<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, 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 December 31, 1996 -
118,495,665.
1
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net sales $191,298 $177,529 $385,171 $355,313
Financial services 31,039 23,668 61,891 52,265
Rental and other income 12,335 9,986 23,814 18,918
-------- -------- -------- --------
Total revenues 234,672 211,183 470,876 426,496
Expenses
Cost of sales 128,546 120,060 262,019 241,085
Selling, general
and administrative 62,444 54,227 123,299 111,383
Financial services interest 728 910 1,506 1,930
Provision for credit losses 1,000 1,000 2,000 2,000
-------- -------- -------- --------
Total expenses 192,718 176,197 388,824 356,398
-------- -------- -------- --------
Operating income 41,954 34,986 82,052 70,098
Interest income, net 1,122 1,327 2,327 2,377
-------- -------- -------- --------
Income before income taxes 43,076 36,313 84,379 72,475
Provision for income taxes 16,400 13,600 32,100 27,200
-------- -------- -------- --------
Net income $ 26,676 $ 22,713 $ 52,279 $ 45,275
======== ======== ======== ========
Average earnings per share: (1) $ 0.22 $ 0.19 $ 0.44 $ 0.38
Dividends paid per share: (1) $ 0.02 $ 0.02 $ 0.04 $ 0.04
Average shares outstanding: (1) 119,142 119,139 119,359 119,061
</TABLE>
(1) Adjusted for the December 11, 1996 5-for-4 stock split.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
Dec. 31, June 30,
1996 1996
---- ----
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 33,875 $ 47,400
Receivables, net 410,413 402,039
Inventories 113,514 124,280
Property, plant and equipment, net 194,619 184,271
Other assets 178,789 128,360
-------- --------
Total assets $931,210 $886,350
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 82,840 $ 91,064
Long-term debt 26,105 30,290
Deferred income taxes 5,100 5,680
Other liabilities 124,738 109,127
Shareholders' equity 692,427 650,189
-------- --------
Total liabilities and shareholders' equity $931,210 $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>
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 52,279 $ 45,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,070 4,079
Gain on sale of installment contract
receivables, net of amortization (5,465) (4,415)
Provision for credit losses 2,000 2,000
Decrease in deferred income taxes (580) (3,104)
Decrease in other receivables, net 2,517 773
Decrease (increase) in inventories 10,766 (13,576)
Decrease in operating liabilities (8,224) (15,553)
Other (29,447) 16,466
-------- ------
Cash provided (required) from operations 29,916 31,945
Origination of installment contract receivables (266,437) (212,823)
Proceeds from sale of originated installment
contract receivables 241,726 202,028
Principal collected on originated installment
contract receivables 23,045 12,907
-------- --------
Net cash provided from operating activities 28,250 34,057
INVESTING ACTIVITIES
Acquisition of installment contract receivables (41,530) (5,110)
Proceeds from sale of acquired installment
contract receivables 24,369 25,832
Principal collected on acquired installment
contract receivables 11,401 5,643
Acquisition of property, plant and equipment, net (16,418) (21,700)
Increase in restricted cash and investments (5,410) (32,411)
-------- --------
Net cash used in investing activities (27,588) (27,746)
FINANCING ACTIVITIES
Dividends (4,305) (3,033)
Proceeds from short-term borrowings 4,475 24,295
Repayment of short-term borrowings (4,475) (24,295)
Repayment of long-term debt (4,185) (9,702)
Issuance of stock for incentive plans and other 2,923 2,031
Repurchase of Common Stock (8,620) 0
-------- --------
Net cash used in financing activities (14,187) (10,704)
-------- --------
Net decrease in cash and cash equivalents (13,525) (4,393)
Cash and cash equivalents at beginning of period 47,400 69,755
-------- --------
Cash and cash equivalents at end of period $ 33,875 $ 65,362
======== ========
</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 December 31,
1996; the results of its operations for the six months ended December 31,
1996 and 1995; and the changes in its cash position for the same periods.
All such adjustments are of a normal recurring nature.
2. The results of operations for the six months ended December 31, 1996 and
1995 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
<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, 1996 AND 1995:
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 Six Months
Fiscal year 1997 vs 1996
------------------------
<S> <C>
Retail
Dollar sales + 8.7%
Number of retail centers + 9.4%
Dollar sales per retail center - 0.7%
Price of home + 2.9%
Wholesale
Dollar sales + 7.0%
Number of independent retailers +30.4%
Dollar sales per independent retailer -18.0%
Price of home + 1.1%
Communities
Dollar Sales +17.4%
Number of communities + 9.3%
Dollar sales per community + 7.4%
Price of home + 7.1%
</TABLE>
Total revenues for the six months ended December 31, 1996 increased 10% as
manufactured housing sales rose 8% to $385 million, financial services income
grew 18% to $62 million and rental and other income increased 26% to $24
million.
Net sales of the Retail Group rose 9% to $231 million on a 3% rise in the
average home price, and a 9% increase in company-owned sales centers, offsetting
a 3% decrease in the average number of homes sold per sales center.
The increase in the average home price is primarily attributable to a greater
percentage of multi-section homes sold.
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<PAGE> 6
Net sales of the Manufacturing group increased 7% to $138 million as the number
of homes sold was up 6%. The average wholesale price to independent retailers
increased 1%, as a result of variations within the mix of homes sold.
Net sales of the Communities group rose 17% to $16 million primarily as 10% more
homes were sold and the average home selling price increased 7%.
Financial services income increased 18%. Interest and loan servicing revenues
grew $8 million, and insurance related revenues rose $4 million. Rental and
other income increased 26% on a 12% increase in Communities rental income and a
$3 million increase in other income.
Financial services interest expense decreased 22%, to $1.5 million. Average debt
collateralized by installment contract receivables dropped 22% to $28 million,
while the weighted average interest rate increased from 10.72% to 10.76%. The
terms of the debt preclude prepayment by the Company.
Gross profit margins decreased slightly to 32.0% from 32.1%, attributable to a
reduction in the mix of sales from the Company's Manufacturing group to its
Retail group.
Selling, general and administrative expenses, as a percent of revenues, were
26.2%, slightly higher than the 26.1% in the prior comparable period. The
provision for credit losses declined as a percent of sales to 0.5% from 0.6%
last year, and credit losses were .2% for the period.
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>
December 31,
1997 1996
---- ----
<S> <C> <C>
Total delinquencies as percentage of contracts
outstanding:
All contracts 2.65% 2.62%
Contracts originated by VMF 2.33% 2.40%
Contracts acquired from other institutions 5.09% 3.85%
</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>
Six months ended
December 31,
1997 1996
---- ----
<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% 3.6%
Number of contracts in repossession:
Total 995 677
Contracts originated by VMF 891 548
Contracts acquired from other institutions 104 129
Total number of contracts in repossession
as percentage of total contracts 1.3% 1.0%
</TABLE>
The $11 million decrease in inventories as of December 31, 1996 from June 30,
1996, is explained as follows:
<TABLE>
<CAPTION>
Increase (decrease)
------------------
<S> <C>
Manufacturing Group
Finished goods $ 1.7
Raw materials (6.2)
Retail Group
Average stocking levels at 216
sales centers owned by the Company
at June 30, 1996 (10.8)
Inventory to stock nine new
company-owned sales centers 4.2
Communities Group
Total of all communities 0.3
------
$(10.8)
======
</TABLE>
On December 31, 1996, the order backlog for the Manufacturing group (consisting
of company-owned and independent retailer orders) was $17 million, as compared
to $51 million for the prior year.
7
<PAGE> 8
SECOND QUARTER ENDED DECEMBER 31, 1996 AND 1995:
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>
Second Three Months
Fiscal year 1997 vs 1996
------------------------
<S> <C>
Retail
Dollar sales +11.6%
Number of retail centers + 9.8%
Dollar sales per retail center + 1.6%
Price of home + 1.5%
Wholesale
Dollar sales - 0.1%
Number of independent retailers +27.0%
Dollar sales per independent retailer -21.3%
Price of home + 4.2%
Communities
Dollar Sales +28.3%
Number of communities + 3.2%
Dollar sales per community +24.3%
Price of home +10.3%
</TABLE>
Total revenues for the three months ended December 31, 1996 increased 11%
primarily due to a 8% increase in manufactured housing sales to $191 million, a
31% increase in financial services income to $31 million and a 24% increase in
rental and other income to $12 million.
Net sales of the Retail group rose 12% to $117 million due to a 2% rise in the
average home price and a 10% increase in company-owned sales centers, as the
average number of homes sold per sales center remained constant.
The Manufacturing group's net sales remained at $67 million as the number of
homes sold was down 4%. The average wholesale price to independent retailers
increased 4%.
Net sales of the Communities group rose 28% to $8 million primarily due to a 16%
increase in units sold and a 10% increase in the average home price.
Financial services income increased 31% as interest and loan servicing revenues
increased $6 million, and insurance related revenues rose $2 million.
8
<PAGE> 9
Rental and other income increased 24% primarily on a 3% increase in communities
rental income and a $2 million increase in other income.
Financial services interest expense decreased 20%, to $.7 million. Average debt
collateralized by installment contract receivables dropped 23% to $27 million,
while the weighted average interest rate increased from 10.44% to 10.80%. The
terms of the debt preclude prepayment by the Company.
Gross profit margins increased to 32.8% from 32.4%. The increase
is primarily attributable to an increased percentage of retail
sales in the total sales mix. Retail sales comprised 65% of total sales this
quarter compared to 62% last year in the quarter.
Selling, general and administrative expenses, as a percent of revenues, were
26.6% compared to 25.7% in the prior comparable period, mainly attributable to
the start-up of new product lines and financial service and higher insurance
claims. The provision for credit losses declined as a percent of sales to 0.5%
from 0.6% last year, as credit losses were .2% for the period.
The following table presents write-off experience for the quarters ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Second Quarter Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Net losses as percentage of average loans
outstanding (annualized):
All contracts 0.1% 0.2%
Contracts originated by VMF 0.0% 0.0%
Contracts acquired from other institutions 3.5% 3.8%
</TABLE>
Liquidity and Capital Resources
Cash at December 31, 1996, was $33.9 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:
(b) 27. Financial Data Schedule (for SEC use only)
10
<PAGE> 11
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: February 10, 1997 s/Joseph H. Stegmayer
----------------- -----------------------------------------
Joseph H. Stegmayer
President, Chief Operating Officer,
Treasurer and Director
Date: February 10, 1997 s/John J. Kalec
----------------- ------------------------------------------
John J. Kalec
Vice President and Chief Financial Officer
(Principal Financial Officer)
11
<PAGE> 1
Exhibit 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>
Six Months Ended
December 31,
(in thousands except per share data) 1996 1995
---- ----
<S> <C> <C>
Net income (fully diluted) $ 52,279 $ 45,275
Weighted average shares
outstanding (fully diluted) 119,359 119,061
Earnings per share: (fully diluted) $ .44 $ .38
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLAYTON HOMES, INC FOR THE SIX MONTHS ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,875
<SECURITIES> 0
<RECEIVABLES> 419,199
<ALLOWANCES> 8,786
<INVENTORY> 113,514
<CURRENT-ASSETS> 0
<PP&E> 242,605
<DEPRECIATION> 47,986
<TOTAL-ASSETS> 931,210
<CURRENT-LIABILITIES> 82,840
<BONDS> 26,105
0
0
<COMMON> 11,850
<OTHER-SE> 680,577
<TOTAL-LIABILITY-AND-EQUITY> 931,210
<SALES> 385,171
<TOTAL-REVENUES> 470,876
<CGS> 262,019
<TOTAL-COSTS> 385,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> (821)
<INCOME-PRETAX> 84,379
<INCOME-TAX> 32,100
<INCOME-CONTINUING> 52,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,279
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
