<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, 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 December 31, 1997 -
118,781,320.
<PAGE> 2
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,
Revenues 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $192,078 $191,297 $401,024 $385,171
Financial services 46,154 31,039 87,204 61,891
Rental and other income 12,837 12,336 25,536 23,814
-------- -------- -------- --------
Total revenues 251,069 234,672 513,764 470,876
-------- -------- -------- --------
Costs and expenses
Cost of sales 133,066 128,547 276,620 262,019
Selling, general and administrative 67,871 62,444 138,665 123,299
Financial services interest 595 728 1,197 1,506
Provision for credit losses 1,000 1,000 2,000 2,000
-------- -------- -------- --------
Total expenses 202,532 192,719 418,482 388,824
-------- -------- -------- --------
Operating income 48,537 41,953 95,282 82,052
Interest income (expense), net/other 1,672 1,123 2,806 2,327
-------- -------- -------- --------
Income before income taxes 50,209 43,076 98,088 84,379
Provision for income taxes 19,100 16,400 37,300 32,100
-------- -------- -------- --------
Net income $ 31,109 $ 26,676 $ 60,788 $ 52,279
======== ======== ======== ========
Earnings per share: (1)
Basic $ 0.26 $ 0.22 $ 0.51 $ 0.44
Diluted $ 0.26 $ 0.22 $ 0.51 $ 0.44
Dividends paid per share: (1) $ 0.020 $ 0.020 $ 0.040 $ 0.036
Average shares outstanding: (1)
Basic 118,716 118,768 118,645 118,860
Diluted 119,600 119,628 119,474 119,766
</TABLE>
(1) Adjusted for the December 11, 1996 5-for-4 stock split.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited) (audited)
December 31, June 30,
ASSETS: 1997 1997
----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 51,309 $ 89,695
Receivables, net 488,478 478,691
Inventories 136,659 119,434
Property, plant and equipment, net 222,300 214,072
Other assets 146,228 143,869
---------- ----------
Total assets $1,044,974 $1,045,761
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued liabilities $ 61,430 $ 99,498
Long-term debt 22,032 22,806
Other liabilities 150,072 168,931
Shareholders' equity 811,440 754,526
---------- ----------
Total liabilities and shareholders' equity $1,044,974 $1,045,761
========== ==========
</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,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 60,788 $ 52,279
Adjustments to reconcile net income to net cash
provided (required) by operating activities:
Depreciation and amortization 6,824 6,070
Gain on sale of installment contract receivables, net of amortization (19,642) (5,465)
Provision for credit losses 2,000 2,000
Deferred income taxes (19,920) (580)
Decrease (increase) in other receivables, net (16,270) 2,517
Decrease (increase) in inventories (17,225) 10,766
Decrease in accounts payable, accrued liabilities, and other (47,922) (37,671)
--------- ---------
Cash provided (required) by operations (51,367) 29,916
Origination of installment contract receivables (333,803) (266,437)
Proceeds from sales of originated installment contract receivables 358,338 241,726
Principal collected on originated installment contract receivables 18,445 23,045
--------- ---------
Net cash provided (required) by operations (8,387) 28,250
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables (153,498) (41,530)
Proceeds from sales of acquired installment contract receivables 127,067 24,369
Principal collected on acquired installment contract receivables 7,576 11,401
Acquisition of property, plant and equipment, net (15,052) (16,418)
Decrease (increase) in restricted cash and investments 8,556 (5,410)
--------- ---------
Net cash used in investing activities (25,351) (27,588)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (4,750) (4,305)
Proceeds from short-term borrowings 93,878 4,475
Repayment of short-term borrowings (93,878) (4,475)
Repayment of long-term debt (774) (4,185)
Issuance of stock for incentive plans and other 3,021 2,923
Repurchase of common stock (2,145) (8,620)
--------- ---------
Net cash used in financing activities (4,648) (14,187)
--------- ---------
Net decrease in cash and cash equivalents (38,386) (13,525)
Cash and cash equivalents at beginning of period 89,695 47,400
--------- ---------
Cash and cash equivalents at end of period $ 51,309 $ 33,875
========= =========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements)
3
<PAGE> 4
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its subsidiaries (Company) 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,
1997.
The information furnished reflects all adjustments which are necessary
for a fair presentation of the Company's financial position as of
December 31, 1997; the results of its operations and its cash flows for
the six month periods ended December 31, 1997 and 1996. All such
adjustments are of a normal recurring nature.
2. The results of operations for the six months ended December 31, 1997
and 1996 are not necessarily indicative of the results to be expected
for the respective full years.
3. Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
4. Effective for the quarter ended December 31, 1997, the Company adopted
FASB Statement of Accounting Standards No. 128, Earnings per Share. 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. Prior years have been
restated to reflect this change. The following reconciliation details
the numerators and denominators used to calculate basic and diluted
earnings per share for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands except per share data)
Net income $ 31,109 $ 26,676 $ 60,788 $ 52,279
======== ======== ======== ========
Average shares outstanding:
Basic 118,716 118,768 118,645 118,860
Add: common stock equivalents 884 860 829 906
-------- -------- -------- --------
Diluted 119,600 119,628 119,474 119,766
======== ======== ======== ========
Earnings per share:
Basic and diluted $ .26 $ .22 $ .51 $ .44
======== ======== ======== ========
</TABLE>
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, 1997:
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 1998 vs 1997
------------------------
<S> <C>
Retail
Dollar sales + 2.2%
Number of retail centers +13.8%
Dollar sales per retail center -10.2%
Price of home + 8.0%
Wholesale
Dollar sales + 8.6%
Number of independent retailers + 9.5%
Dollar sales per independent retailer - 0.8%
Price of home + 5.4%
Communities
Dollar sales - 6.4%
Number of communities + 3.9%
Dollar sales per community - 9.9%
Price of home + 9.4%
</TABLE>
Total revenues for the six months ended December 31, 1997, increased 9% to $514
million. As manufactured housing sales rose 4% to $401 million, financial
services income grew 41% to $87 million and rental and other income increased 7%
to $26 million.
Net sales of the Retail group rose 2% to $236 million on an 8% rise in the
average home price, and a 14% increase in Company-owned sales centers,
offsetting a 17% decrease in the average number of homes sold per sales center.
5
<PAGE> 6
Net sales of the Manufacturing group increased 9% to $150 million as the number
of homes sold increased 3% to 7,118. The average wholesale price to independent
retailers increased 5% as a result of a shift in product mix towards
multi-section homes.
Net sales of the Communities group decreased 6% to $15 million as 14% less homes
were sold while the average home selling price increased 9%.
Financial services revenues increased 41%. Interest and loan servicing revenues
increased $7 million, and insurance related revenues rose $2 million. Rental and
other income increased 7% on a 16% rise in Communities rental income.
Loans sold through asset-backed securities totaled $459 million, compared to
$262 million during the same period last year with improved spreads over the
comparable period.
Financial services interest expense decreased 21% to $1 million. Average debt
collateralized by installment contract receivables dropped 27% to $21 million,
while the weighted average interest rate moved from 10.76% to 10.30%. The terms
of the debt preclude prepayment by the Company.
Gross profit margins decreased to 31.0% from 32.0% which is attributable to a
shift in mix of sales from the Manufacturing group to its independent retailers.
Selling, general and administrative expenses, as a percent of revenues,
increased to 27.0% from 26.2% in the year earlier period. The provision for
credit losses remained 0.5% of sales.
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 2.66% 2.65%
Contracts originated by VMF 2.49% 2.33%
Contracts acquired from other institutions 3.58% 5.09%
</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 a percentage of average loans outstanding (annualized):
All contracts 0.7% 0.2%
Contracts originated by VMF 0.7% 0.0%
Contracts acquired from other institutions 1.0% 3.8%
Number of contracts in repossession:
All contracts 1,396 995
Contracts originated by VMF 1,272 891
Contracts acquired from other institutions 124 104
Total number of contracts in repossession
as percentage of total contracts 1.5% 1.3%
</TABLE>
The increase in inventories as of December 31, 1997, from June 30, 1997, is
explained as follows:
<TABLE>
<CAPTION>
Manufacturing Increase (decrease)
- ------------- -------------------
<S> <C>
Finished goods $ 5.3
Raw materials (8.8)
Retail
- ------
Increase in average inventory levels
at 245 Company-owned sales centers
at June 30, 1997 11.6
Inventory to stock twelve new
Company-owned sales centers 6.7
Communities
- -----------
Total of all communities 2.4
-------
$ 17.2
=======
</TABLE>
On December 31, 1997, the order backlog for the Manufacturing group (consisting
of Company-owned and independent retailer orders) was $30 million, as compared
to $17 million for the prior year.
7
<PAGE> 8
SECOND QUARTER ENDED DECEMBER 31, 1997:
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 1998 vs 1997
------------------------
<S> <C>
Retail
Dollar sales - 6.0%
Number of retail centers +13.4%
Dollar sales per retail center -17.1%
Price of home +10.2%
Wholesale
Dollar sales +13.1%
Number of independent retailers + 8.2%
Dollar sales per independent retailer + 4.6%
Price of home + 6.2%
Communities
Dollar sales -13.5%
Number of communities + 3.1%
Dollar sales per community -16.0%
Price of home + 3.8%
</TABLE>
Total revenues for the three months ended December 31, 1997, increased 7% to
$251 million. As manufactured housing sales remained flat, financial services
income grew 49% to $46 million and rental and other income increased 4% to $13
million.
Net sales of the Retail group decreased 6% to $110 million on a 10% rise in the
average home price, and 13% increase in Company-owned sales centers, offsetting
a 25% decrease in the average number of homes sold per sales center.
Net sales of the Manufacturing group increased 13% to $76 million as the number
of homes sold increased 7% to 3,553. The average wholesale price to independent
retailers increased 6% as a result of a shift in product mix towards
multi-section homes.
Net sales of the Communities group decreased 14% to $7 million as 17% less homes
were sold while the average home selling price increased 4%.
Financial services revenues increased 49%. Interest and loan servicing revenues
increased $4 million, and insurance related revenues rose $1 million. Rental and
other income increased 4% on a 17% rise in Communities rental income and a 10%
decline in other income.
Loans sold through asset-backed securities in the quarter totaled $232 million,
compared to a $124 million offering during the same period last year with
improved spreads over the comparable period.
8
<PAGE> 9
Financial services interest expense decreased 18% to $0.6 million. Average debt
collateralized by installment contract receivables dropped 28% to $20 million,
while the weighted average interest rate moved from 10.80% to 10.78%. The terms
of the debt preclude prepayment by the Company.
Gross profit margins decreased to 30.7% from 32.8% with a stronger mix of sales
to independent retailers.
Selling, general and administrative expenses, as a percent of revenues,
increased to 27.0% from 26.6% in the year earlier period. The provision for
credit losses remained 0.5% of sales.
The following table presents write-off experience for the quarters ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Second Quarter Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Net losses as percentage of average loans outstanding (annualized):
All contracts 0.9% 0.1%
Contracts originated by VMF 0.8% 0.0%
Contracts acquired from other institutions 1.3% 3.5%
</TABLE>
Liquidity and Capital Resources
Cash at December 31, 1997, was $51.3 million as compared to $89.7 million at
June 30, 1997. The Company anticipates meeting cash requirements with cash flows
from operations, current cash balances, and the sale of installment contract
receivables and GNMA certificates.
Forward Looking Statements
Certain statements in the quarterly report are forward looking as defined in the
Private Securities Litigation Reform Law. These statements involve certain risks
and uncertainties that may cause actual results to differ materially from
expectations as of the date of this report. These risks include, but are not
limited to, adverse weather conditions impacting sales and insurance reserves;
inventory adjustments by major retailers; competitive pricing pressures; gain on
sale accounting assumptions; success of marketing and cost-management programs;
and shifts in market demand.
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) 27. Financial Data Schedule (SEC use only)
9
<PAGE> 10
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, 1998 /s/ Kevin T. Clayton
-------------------------- --------------------------------------
Kevin T. Clayton
President
Date: February 10, 1998 /s/ John J. Kalec
-------------------------- --------------------------------------
John J. Kalec
Sr. Vice President, Chief Financial
Officer and Secretary
10
<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 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-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 51,309
<SECURITIES> 0
<RECEIVABLES> 493,094
<ALLOWANCES> 4,616
<INVENTORY> 136,659
<CURRENT-ASSETS> 0
<PP&E> 282,181
<DEPRECIATION> 59,881
<TOTAL-ASSETS> 1,044,974
<CURRENT-LIABILITIES> 61,430
<BONDS> 22,032
0
0
<COMMON> 11,878
<OTHER-SE> 799,562
<TOTAL-LIABILITY-AND-EQUITY> 1,044,974
<SALES> 401,024
<TOTAL-REVENUES> 513,764
<CGS> 276,620
<TOTAL-COSTS> 415,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> (1,609)
<INCOME-PRETAX> 98,088
<INCOME-TAX> 37,300
<INCOME-CONTINUING> 60,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,788
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
