<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, 1997
COMMISSION FILE NUMBER 1-8824
CLAYTON HOMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1671360
- ------------------------------- -------------------------------
(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, 1997 -
118,417,699.
1
<PAGE> 2
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ----- ----
<S> <C> <C> <C> <C>
Revenues
Net sales $178,091 $169,117 $563,262 $524,430
Financial services 37,049 28,630 98,941 80,895
Rental and other income 11,483 13,627 35,297 32,545
-------- -------- -------- --------
Total revenues 226,623 211,374 697,500 637,870
Expenses
Cost of sales 118,431 114,976 380,451 356,061
Selling, general
and administrative 64,557 57,224 187,856 168,607
Financial services interest 621 774 2,127 2,704
Provision for credit losses 1,000 1,000 3,000 3,000
-------- -------- -------- --------
Total expenses 184,609 173,974 573,434 530,372
-------- -------- -------- --------
Operating income 42,014 37,400 124,066 107,498
Interest income, net 284 854 2,611 3,231
-------- -------- -------- --------
Income before income taxes 42,298 38,254 126,677 110,729
Provision for income taxes 16,000 14,300 48,100 41,500
-------- -------- -------- --------
Net income $ 26,298 $ 23,954 $ 78,577 $ 69,229
======== ======== ======== ========
Average earnings per share: (1) $ 0.22 $ 0.20 $ 0.66 $ 0.58
Dividends paid per share: (1) $ 0.02 $ 0.02 $ 0.06 $ 0.05
Average shares outstanding: (1) 119,214 119,733 119,582 119,234
</TABLE>
(1) Adjusted for the December 11, 1996 5-for-4 stock split.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
March 31, June 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 74,700 $ 47,400
Receivables, net 414,671 402,039
Inventories 114,976 124,280
Property, plant and equipment, net 207,987 184,271
Other assets 153,860 128,360
-------- --------
Total assets $966,194 $886,350
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 84,514 $ 91,064
Long-term debt 24,680 30,290
Deferred income taxes 10,236 5,680
Other liabilities 128,536 109,127
Shareholders' equity 718,228 650,189
-------- --------
Total liabilities and shareholders' equity $966,194 $886,350
======== ========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements)
2
<PAGE> 3
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 78,577 $ 69,229
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,306 6,378
Gain on sale of installment contract
receivables, net of amortization (11,132) (4,505)
Provision for credit losses 3,000 3,000
Increase (decrease) in deferred income taxes 4,556 (5,792)
Increase in other receivables, net (20,427) (2,660)
Decrease (increase) in inventories 9,304 (35,211)
Decrease in operating liabilities (6,550) (14,654)
Other (12,978) 8,373
--------- ---------
Cash provided from operations 53,656 24,158
Origination of installment contract receivables (417,999) (313,333)
Proceeds from sale of originated installment
contract receivables 414,004 206,355
Principal collected on originated installment
contract receivables 37,317 16,269
--------- ---------
Net cash provided by (used in) operating activities 86,978 (66,551)
INVESTING ACTIVITIES
Acquisition of installment contract receivables (80,326) (20,659)
Proceeds from sale of acquired installment
contract receivables 52,889 30,065
Principal collected on acquired installment
contract receivables 10,042 12,681
Acquisition of property, plant and equipment, net (33,022) (33,037)
Decrease (increase) in restricted cash and investments 10,367 (36,142)
--------- ---------
Net cash provided by (used in) investing activities (40,050) (47,092)
FINANCING ACTIVITIES
Dividends (6,675) (4,933)
Proceeds from short-term borrowings 22,141 169,752
Repayment of short-term borrowings (22,141) (98,812)
Repayment of long-term debt (5,610) (11,702)
Issuance of stock for incentive plans and other 3,074 1,857
Repurchase of Common Stock (10,417) 0
--------- ---------
Net cash provided by (used in) financing activities (19,628) 56,162
--------- ---------
Net increase (decrease) in cash and cash equivalents 27,300 (57,481)
Cash and cash equivalents at beginning of period 47,400 69,755
--------- ---------
Cash and cash equivalents at end of period $ 74,700 $ 12,274
========= =========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements)
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, 1996.
The information furnished reflects all adjustments which are necessary for
a fair presentation of the Company's financial position as of March 31,
1997; the results of its operations for the three month and nine month
periods ended March 31, 1997 and 1996; and the changes in its cash position
for the nine months ended March 31, 1997 and 1996. All such adjustments are
of a normal recurring nature.
2. The results of operations for the nine months ended March 31, 1997 and 1996
are not necessarily indicative of the results to be expected for the
respective full years.
3. Effective July 1, 1996, the Company adopted Statement of Accounting
Standards No. 123, Accounting and Disclosure of Stock-Based Compensation,
which encourages but does not require companies to recognize stock awards
based on their fair value at the date of grant. As the Company elected to
adopt only the disclosure requirements of the new standard, it will
continue to apply the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal
the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
4. In February 1997, the FASB issued Statement of Accounting Standards No,
128, Earnings Per Share (EPS). The Statement simplifies the standards for
computing earnings per share by replacing the presentation of primary
earnings per share with a presentation of basic earnings per share.
Additionally, the Statement requires dual presentation of basic and diluted
EPS on the face of the income statement and requires a reconciliation of
the numerator and denominator of the diluted EPS calculation. The Company
plans to adopt the provisions of the Statement 128 in fiscal year 1998 and
the impact on the Company's financial statements has not been determined.
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, 1997 AND 1996:
The following table reflects the percentage changes in retail sales for the
Company's retail and community sales centers and wholesale sales to independent
retailers. It also reflects percentage changes in the average number of
Company-owned retail centers, communities and independent retailers, the average
sales per location, and the average price per home sold in each category.
<TABLE>
<CAPTION>
First Nine Months
Fiscal year 1997 vs 1996
------------------------
<S> <C>
Retail
Dollar sales + 8.5%
Number of retail centers + 9.9%
Dollar sales per retail center - 1.3%
Price of home + 1.1%
Wholesale
Dollar sales + 4.3%
Number of independent retailers +31.5%
Dollar sales per independent retailer -20.7%
Price of home + 2.9%
Communities
Dollar Sales +19.1%
Number of communities + 9.2%
Dollar sales per community + 9.1%
Price of home + 6.3%
</TABLE>
Total revenues for the nine months ended March 31, 1997 increased 9% to $698
million. As manufactured housing sales rose 7% to $563 million, financial
services income grew 22% to $99 million and rental and other income increased 9%
to $35 million.
Net sales of the Retail Group rose 9% to $340 million on a 1% rise in the
average home price, and a 10% increase in company-owned sales centers,
offsetting a 2% decrease in the average number of homes sold per sales center.
5
<PAGE> 6
Net sales of the Manufacturing group increased 4% to $197 million as the number
of homes sold was up 1%. The average wholesale price to independent retailers
increased 3%, as a result of a shift in product mix toward multi-section homes.
Net sales of the Communities group rose 19% to $25 million as 12% more homes
were sold and the average home selling price increased 6%.
Financial services income increased 22%. Interest and loan servicing revenues
grew $12 million, and insurance related revenues rose $5 million. Rental and
other income increased 9% on a 9% rise in Communities rental income and a $1
million increase in other income.
Financial services interest expense decreased 21%, to $2.1 million. Average debt
collateralized by installment contract receivables dropped 22% to $27 million,
while the weighted average interest rate moved from 10.35% to 10.49%. The terms
of the debt preclude prepayment by the Company.
Gross profit margins improved to 32.5% from 32.1%. The increase is primarily
attributable to a higher percentage of retail sales in the total sales mix.
Selling, general and administrative expenses, as a percent of revenues, were
26.9%, slightly above the 26.4% in the year earlier period. The provision for
credit losses was 0.5% of sales versus 0.6% last year.
The following table represents delinquent installment sales contracts as a
percentage of the total number of installment sales contracts which the Company
serviced and either owned or was contingently liable. A contract is considered
delinquent if any payment is more than one month past due.
<TABLE>
<CAPTION>
March 31,
1997 1996
---- ----
<S> <C> <C>
Total delinquencies as percentage
of contracts outstanding:
All contracts 2.12% 1.94%
Contracts originated by VMF 1.86% 1.67%
Contracts acquired from other institutions 2.79% 3.61%
</TABLE>
6
<PAGE> 7
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>
Nine months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net losses as a percent 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% 4.5%
Number of contracts in repossession:
Total 954 621
Contracts originated by VMF 858 542
Contracts acquired from other institutions 96 79
Total number of contracts in repossession
as percentage of total contracts 1.2% 0.86%
</TABLE>
The $9.3 million decrease in inventories as of March 31, 1997 from June 30,
1996, is explained as follows:
<TABLE>
<CAPTION>
Manufacturing Group Increase (decrease)
------------------- ------------------
<S> <C>
Finished goods $ 5.6
Raw materials (8.5)
Retail Group
------------
Average stocking levels at 229
sales centers owned by the Company
at March 31, 1997 (13.2)
Inventory to stock thirteen new
company-owned sales centers 5.6
Communities Group
-----------------
Total of all communities 1.2
-----
$(9.3)
=====
</TABLE>
On March 31, 1997, the order backlog for the Manufacturing group (consisting of
company-owned and independent retailer orders) was $37 million, as compared to
$40 million for the prior year.
7
<PAGE> 8
THIRD QUARTER ENDED MARCH 31, 1997 AND 1996:
The following table reflects the percentage changes in retail sales for the
Company's retail and community sales centers and wholesale sales to independent
retailers. It also reflects percentage changes in the average number of
Company-owned retail centers, communities and independent retailers, the average
sales per location, and the average price per home sold in each category.
<TABLE>
<CAPTION>
Third Three Months
Fiscal year 1997 vs 1996
------------------------
<S> <C>
Retail
Dollar sales + 8.1%
Number of retail centers + 7.1%
Dollar sales per retail center + 0.9%
Price of home - 2.5%
Wholesale
Dollar sales - 1.5%
Number of independent retailers +25.5%
Dollar sales per independent retailer -21.5%
Price of home + 6.3%
Communities
Dollar Sales +22.3%
Number of communities + 3.1%
Dollar sales per community +18.6%
Price of home + 4.8%
</TABLE>
Total revenues for the three months ended March 31, 1997, increased 7% on a 5%
increase in manufactured housing sales to $178 million, a 29% increase in
financial services income to $37 million and an overall 16% decrease in other
income to $11 million.
Net sales of the Retail group rose 8% to $110 million as the number of
company-owned sales centers was up 7% and the average number of homes sold per
sales center increased.
The Manufacturing group's net sales decreased to $59 million as the number of
homes sold was down 7%. The average wholesale price to independent retailers
increased 6%, a reflection of product mix.
Net sales of the Communities group jumped 22% to $9 million primarily on a 17%
increase in units sold and a 5% increase in the average home price.
Financial services income climbed 29% as interest and loan servicing revenues
increased $8 million, and insurance related revenues rose $1 million.
8
<PAGE> 9
Rental and other income decreased 16% on a 4% increase in communities rental
income and a $2 million decrease in other income.
Financial services interest expense decreased 20%, to $.6 million. Average debt
collateralized by installment contract receivables dropped 23% to $25 million,
while the weighted average interest rate increased from 9.52% to 9.90%. The
terms of the debt preclude prepayment by the Company.
Gross profit margins improved to 33.5% from 32.0%. The increase is primarily
attributable to a higher percentage of retail sales in the total sales mix.
Retail sales comprised 62% of total sales this quarter compared to 60% last year
in the quarter.
Selling, general and administrative expenses, were 28.5% of revenues compared to
27.1% in the prior comparable period, mainly attributable to the start-up of new
financial service product lines and higher insurance claims. The provision for
credit losses remained constant as a percent of sales at 0.6%.
The following table presents write-off experience for the quarters ended March
31, 1997 and 1996:
<TABLE>
<CAPTION>
Third Quarter Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net losses as a percent 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% 6.2%
</TABLE>
Liquidity and Capital Resources
Cash at March 31, 1997, was $74.7 million as compared to $47.4 million on June
30, 1996. The Company anticipates meeting cash requirements with cash flows from
operations, current cash balances, and the sale of installment contracts
receivable and GNMA certificates.
9
<PAGE> 10
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:
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>
Nine Months Ended
March 31,
(in thousands except per share data) 1997 1996
---- ----
<S> <C> <C>
Net income (fully diluted) $ 78,577 $ 69,229
Weighted average shares
outstanding (fully diluted) 119,582 119,234
Earnings per share: (fully diluted) $ .66 $ .58
</TABLE>
(b) 27. Financial Data Schedule (for SEC use only).
10
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CLAYTON HOMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLAYTON HOMES, INC.
(Registrant)
Date: May 9, 1997 s/Joseph H. Stegmayer
-------------------- ------------------------------------------
Joseph H. Stegmayer
President, Chief Operating Officer,
Treasurer and Director
Date: May 9, 1997 s/John J. Kalec
-------------------- ------------------------------------------
John J. Kalec
Vice President and Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLAYTON HOMES, INC. FOR THE NINE MONTHS ENDED MARCH 31,
1997 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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 74,700
<SECURITIES> 0
<RECEIVABLES> 423,827
<ALLOWANCES> 9,156
<INVENTORY> 114,976
<CURRENT-ASSETS> 0
<PP&E> 258,647
<DEPRECIATION> 50,660
<TOTAL-ASSETS> 966,194
<CURRENT-LIABILITIES> 84,514
<BONDS> 24,680
0
0
<COMMON> 11,843
<OTHER-SE> 706,385
<TOTAL-LIABILITY-AND-EQUITY> 966,194
<SALES> 563,262
<TOTAL-REVENUES> 697,500
<CGS> 380,451
<TOTAL-COSTS> 568,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> (484)
<INCOME-PRETAX> 126,677
<INCOME-TAX> 48,100
<INCOME-CONTINUING> 78,577
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,577
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
</TABLE>
