 (44,938)
Net (decrease) in cash and cash equivalents (57,481) 63,508
Cash and cash equivalents at beginning of year 69,755 38,922
-------- --------
Cash and cash equivalents at end of period $ 12,274 $102,430
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,997 $ 5,003
Income taxes $ 41,321 $ 31,633
</TABLE>
3
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Clayton Homes, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its subsidiaries have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with Generally
Accepted Accounting 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 March
31, 1996 and the results of its operations for the nine months and
quarters ended March 31, 1996 and 1995 and the changes in its cash
position for the nine months ended March 31, 1996 and 1995.
2. The results of operations for the nine months and third quarter ended
March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. Certain reclassifications have been made to the fiscal 1995 financial
statements to conform to the fiscal 1996 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.
NINE MONTHS ENDED MARCH 31, 1996 AND 1995:
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 for the nine month periods ended March 31, 1996 and
1995 were:
<TABLE>
<CAPTION>
First Nine Months of
Fiscal 1996 vs. 1995
--------------------
<S> <C>
Retail:
Dollar sales +21.7%
Average number of sales centers +15.7%
Average dollar sales per sales center + 5.2%
Average home price + 8.7%
Wholesale:
Dollar sales +24.2%
Average number of independent dealers +25.7%
Average dollar sales per
independent dealer - 1.2%
Average home price - 3.3%
Communities:
Dollar sales +31.8%
Average number of communities +20.0%
Average dollar sales per community + 9.8%
Average home price +13.4%
</TABLE>
Total revenues for the nine months ended March 31, 1996, increased
21% to $638 million. This was a result of a 23% rise in manufactured housing
sales to $524 million, a 9% increase in financial services income to $81
million, and a 32% jump in rental and other income to $33 million.
Net sales of the Retail Group rose 22% to $314 million based upon a 9%
rise in the average home price and the 16% increase in company-owned sales
centers. This was partially offset by a 3% 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 24% to $189 million on a
28% rise in the number of homes sold. This was partially offset by a 3%
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 32% to $21 million; while the
average number of communities owned was up 20%; and the average home price
increased 13%. This was partially offset by a 3% decrease in units sold per
community. The price increase is primarily related to changes in used home
product mix.
Financial services income increased 9% to $81 million. Insurance
related revenues rose $6 million, and interest and loan servicing revenues
increased $7 million. Gains on the sale of installment contract receivables
decreased by $8 million over the prior year.
Rental and other income increased 32% as the average number of community
sites owned rose 20%, and the occupancy rate grew 2%.
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 and receivables sold are those installment contract
receivables related to the retail sale of homes by the Company or 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 and, at
the time of sale, with servicing retained by the Company, generate gains
representing the discounted present value of the excess of principal and
interest collected over the principal interest required to be remitted to
investors. The change attributed to rate and volume has been allocated in
proportion to the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
Increase (Decrease) in First
Nine Months of Fiscal 1996
(in thousands) vs. Fiscal 1995 Resulting From:
Rate Volume Total
---- ------ -----
<S> <C> <C> <C>
Interest and loan servicing
revenues:
Receivables owned $ (4) $1,154 $1,150
Receivables sold 428 5,829 6,257
Master Servicing Contracts 1,748 (2,325) (577)
------ ------ ------
$2,172 $4,658 $6,830
====== ====== ======
</TABLE>
Interest and loan servicing revenues increased 15% to $52 million. The
average balance of receivables owned increased 6% to $233 million with a slight
decrease in the weighted average interest rate to 12.64% from 12.65%. The
average balance of receivables sold with servicing retained increased 25% to
$1.06 billion while the weighted average loan servicing spread stayed at 3.6%.
6
<PAGE> 7
Financial Services interest expense decreased $1.7 million, or 39%, to
$2.7 million. Average debt collateralized by installment contract
receivables declined 37% from $55 million to $35 million, and the weighted
average interest rate declined from 10.8% to 10.4%. The terms of the debt
preclude the Company from prepaying it.
Gross profit margins increased to 32% from 31% in the prior year's first
nine months. The increase is largely attributable to an increase in vertical
retail sales of Clayton produced product. Raw material prices have remained
relatively stable.
Selling, general and administrative expenses were 32% of sales versus
31% in the prior comparable period. Increased insurance activity, acquisitions
of low occupancy communities, and higher home set-up costs 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 credit losses as a percent of average loans outstanding
stayed below 2%.
The following table sets forth delinquent installment sales contracts as
a percentage of the total number of installment sales contracts which the
Company serviced and either owned or for which it was contingently liable. A
contract is considered delinquent if any payment is more than one month past
due.
<TABLE>
<CAPTION>
Delinquency Percentage
on March 31,
1996 1995
---- ----
<S> <C> <C>
Total delinquencies as percentage
of contracts outstanding:
All contracts 1.94% 1.74%
Contracts originated by VMF 1.67% 1.29%
Contracts acquired from other
institutions 3.61% 3.75%
</TABLE>
The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables which the Company either
owns or for which it is contingently liable.
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience
for the nine months ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net losses as percentage of average
loans outstanding (annualized):
All contracts 0.3% 0.2%
Contracts originated by VMF 0.0% 0.0%
Contracts acquired from
other institutions 4.5% 2.5%
Number of contracts in repossession:
Total 621 563
Contracts originated by VMF 542 430
Contracts acquired from other
institutions 79 133
Total number of contracts in repossession
as percentage of total contracts 0.86% 0.90%
</TABLE>
7
<PAGE> 8
The $35.2 million increase in inventories as of March 31, 1996 from June 30,
1995 is explained as follows:
<TABLE>
<CAPTION>
Manufacturing Group (in millions)
------------------- -------------
<S> <C>
Increase in finished goods $14.7
Decrease in raw materials (10.0)
Retail Group
------------
Increase in average inventory
levels at 192 company-owned
sales centers at June 30, 1995 20.2
Inventory added to 21 new
company-owned sales centers 10.3
Communities Group
-----------------
Decrease in average inventory at 55
company-owned communities at June 30, 1995 (1.3)
Increase in inventory from ten new
company-owned communities 1.4
-----
$35.2
=====
</TABLE>
On March 31, 1996, order backlogs for the Manufacturing Group
(consisting of company-owned and independent dealer orders) totaled $40.4
million, up 2% from last year's $39.5 million backlog.
Liquidity and Capital Resources
- -------------------------------
Cash at March 31, 1996, was $12.3 million 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. On April 30, 1996, the Company's cash and
cash equivalents were $79.9 million as a result of its sale of mortgage backed
securities during April, 1996.
8
<PAGE> 9
THIRD QUARTER ENDED MARCH 31, 1996 AND 1995:
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 for the third
quarters ended March 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
Third Quarter of
Fiscal 1996 vs. 1995
--------------------
<S> <C>
Retail:
Dollar sales +19.9%
Average number of sales centers +17.1%
Average dollar sales per sales center + 2.4%
Average home price + 9.4%
Wholesale:
Dollar sales +20.8%
Average number of independent dealers +39.3%
Average dollar sales per independent dealer -13.3%
Average home price - 5.9%
Communities:
Dollar Sales +43.7%
Average number of communities +20.8%
Average dollar sales per community +19.0%
Average home price +19.3%
</TABLE>
Total revenues for the quarter ended March 31, 1996 increased 18% to
$211 million. This was the result of a 21% increase in manufactured housing
sales to $169 million, a 7% decrease in financial services income to $29
million, and a 49% increase in rental and other income to $14 million.
Net Retail sales rose 20% to $101 million as the average home price
increased 9% and the number of company-owned sales centers grew 17%. This was
partially offset by a 6% 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 new units sold.
Net sales of the Manufacturing Group increased 21% to $60 million on a
28% rise in the number of homes sold. This was partially offset by the 6%
decrease in average home price resulting from a slight shift toward single
section shipments. Units sold increased with the addition of two new plants and
efficiency improvements at existing plants.
Net sales of the Communities Group increased 44% to $8 million as the
average number of communities owned grew 21%, and the average dollar sales per
community increased 19%.
Financial Services income decreased 7% to $29 million as a result
9
<PAGE> 10
of the gain on last year's third quarter asset backed sale. This year's second
asset backed sale occurred during the forth quarter.
Rental and other income increased 49% primarily from a 20% improvement
in the average number of community sites rented.
The following table sets forth 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 attributed to rate and volume has been allocated in proportion to the
absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
Increase (Decrease) in
Third Quarter of Fiscal 1996
(in thousands) vs. Fiscal 1995 Resulting From:
Rate Volume Total
---- ------ -----
<S> <C> <C> <C>
Interest and loan servicing
revenues:
Receivables owned $(1,733) $2,265 $ 532
Receivables sold 1,305 1,609 2,914
Master Servicing Contracts 611 (774) (163)
------- ------ ------
$ 183 $3,100 $3,283
======= ====== ======
</TABLE>
Interest and loan servicing revenues increased $3.3 million or 21% to
$19 million. The average balance of receivables owned increased 42% to $259
million with a decrease in the weighted average interest rate to 10.6% from
13.9%. The average balance of receivables sold with servicing retained
increased 18% to $1.1 billion with an increase in the weighted average loan
service spread to 4.2% from 3.6%.
Financial Services interest expense decreased $.5 million, or 41%, to
$.8 million. Average debt collateralized by installment contract receivables
dropped 52% to $33 million while the weighted average interest rate declined
from 10.6% to 9.5%.
Gross profit margins increased to 32.0% from 31.4% in last year's third
quarter. The improvement is primarily attributable to an increase in retail
sales of Clayton produced product as a percent of all retail home sales. Raw
material prices have remained stable.
Selling, general and administrative expenses were stable at 33.8% of
sales versus 33.3% in the prior comparable period.
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 continued to be low comparable
loss rates.
10
<PAGE> 11
The following table sets forth write-off experience for the quarters
ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
Third Quarter Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Annualized net losses as percentage
of average loans outstanding:
All contracts 0.3% 0.1%
Contracts originated by VMF 0.0% 0.0%
Contracts acquired from
other institutions 6.2% 2.1%
</TABLE>
PART II - - OTHER INFORMATION
ITEM 1 TO ITEM 5 - There were no reportable events for these items.
ITEM 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Statement regarding computation of per share earnings:
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 Nine Months
Ended March 31, Ended March 31,
(in thousands except per share data) 1996 1995 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $23,954 $22,310 $69,229 $58,699
Weighted average shares
outstanding (fully diluted) 95,786 94,841 95,387 94,840
Earnings per share (fully diluted) $ .25 $ .24 $ .73 $ .62
</TABLE>
27. Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter or nine months ended
March 31, 1996.
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/May/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
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,274
<SECURITIES> 0
<RECEIVABLES> 426,036
<ALLOWANCES> 9,840
<INVENTORY> 123,666
<CURRENT-ASSETS> 0
<PP&E> 233,918
<DEPRECIATION> 41,211
<TOTAL-ASSETS> 899,466
<CURRENT-LIABILITIES> 0
<BONDS> 37,035
0
0
<COMMON> 181,826
<OTHER-SE> 431,548
<TOTAL-LIABILITY-AND-EQUITY> 899,466
<SALES> 524,430
<TOTAL-REVENUES> 637,870
<CGS> 356,061
<TOTAL-COSTS> 530,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> (3,231)
<INCOME-PRETAX> 110,729
<INCOME-TAX> 41,500
<INCOME-CONTINUING> 69,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,229
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
