<PAGE> 1
FORM 10-K/A
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, 1996
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>
<TABLE>
<S> <C>
Registrant's telephone number, including area code: 615-970-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------------------------------------------------------------------------
COMMON STOCK, $.10 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 16, 1996, was approximately $1,343,529,615 (69,343,464
shares at closing price on the NYSE of $19.375). 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 16, 1996, were
95,122,078.
<PAGE> 2
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 25, 1996
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 25, 1996 Chairman of the Board and
- ---------------------- Chief Executive Officer
James L. Clayton (Principal Executive Officer)
s/Joseph H. Stegmayer September 25, 1996 President, Chief Operating
- ---------------------- Officer, Treasurer and
Joseph H. Stegmayer Director
s/John J. Kalec September 25, 1996 Vice President and Chief Financial
- ---------------------- Officer (Principal Financial
John J. Kalec Officer)
s/B. Joe Clayton September 25, 1996 Director
- ----------------------
B. Joe Clayton
s/James D. Cockman September 25, 1996 Director
- ----------------------
James D. Cockman
s/Wallace C. Doud September 25, 1996 Director
- ----------------------
Wallace C. Doud
s/Dan W. Evins September 25, 1996 Director
- ----------------------
Dan W. Evins
s/Wilma H. Jordan September 25, 1996 Director
- ----------------------
Wilma H. Jordan
s/C. Warren Neel September 25, 1996 Director
- ----------------------
C. Warren Neel
</TABLE>
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
June 30,
(in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 47,400 $ 49,394
Receivables, principally installment contracts and residual interests, net of reserves
for credit losses of $4,787 and $8,329, respectively and unamortized
discount of $4,359 and $9,001, respectively 402,039 343,408
Inventories 124,280 88,455
Securities held-to-maturity, approximate market value of $19,774 and $20,193 20,361 20,361
Restricted cash and investments 70,403 66,214
Property, plant and equipment, net 184,271 166,048
Other assets 37,596 27,271
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $886,350 $761,151
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable and accrued liabilities $ 91,064 $ 63,949
Long-term debt 30,290 48,737
Deferred income taxes 5,680 9,382
Other liabilities 109,127 94,896
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 236,161 216,964
Shareholders equity
Preferred stock, $.10 par value, authorized 1,000 shares, none issued
Common stock, $.10 par value, authorized 200,000 shares, issued 95,091
at June 30, 1996 and 94,463 at June 30, 1995 9,509 9,446
Additional paid-in capital 174,642 168,280
Retained earnings 466,038 366,461
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders equity 650,189 544,187
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders equity $886,350 $761,151
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Clayton
Homes, Inc. and Subsidiaries as of June 30, 1996 and 1995, 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, 1996. These
financial statements are the responsibility of the Companys 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 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 5, 1996
16
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands except per share data) 1996 1995 1994
==========================================================================================================================
<S> <C> <C> <C>
Revenues:
Net sales $762,396 $621,351 $510,153
Financial services 115,987 102,108 95,198
Other income 50,358 34,633 22,885
- --------------------------------------------------------------------------------------------------------------------------
928,741 758,092 628,236
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 521,200 431,826 357,698
Selling, general and administrative 236,188 188,835 153,698
Financial services interest 3,649 5,533 8,196
- --------------------------------------------------------------------------------------------------------------------------
761,037 626,194 519,592
- --------------------------------------------------------------------------------------------------------------------------
Operating income 167,704 131,898 108,644
Interest income (expense), net 4,596 3,902 (359)
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change in
method of accounting 172,300 135,800 108,285
Provision for income taxes (65,500) (48,800) (39,000)
- --------------------------------------------------------------------------------------------------------------------------
Income before change in method of accounting 106,800 87,000 69,285
Change in method of accounting for income taxes 3,000
- --------------------------------------------------------------------------------------------------------------------------
Net income $106,800 $ 87,000 $ 72,285
==========================================================================================================================
Income per common share before change in method of accounting:
Primary $ 1.12 $ .92 $ .75
Fully diluted $ 1.12 $ .92 $ .74
Cumulative effect of change in method of accounting per common share:
Primary $ - $ - $ 1.03
Fully diluted $ - $ - $ .03
Net income per common share:
Primary $ 1.12 $ .92 $ .78
Fully diluted $ 1.12 $ .92 $ .77
Average shares outstanding:
Primary 95,477 94,903 92,061
Fully diluted 95,477 94,903 95,920
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
Total Additional
Shareholders Common Paid-in Retained
(in thousands) Equity Stock Capital Earnings
==========================================================================================================================
<S> <C> <C> <C> <C>
Balance at June 30, 1993 $348,630 $ 8,754 $128,025 $211,851
Net income 72,285 - - 72,285
Conversion of subordinated debt 40,265 622 39,643 -
Purchase of 210 shares of common stock (4,175) (33) (4,142) -
Issuances related to stock incentive, employee
benefit plans and other 5,149 70 5,079 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 462,154 9,413 168,605 284,136
Net income 87,000 - - 87,000
Purchase of 317 shares of common stock (5,156) (40) (5,116) -
Dividends declared ($.048 per share) (4,675) - - (4,675)
Issuances related to stock incentive, employee
benefit plans and other 4,864 73 4,791 -
- --------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 544,187 9,446 168,280 366,461
NET INCOME 106,800 - - 106,800
PURCHASE OF 100 SHARES OF COMMON STOCK (1,893) (13) (1,880) -
DIVIDENDS DECLARED ($.076 PER SHARE) (7,223) - - (7,223)
ISSUANCES RELATED TO STOCK INCENTIVE, EMPLOYEE
BENEFIT PLANS AND OTHER 8,318 76 8,242 -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 $650,189 $9,509 $174,642 $466,038
=========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended June 30,
(in thousands) 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $106,800 $ 87,000 $ 72,285
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 11,163 8,296 6,679
Gain on sale of installment contract receivables, net of amortization (11,315) (14,744) (16,276)
Gain on sale of property (4,828) -- --
Stock issued for profit-sharing 401(k) contribution 3,915 3,281 2,171
Deferred income taxes (3,702) 2,124 2,924
Cumulative effect of change in method of accounting for income taxes -- -- (3,000)
Increase in other receivables, net (16,972) (22,964) (13,290)
Increase in inventories (35,825) (11,138) (12,590)
Increase in accounts payable and accrued liabilities 27,115 6,906 21,393
Other (1,482) (1,390) 28,908
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided By Operations 74,869 57,371 89,204
Origination of installment contract receivables (476,467) (345,260) (292,435)
Proceeds from sales of originated installment contract receivables 394,087 369,873 262,346
Principal collected on originated installment contract receivables 35,199 25,003 33,046
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 27,688 106,987 92,161
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract receivables (36,105) (26,074) (91,882)
Proceeds from sales of acquired installment contract receivables 36,007 7,112 57,588
Principal collected on acquired installment contract receivables 16,935 17,760 15,098
Acquisition of property, plant and equipment, net (40,829) (44,462) (35,601)
Proceeds from sale of property 21,271 -- --
Decrease (increase) in restricted cash and investments (4,189) 3,141 (21,149)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,910) (42,523) (75,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (6,835) (3,162) --
Proceeds from short-term borrowings 208,949 111,394 106,319
Repayment of short-term borrowings (208,949) (136,394) (83,521)
Repayment of long-term debt (18,447) (21,943) (26,368)
Issuance of stock for incentive plans and other 4,403 1,269 1,784
Repurchase of common stock (1,893) (5,156) (4,175)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (22,772) (53,992) (5,961)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,994) 10,472 10,254
Cash and cash equivalents at beginning of year 49,394 38,922 28,668
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 47,400 $ 49,394 $ 38,922
===================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,016 $ 5,823 $ 10,049
Income taxes $ 63,366 $ 54,725 $ 22,441
Supplemental disclosure of non-cash activities: In 1995,
pass-through certificates aggregating $9,500 were received
coincidental with the sale of receivables.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 6
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. CHIand its subsidiaries are
collectively referred to as the Company. Clayton Homes, Inc. is a
vertically-integrated manufactured housing company headquartered in Knoxville,
Tennessee. Employing more than 5,400 people and operating in 28 states, the
Company builds, sells, finances and insures manufactured homes, as well as owns
and operates residential manufactured housing communities. Significant
intercompany accounts and transactions have been eliminated in the financial
statements. See Note 11 for information related to the Companys business
segments.
Income Recognition
Sales to independent retailers 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 Vanderbilt
Mortgage and Finance, Inc. (VMF), the Companys mortgage banking subsidiary.
Premiums from credit life and physical damage insurance policies reinsured
by the insurance subsidiaries 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
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.
Installment contract receivables held for sale of $225,951,000 and
$154,356,000 in 1996 and 1995, respectively, are included in Receivables and
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 managements 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.
Estimated principal receipts under installment contract receivables for
each of the five fiscal years subsequent to 1996 are as follows:
<TABLE>
<S> <C>
1997 $154,270,000
1998 18,412,000
1999 18,965,000
2000 17,395,000
2001 17,525,000
</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, 1997 include amounts
relating to the sale of $174 million of installment contract receivables in
July, 1996.
VMF provides servicing for investors in installment contract receivables.
Total contracts serviced at June 30, 1996 and 1995, including contracts held for
investment, were approximately $1,638 million and $1,434 million, respectively.
Most of the installment contract receivables are with borrowers in the east,
south and southwest portions 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 (SFASNo. 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.
19
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 over the
estimated useful lives of the respective assets.
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
Companys 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.
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,
adjusted for subsequent common stock splits and include common share equivalents
arising from stock options. Fully diluted earnings per share for 1994 have been
computed assuming conversion of the Companys convertible subordinated debentures
(called in the third quarter of fiscal 1994).
Cash Equivalents
For purposes of the statements of cash flows, all unrestricted highly
liquid debt instruments purchased with an original maturity of three months or
less are considered to be cash equivalents.
Other
Per share and share data have been retroactively adjusted to reflect
5-for-4 stock splits in December 1995, December 1994 and December 1993.
Restricted Cash and Investments
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.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - INVENTORIES
Inventories at June 30, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
======================================================
<S> <C> <C>
Manufactured homes:
New $ 89,699 $65,735
Previously-owned 18,458 11,259
Raw materials 16,123 11,461
- ------------------------------------------------------
$ 124,280 $88,455
======================================================
</TABLE>
If the first-in, first-out (FIFO) method of inventory valuation had
been used, inventories would have been higher by $17,637,000 and $15,402,000 at
June 30, 1996, and 1995, respectively.
NOTE 3 - SECURITIES HELD-TO-MATURITY
At June 30, 1996 and 1995, manufactured housing contract
senior/subordinate pass-through certificates have been classified in the
consolidated financial statements according to managements intent. These
securities can be reasonably expected to mature after ten years.
20
<PAGE> 8
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1996, and 1995 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
=====================================================================
<S> <C> <C>
Land and improvements $115,647 $108,968
Buildings 88,749 71,292
Furniture and equipment 24,445 19,679
- ---------------------------------------------------------------------
228,841 199,939
Less: accumulated depreciation
and amortization (44,570) (33,891)
- ---------------------------------------------------------------------
$184,271 $166,048
=====================================================================
</TABLE>
Depreciation charged to operations was $11,163,000, $8,296,000, and
$6,679,000 for each of the years ended June 30, 1996, 1995, and 1994,
respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt at June 30, 1996, and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
===================================================================
<S> <C> <C>
CHI
10% note payable due June 1, 1998,
extinguished in June 1996 -- $ 4,866
Other notes payable $ 153 231
- -------------------------------------------------------------------
153 5,097
VMF
Debt collateralized by installment
contract receivables:
Demand note payable to Clayton
Employees Savings Plan at prime,
extinguished in 1996 3,000
Maturing in fiscal years through:
1997 to 2004: weighted average
rate of 10.07% at June 30, 1996 27,380 33,264
1996 to 2005:9.4%REMIC
trust senior certificates 2,855
1997 to 2002: adjustable rates,
weighted average rate of 10.18% at
June 30, 1996, weighted average
maximum rate 13.83% at June 30, 1996 1,091 2,147
1998 to 2001: adjustable rates, average
rate of 7.79% at June 30, 1996,
no maximum rate 1,666 2,374
- -------------------------------------------------------------------
30,137 43,640
- -------------------------------------------------------------------
Total $30,290 $48,737
===================================================================
</TABLE>
Expected principal payments of long-term debt of VMF for the five
fiscal years subsequent to 1996 and thereafter are as follows:
1997 $6,263,000
1998 7,554,000
1999 4,897,000
2000 6,796,000
2001 3,570,000
Thereafter 1,057,000
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.
Certain of the long-term debt have various covenants, which among other
things, require a minimum tangible net worth and the maintenance of certain
financial ratios.
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,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $11,895 $14,082 $17,229
Losses, net of recoveries
applicable to installment
contract receivables:
Purchased (2,494) (1,900) (2,230)
Other 442 (287) (526)
Reserves transferred (to) from
unamortized discount
Reserves associated with
receivables purchased (sold) (2,077) -- 1,207
- ------------------------------------------------------------------
Balance, end of year $ 7,766 $11,895 $14,082
==================================================================
Reserves for credit losses $ 4,787 $ 8,329 $ 9,877
Reserve for contingencies 2,979 3,566 4,205
- ------------------------------------------------------------------
$ 7,766 $11,895 $14,082
==================================================================
</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. 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, 1996
$ 33,000 30% - 88% $13,000
56,000 11% - 25% 11,000
203,000 10% and below 20,000
- --------------------------------------------------------------------
$ 292,000 $44,000
====================================================================
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
====================================================================
</TABLE>
Proceeds from receivables sold with recourse amounted to $12 million,
$7 million and $20 million, during 1996, 1995 and 1994, respectively.
Approximately 99% of the installment contract receivables both owned
and sold with recourse have fixed rates of interest and approximately 1% are
at variable rates of interest based on either the prime rate, U.S. Treasury
rates or LIBOR.
Virtually all of the Companys servicing arrangements are based on
interest spreads with fixed rates or variable rates with ceilings.
21
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - SHAREHOLDERS EQUITY
Stock Option Plan
In 1983, 1985 and 1991, the Company established Stock Option Plans for a
total of 6,893,463 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-management members
of the Board of Directors have, with shareholder approval of prices and
provisions for exercise, been granted options to purchase shares of common
stock. The option prices were established at not less than the fair market
value as of the date of 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, 1993 2,933,835 $ 1.05 - $11.57
Granted 758,320 $11.78 - $16.16
Exercised (551,975) $ 1.05 - $11.57
Canceled (51,750) $ 1.05 - $16.16
- -------------------------------------------------------------------
Balance June 30, 1994 3,088,430 $ 1.05 - $16.16
Granted 472,616 $11.28 - $12.72
Exercised (555,206) $ 1.05 - $11.57
Canceled (212,592) $ 1.45 - $16.16
- -------------------------------------------------------------------
Balance June 30, 1995 2,793,248 $ 1.45 - $16.16
Granted 672,298 $13.30 - $21.40
Exercised (503,076) $ 1.45 - $12.96
Canceled (303,180) $ 2.75 - $21.40
- -------------------------------------------------------------------
Balance June 30, 1996 2,659,290 $ 1.45 - $21.40
===================================================================
</TABLE>
Options available for future grant at June 30, 1996 and 1995 were 1,548,430
and 1,690,803, respectively.
At June 30, 1996, and 1995 options for 1,015,943 and 1,031,438 shares,
respectively, were exercisable. Options were held by 547 persons at June 30,
1996.
NOTE 8 - INCOME TAXES
Components of the provision for income tax for each of the three years ended
June 30, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
==================================================================
<S> <C> <C> <C>
Current tax provisions:
Federal $63,274 $41,292 $32,772
State 5,928 5,384 3,304
- ------------------------------------------------------------------
69,202 46,676 36,076
Deferred tax provision/
(benefit) (3,702) 2,124 2,924
- ------------------------------------------------------------------
$65,500 $48,800 $39,000
==================================================================
</TABLE>
The sources and tax effect of temporary differences at June 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
==================================================================
<S> <C> <C>
Reserves for credit losses and
contingencies and discounts $ 4,584 $ 8,072
Insurance reserves 4,919 3,051
Unearned premiums 3,952 3,176
- ------------------------------------------------------------------
Total deferred tax assets 13,455 14,299
- ------------------------------------------------------------------
Residual interest in installment
contract receivables (8,863) (17,876)
Deferred costs (3,123) (2,679)
Other (7,149) (3,126)
- ------------------------------------------------------------------
Total deferred tax liabilities (19,135) (23,681)
- ------------------------------------------------------------------
Net deferred tax liability $ (5,680) $ (9,382)
==================================================================
</TABLE>
The provision for income taxes reflected in the financial statements differs
from income taxes calculated at the statutory federal income tax rate of 35% in
1996, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
==================================================================
<S> <C> <C> <C>
Income taxes at statutory rate $60,305 $47,530 $37,900
State income taxes, net of
federal benefit 4,150 3,769 2,313
Other, net 1,045 (2,499) (1,213)
- ------------------------------------------------------------------
$65,500 $48,800 $39,000
==================================================================
</TABLE>
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 Companys contribution is
discretionary as determined by the Board of Directors, up to the maximum
deduction allowed for federal income tax purposes. Contributions accrued were
$4,274,000, $3,461,000, and $2,171,000, for the years ended June 30, 1996,
1995, and 1994, respectively.
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 $2,722,000 in 1996, $2,721,000 in 1995, and $2,159,000 in
1994. The following is a schedule of minimum rental commitments under non
cancelable operating leases, primarily for retail centers, in effect at June
30, 1996:
<TABLE>
<S> <C>
1997 $2,551,000
1998 2,080,000
1999 1,583,000
2000 1,098,000
2001 760,000
2002 and thereafter 1,754,000
</TABLE>
22
<PAGE> 10
Repurchase Agreements
Institutions financing independent retailer 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 Companys losses in the past have not
been significant.
Guarantor of Installment Contract Receivables
Please see discussion of contingencies at Note 6.
Other
The Company has lines of credit totalling $105 million for working capital
needs of which zero borrowings were outstanding at June 30, 1996. Additionally,
the Company has letter of credit and financial bond needs of which $1,787,000
was outstanding at June 30, 1996.
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 includes retail financing of manufactured homes and reinsuring 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
(in thousands) Housing Services Communities Corporate Total
======================================================================================================
<S> <C> <C> <C> <C> <C>
1996
Revenues $ 761,111 $ 99,443 $ 68,187 $ - $ 928,741
Intersegment income 7,436 103 94 (7,633)
Operating income 89,504 62,600 15,600 - 167,704
Identifiable assets 197,938 493,622 142,331 52,459 886,350
Depreciation and amortization 6,671 - 4,492 - 11,163
Capital expenditures 16,483 - 24,346 - 40,829
- ------------------------------------------------------------------------------------------------------
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
Idenifiable assets 176,632 413,072 122,408 49,039 761,151
Depreciation andamortization 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
Depreciationand amortization 4,005 - 2,674 - 6,679
Capital expenditures 12,777 - 22,824 - 35,601
======================================================================================================
</TABLE>
23
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - OTHER ASSETS AND LIABILITIES
At June 30, 1996 and 1995, other assets and liabilities consisted of:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Other Assets
Interest receivable and future servicing rights $ 17,312 $17,373
Prepaid expenses and other 20,284 9,898
- -------------------------------------------------------------------------
$ 37,596 $27,271
=========================================================================
Other Liabilities
Investors payable $ 40,286 $37,492
Reserve for contingencies (Note 6) 2,979 3,566
Escrow deposits 14,495 13,721
Unearned insurance premiums 39,628 31,901
Other 11,739 8,216
- -------------------------------------------------------------------------
$ 109,127 $94,896
=========================================================================
</TABLE>
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 CHIs 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.
Cash and Cash Equivalents
The carrying values for cash and cash equivalents, including those
restricted by agreement, equal the fair value of the assets.
Residual Interests in Installment Contract Receivables
Residual interests 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, 1996 and 1995.
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 Debt
Long-term debt 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 VMFs debt.
The carrying amounts and estimated fair values of CHIs financial assets and
liabilities are as follows:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
==============================================================================================================================
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents, including restricted investments
and securities held-to-maturity $138,164 $138,157 $135,969 $135,801
Residual interests in installment contract receivables 85,020 85,020 89,642 89,642
Contracts held for sale and as collateral, including accrued
interest receivable 263,719 264,477 230,075 233,122
Financial liabilities:
Long-term debt 30,290 34,003 48,737 51,710
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
