CLAYTON HOMES INC
10-Q, 1999-11-12
MOBILE HOMES
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<PAGE>

                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   September  30,  1999
                                     --------------------

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)

5000  Clayton  Road
Maryville,  Tennessee                                            37804
- ---------------------                                            -----
(Address  of  principal  executive  offices)                   (zip  code)

                865-380-3000
                ------------
(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 September 30, 1999
- -139,938,297.

                                        1
<PAGE>

                               CLAYTON HOMES, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Unaudited - in thousands except per share data)

<TABLE>
<CAPTION>

                                                            Three  Months  Ended
                                                               September  30,

                                                               1999       1998
                                                               ----       ----
REVENUES
<S>                                                         <C>        <C>
  Net sales                                                 $265,740   $247,192
  Financial services                                          54,348     50,999
  Rental and other income                                     17,209     16,495
                                                            --------   ---------
    Total revenues                                           337,297    314,686
                                                            --------   ---------

COSTS AND EXPENSES
  Cost of sales                                              178,483    171,662
  Selling, general and administrative                         98,248     84,325
  Financial services interest                                    289      2,450
  Provision for credit losses                                  4,000      2,559
                                                            --------   ---------
    Total expenses                                           281,020    260,996
                                                            --------   ---------
OPERATING INCOME                                              56,277     53,690
Interest income (expense), net/other                             147       (993)
                                                            ---------  ---------
Income before income taxes                                    56,424     52,697
Provision for income taxes                                    20,900     19,500
                                                            --------    --------
   Net income                                              $  35,524  $  33,197
                                                           =========   =========

NET INCOME PER COMMON SHARE (1)
   Basic                                                     $  0.25     $  0.23
   Diluted                                                      0.25        0.22

DIVIDENDS PAID PER SHARE (1)                                 $ 0.016     $ 0.016

AVERAGE SHARES OUTSTANDING (1)
   Basic                                                     141,040     146,961
   Diluted                                                   141,413     147,955
</TABLE>
(1)  Adjusted for the December 9, 1998 5-for-4 stock split.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                     (unaudited)       (audited)
                                                    September  30,     June  30,
                                                         1999             1999
                                                         ----             ----
ASSETS
<S>                                                 <C>              <C>
 Cash and cash equivalents                          $    4,913       $    2,680
 Receivables, net                                      685,283          707,888
 Inventories                                           180,447          184,444
 Property, plant and equipment, net                    295,939          291,503
 Other assets                                          244,980          230,730
                                                    ----------       -----------
   Total assets                                     $1,411,562       $1,417,245
                                                    ==========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
 Accounts payable and accrued liabilities           $  129,038       $  130,579
 Debt obligations                                       95,655           96,477
 Other liabilities                                     233,100          242,421
                                                    ----------       -----------
   Total Liabilities                                   457,793          469,477
SHAREHOLDERS' EQUITY
 Accumulated other comprehensive income                 (2,318)            (821)
 Other shareholders' equity                            956,087          948,589
                                                    ----------       -----------
   Total shareholders' equity                          953,769          947,768
                                                    ----------       -----------
   Total liabilities and shareholders' equity       $1,411,562       $1,417,245
                                                    ==========       ===========
</TABLE>

   (See accompanying notes to the condensed consolidated financial statements)

                                        2
<PAGE>

                               CLAYTON HOMES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Unaudited - in thousands)
<TABLE>
<CAPTION>

                                                                                    Three  Months  Ended
                                                                                       September  30,
                                                                                      1999        1998
                                                                                      ----        ----
<S>                                                                              <C>         <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES
Net  Income                                                                      $  35,524   $  33,197
Adjustments to reconcile net income to net cash
  used in operating activities:
        Depreciation and amortization                                                4,990       4,243
        Gain on sale of installment contract receivables, net of amortization         (311)     (1,591)
        Provision for credit losses                                                  4,000       2,559
        Deferred income taxes                                                       (4,710)     (1,500)
        Decrease (increase) in other  receivables, net                              23,301     (17,945)
        Decrease in inventories                                                      3,997      17,721
        Decrease in accounts payable, accrued liabilities, and other               (32,353)    (34,828)
                                                                                 ----------  ----------
                Cash provided by operations                                         34,438       1,856
        Origination of installment contract receivables                           (264,435)   (238,929)
        Proceeds from sales of originated installment contract receivables         197,925     197,489
        Principal collected on originated installment contract receivables          11,161       5,500
                                                                                 ----------  ----------
                Net cash used in operating activities                              (20,911)    (34,084)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables                                    (32,388)    (57,336)
Proceeds from sales of acquired installment contract receivables                    77,191      55,606
Principal collected on acquired installment contract receivables                     6,161       1,953
Acquisition of property, plant and equipment                                        (9,426)    (13,931)
Decrease (increase) in restricted cash                                              10,454      (5,463)
                                                                                 ----------  ----------
                Net cash provided by (used in) investing activities                 51,992     (19,171)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends                                                                           (2,351)     (2,386)
Net borrowings on credit facilities                                                     --     103,377
Proceeds from (repayment of) long-term debt                                           (822)      4,161
Issuance of stock for incentive plans and other                                        947         848
Repurchase of common stock                                                         (26,622)    (43,228)
                                                                                 ----------  ----------
               Net cash provided by (used in) financing activities                 (28,848)     62,772
                                                                                 ----------  ----------

Net increase in cash and cash equivalents                                            2,233       9,517
Cash and cash equivalents at beginning of period                                     2,680       1,731
                                                                                 ----------  ----------
Cash and cash equivalents at end of period                                       $   4,913   $  11,248
                                                                                 ==========  ==========

</TABLE>
   (See accompanying notes to the condensed consolidated financial statements)

                                        3
<PAGE>

                               CLAYTON HOMES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.     The  condensed  consolidated  financial statements of Clayton Homes, Inc.
       and  its  wholly  and  majority  owned  subsidiaries  (the 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, 1999.

       The  information  furnished reflects  all adjustments which are necessary
       for  a  fair  presentation  of  the  Company's  financial  position as of
       September 30, 1999,  the  results  of  its  operations and its cash flows
       for the three  month periods ended September 30, 1999 and  1998. All such
       adjustments  are of a normal recurring  nature.

2.     The  results of operations for the three months ended  September 30, 1999
       and  1998  are  not necessarily  indicative of the results to be expected
       for the respective  full  years.

3.     Certain reclassifications have been made to the 1998 financial statements
       to  conform  to  the  1999  presentation.

4.      The Company has $75 million of 6.25% Senior Notes due December 30, 2003,
        which  are  primarily  to  facilitate  the  purchase,   origination  and
        warehousing of loan portfolios.  The Senior Notes are  guaranteed by all
        significant subsidiaries of the Company  and  are  governed  by  various
        financial  covenants  which  require maintenance  of  certain  financial
        ratios.

        A committed  one  year $300 million commercial paper conduit facility is
        utilized to facilitate interim  sale  of manufactured housing contracts.

5.      Reconciling items  in  excess of bank balances have been reclassified to
        Accounts payable and accrued liabilities.

6.      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
                                                           September  30,
                                                        1999            1998
                                                        ----            ----
(in thousands except per share data)
<S>                                                   <C>             <C>
Net income                                            $ 35,524        $ 33,197
Average shares outstanding
  Basic                                                141,040         146,961
  Add:  common stock equivalents                           373             994
                                                      --------        --------
  Diluted                                              141,413         147,955
Earnings per share
             Basic                                    $    .25        $    .23
             Diluted                                  $    .25        $    .22

</TABLE>
                                        4
<PAGE>
                               CLAYTON HOMES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (UNAUDITED)

7.     The  Company  operates  primarily  in  four  business  segments:  Retail,
       Manufacturing, Financial Services and  Communities.  The following  table
       summarizes  information  with respect to  the Company's business segments
       for the three  month  periods  ended  September  30,  1999  and  1998:


<TABLE>
<CAPTION>

                                          Three Months Ended
                                             September 30,
<S>                              <C>              <C>
(in thousands)                             1999         1998
                                          -----         ----
REVENUES
  Retail                         $      192,994   $  174,214
  Manufacturing                         159,250      151,543
  Financial Services                     44,943       44,962
  Communities                            21,511       16,526
  Intersegment sales                    (81,401)     (72,559)
                                 ---------------  -----------
   Total Revenues                $      337,297   $  314,686

INCOME FROM OPERATIONS
  Retail                         $       15,409   $   15,200
  Manufacturing                          15,371       17,728
  Financial Services                     25,194       25,490
  Communities                             3,268        2,660
  Eliminations/Other                     (2,965)      (7,388)
                                 ---------------  -----------
   Total Income from operations  $       56,277   $   53,690

CAPITAL EXPENDITURES
  Retail                         $        3,009   $    2,734
  Manufacturing                           3,318        4,100
  Financial Services                        105          294
  Communities                             2,943        6,464
  Eliminations/Other                         51          339
                                 ---------------  -----------
   Total Capital expenditures    $        9,426   $   13,931

</TABLE>

<TABLE>
<CAPTION>

                                          As of September 30,
<S>                              <C>              <C>
                                           1999         1998
                                          -----         ----

IDENTIFIABLE ASSETS
  Retail                         $      245,974   $  206,267
  Manufacturing                          87,425       75,757
  Financial Services                    873,933    1,016,667
  Communities                           178,756      173,066
  Eliminations/Other                     25,474       53,464
                                 ---------------  -----------
   Total Identifiable assets     $    1,411,562   $1,525,221

</TABLE>

                                        5
<PAGE>

PART  I  -  -  FINANCIAL  INFORMATION

ITEM  1.     Financial  Statements.
             ----------------------

             See  pages  2  through  5.

ITEM  2.     Management's  Discussion  and  Analysis  of Financial Condition and
             -------------------------------------------------------------------
             Results  of Operations.
             -----------------------

THREE  MONTHS  ENDED  SEPTEMBER  30,  1999:

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.

                                              First  Three  Months
                                          Fiscal  Year  2000  vs  1999
                                          ----------------------------

<TABLE>
<CAPTION>
<S>                                          <C>
Retail
      Dollar sales                                  +11.6%
      Number of retail centers                      +11.0%
      Dollar sales per retail center                + 0.6%
      Price of home                                 +11.4%

Wholesale
      Dollar sales                                  - 4.9%
      Number of independent retailers               - 3.6%
      Dollar sales per independent retailer         - 1.4%
      Price of home                                 + 5.8%

Communities
      Dollar sales                                  +68.5%
      Number of communities                         + 4.9%
      Dollar sales per community                    +60.6%
      Price of home                                 + 8.0%
</TABLE>
Total  revenues  for the three months ended September 30, 1999, increased  7% to
$337  million, as manufactured housing sales rose  8% to $266 million, financial
services income grew 7% to $54 million  and rental and other income increased 4%
to  $17  million.

Net  sales  of  the  Retail group rose 12% to $178 million on an 11% rise in the
average home price and an 11%  increase in Company-owned  sales  centers.  A 10%
decrease in the average number of  homes  sold  per  sales  center was partially
attributable to a change in mix toward multi-section units.

Net sales  of  the Manufacturing group decreased 5% to $78 million as the number
of homes sold decreased 10% to 3,419. The average wholesale price to independent
retailers  increased  6%  as  a  result  of  a  shift  in  product  mix  towards
multi-section  homes.

                                        6
<PAGE>

Net  sales  of  the  Communities  group increased 68% to $10 million as 56% more
homes were  sold,  while  the  average  home  selling  price  increased  8%.

Within  financial  services  revenues,  interest  and  loan  servicing  revenues
decreased  $.5  million, and insurance related revenues rose $1 million.  Rental
and  other  income  increased  4%  on an 8% rise in Communities rental income.

Loans  sold  through  asset-backed  securities totaled $356 million, compared to
$244  million  during  the  same  period  last  year.

Financial  services  interest  expense  decreased to $.3 million.  Average  debt
collateralized  by installment  contract receivables dropped 17% to $12 million,
while  the weighted  average  interest  rate  dropped to 9.4%  from  10.4%.  The
terms of the debt  preclude prepayment by the Company.

Gross  profit  margins  increased to 32.8% from 30.6% which is attributable to a
shift  in  mix  to  multi-section  units.

Selling,  general  and  administrative  expenses,  as  a  percent  of  revenues,
increased  to  29.1%  from  26.8%  in  the  prior  year period, primarily due to
increased set up  costs associated  with the shift in mix to multi-section units
as well as sales of larger homes.  The provision for credit losses increased  to
1.5%  from  1.0%  of  sales.

The  following  table  represents  delinquent  installment  sales contracts as a
percentage  of the total number of installment sales contracts which the Company
services  and either owns or for which it is contingently liable.  A contract is
considered  delinquent  if  any  payment  is  more  than  one  month  past  due.

                                                             September  30,
                                                         1999               1998
                                                         ----               ----
Total  delinquency  as  a  percentage
 of  contracts  outstanding:
     All  contracts                                     2.53%              3.67%
     Contracts  originated  by  VMF                     2.13%              2.85%
     Contracts  acquired  from  other  institutions     4.01%              7.13%

                                        7
<PAGE>

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>

                                                          Three  Months  Ended
                                                             September  30,
                                                        1999                1998
                                                        ----                ----
<S>                                                    <C>                <C>

Net losses as a percentage of average
 loans outstanding (annualized):
     All contracts                                      1.4%                1.2%
     Contracts originated by VMF                        1.2%                0.9%
     Contracts acquired from other institutions         3.2%                2.9%

Number of contracts in repossession:
     All contracts                                     1,977              1,848
     Contracts originated by VMF                       1,567              1,309
     Contracts acquired from other institutions          410                539

Total number of contracts in repossession
 as a percentage of total contracts                     1.6%                1.7%
</TABLE>

The  overall  decrease  in  inventories  as of September 30, 1999, from June 30,
1999, is explained  as  follows:

<TABLE>
<CAPTION>
<S>                                      <C>
(in millions)
Manufacturing                             Increase (decrease)
- -------------                            --------------------
    Finished goods                                    $  6.8
    Raw materials                                       (9.6)

Retail
- ------
    Decrease in inventory levels at 306
      Company-owned retail centers at
      June 30, 1999                                     (2.8)
    Inventory to stock four
      new Company-owned retail centers                   2.3

Communities
- -----------
    Decrease in inventory levels at 75
      Communities at June 30, 1999                      (0.8)
    Inventory to stock one new
      Community                                           .1
                                                      -------
                                                      $ (4.0)
                                                      =======
</TABLE>

On September 30, 1999, the order backlog for the Manufacturing group (consisting
of  Company-owned  and independent retailer orders) decreased to $33 million, as
compared  to  $54  million  for  the  same  period  last  year.

                                        8
<PAGE>

Liquidity  and  Capital  Resources
- ----------------------------------

Cash  at  September  30,  1999, was $4.9 million  as compared to $2.7 million at
June 30, 1999.  The Company anticipates meeting cash requirements with cash flow
from  operations,  revolving credit  lines, a commercial paper conduit facility,
senior  notes, and sales of installment contract and mortgage  loan  receivables
and  GNMA  certificates.

At  September  30, 1999 and  June 30, 1999,  the  Company  had  short-and  long-
term  debt  outstanding  of  $0  and  $95.7  million  and $0 and $96.4  million,
respectively.  Short-term debt available consists of $150 million  committed and
$62.5 million uncommitted lines of credit.  These lines of credit do not require
collateral and are priced on LIBOR plus rates ranging from 0.10%  to 0.40%.  The
committed  credit  lines  are  guaranteed  by  all  significant  subsidiaries of
the  Company  and  are  governed  by various  financial covenants which  require
maintenance  of  certain  financial  ratios.

The  Company  has $75 million of 6.25% Senior Notes due December 30, 2003, which
are  primarily  to  facilitate the purchase, origination and warehousing of loan
portfolios.  The Senior Notes are guaranteed by all significant  subsidiaries of
the Company and are  governed  by  various  financial  covenants  which  require
maintenance  of  certain  financial  ratios.

A committed one year $300 million commercial paper conduit facility is  utilized
to  facilitate  interim  sale  of  manufactured  housing  contracts.

Year  2000
- ----------

Management  believes  the majority of the Company's mission critical systems and
related  software  are  Year 2000 compliant.  The Company has executed a plan to
address  potential disruptions to normal business activities related to the Year
2000.  Areas  addressed  by  the  plan include information systems (hardware and
software),  non-information  systems,  embedded  chips,  and  supply  chain
continuance.  Currently,  the  Company  has  completed its mission critical Year
2000  projects  and  based  on  the  test  results  of these systems, management
believes the operation of the Company will not be materially impacted by the new
millennium.  At  this  point, the Company believes that any problems relating to
the  Year  2000  will  be  manifested  as  minor  inconveniences  and reasonable
precautions  have  been  taken  to  prevent major disruptions to normal business
activities.

Information  systems, consisting of hardware and software, have been modified or
replaced  to  ensure Year 2000 compliance.  The Company's hardware consists of a
mainframe,  networks  and  personal computers. All desktop computers utilized in
mission  critical  functions  have  been  tested  and  are  in  compliance.  The
mainframe  computers  are  compliant  with respect to the hardware and operating
systems.  Many  of  the Company's critical software systems, such as the general
ledger,  accounts  payable,  payroll,  human  resources,  and credit application
tracking  systems  have  been  replaced  by  Year  2000 compliant packages.  The
Company  tested  each  of  these  software  systems using a standardized testing
methodology  which includes millennium testing, millennium leap year testing and
cross  over  year  testing.

Non-information  systems  at  corporate such as HVAC, elevator, phone, security,
vaults,  and  computer  rooms  are  Year  2000  compliant  as a direct result of
building  a  new Corporate office.   Similar equipment at field locations is not
dependent  on  embedded  chip  technologies  and  is  not  considered an area of
material  exposure.

                                        9
<PAGE>

The  Company  has  completed  its  survey  of major  suppliers  and  vendors  of
raw  materials  for Year 2000 compliance.  The Company is not directly dependent
on  electronic  data  interchange  (EDI)  for the  purchase  of  raw  materials,
though  some  of  the Company's  suppliers  may  be.  Moreover, the  bulk of raw
materials (mostly lumber) is readily available  from  other  suppliers. Possible
interruptions  in  the  supply  chain  can  be  circumvented  by  purchasing raw
materials  from  an  alternate  local  supplier.  Responses  from  the Company's
surveys provide assurance  that  our  critical  suppliers,  including  Financial
Services  providers,  will  be compliant.

Through  September 30, 1999, the Company  has incurred approximately $250,000 in
costs associated with Year  2000 compliance.  The  total  costs are not expected
to exceed $500,000 or to  have  a  material  impact  on  the Company's financial
position,  results  of operations, or cash flows in future periods.  Most of the
hardware,  software,  and  non-information  system replacements have been due to
growth  of  the  Company  and  Year  2000  compliance  is  a  by-product  of the
replacement  systems.  The  custom written software is addressed by the in-house
programming  staff  and  contract  programming  services.  Most  costs  directly
associated  with  Year  2000  compliance  were  incurred  during  fiscal  1999.

Contingency  plans,  both  short- and long-term, for critical processes for each
business unit have been developed. To mitigate any unexpected problems with  the
Year 2000, plans could include but are not  limited  to:  (1)  rapid transitions
to  alternative  suppliers  of services and materials, (2) replacement of errant
equipment or software, (3) manual ledgers, (4) increased  work  hours by Company
personnel,  (5) temporary  personnel,  (6) outsourcing and (7) routine backup of
critical  data  to  different  platforms.  While  contingency  plans  have  been
developed, opportunities for refinement and  improvements  will  be incorporated
into each business unit's contingency plan throughout 1999.  Should the  Company
be  required  to  execute  a  long-term  contingency  plan, an  adverse material
effect  to  operations  could  result.

The  failure  to  correct  a  material  Year  2000  problem  could  result in an
interruption  in,  or  a  failure  of,  certain  normal  business  activities or
operations.  Such  failures  could  adversely  affect  the  Company's results of
operations,  liquidity  and  financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year  2000  readiness  of  third-party  suppliers  and customers, the Company is
unable  to determine at this time whether the consequences of Year 2000 failures
could  have  a material impact on the Company's results of operations, liquidity
or  financial  condition.  The  Year  2000  project is expected to significantly
reduce  the  Company's  level of uncertainty about the Year 2000 problem and, in
particular,  about  the  Year  2000  compliance  and  readiness  of its critical
suppliers and financial services providers.  The Company believes that, with the
implementation  of  new  business  systems  and  completion  of  the  project as
scheduled, the exposure to significant interruptions of normal operations should
be  reduced.

New  Accounting  Pronouncements
- -------------------------------

In  March  1998,  the  AICPA  issued  Statement  of  Position  98-1  (SOP 98-1),
Accounting  for the Cost of Computer Software Developed or Obtained for Internal
Use. SOP 98-1  is effective  for financial statements for fiscal years beginning
after  December 15, 1998.  SOP 98-1 provides guidance on accounting for computer
software  developed  or  obtained  for internal use including the requirement to
capitalize  specified  costs  and  amortization of such costs.  The Company will
adopt  the  provisions  of SOP 98-1 in its fiscal year ending June 30, 2000, and
does  not  expect  such  adoption  to  have  a  material effect on the Company's
reported  results  of  operations,  financial  position,  or  cash  flows.

In  April  1998,  the  AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities,  which  is  effective  for fiscal years beginning after December 15,
1998.  SOP  98-5  provides  guidance  on the

                                       10
<PAGE>

financial reporting  of start-up and organization  costs.  It  requires start-up
activities and organization  costs to be  expensed as incurred.  The adoption of
this standard  is  not  expected to have  a  material  impact  on  the Company's
reported results of operations, financial position  or  cash   flows.


In  June  1998,  the  FASB   issued  SFAS  No. 133,
Accounting  for  Derivatives and Financial  Instruments  and Hedging Activities.
SFAS  133   establishes   accounting  and   reporting  standards  of  derivative
instruments,  including   certain   derivative  instruments  embedded  in  other
contracts,  and  for hedging activities.  In July 1999, the FASB issued SFAS No.
137, Deferral  of  the  Effective  Date of SFAS 133,  which  amends  SFAS 133 by
deferring the effective date to fiscal  years  beginning after  June  15,  2000.
The  adoption  of  SFAS  133  is not expected to have a material  impact on  the
Company's  reported  results of operations, financial position  or  cash  flows.

Forward  Looking  Statements
- ----------------------------

Certain  statements  in this 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 fall generally within
three broad categories consisting of industry factors, management expertise, and
government  policy  and  economic  conditions.  Industry  factors  include  such
matters  as  potential  periodic  inventory  adjustments  by  both  captive  and
independent  retailers,  general  or seasonal weather conditions affecting sales
and  revenues,  catastrophic  events impacting insurance reserves, cost of labor
and/or  raw  materials  and  industry  consolidation  trends  creating fewer but
stronger  competitors  capable  of  sustaining  competitive  pricing  pressures.

Management  expertise  is affected by management's overall ability to anticipate
and  meet consumer preferences, maintain successful marketing programs, continue
quality  manufacturing output, keep a strong cost management oversight, meet the
Year  2000  compliance  plan,  and  project  stable  gain   on  sale  accounting
assumptions.  Lastly,  management  has  the least control over government policy
and  economic  conditions  such  as  prevailing  interest  rates, capital market
liquidity,  government  monetary  policy,  stable  regulation  of  manufacturing
standards, consumer confidence, favorable trade policies, and general prevailing
economic  and  employment  conditions.

                                       11
<PAGE>

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)

   (b)           Reports  on  Form  8-K.
                 Clayton Homes, Inc./Vanderbilt Mortgage & Finance,  Inc. Senior
                 Subordinate  Pass-Through  Certificates   Series  1999C.  Filed
                 August 18,  1999.

                                       12
<PAGE>

                               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:           November  12,  1999     /s/  Kevin  T.  Clayton
               -------------------     -----------------------------------------
                                       Kevin  T.  Clayton
                                       Chief  Executive  Officer  and  President



Date:           November  12,  1999    /s/  Amber  W.  Krupacs
                -------------------    ----------------------------------------
                                       Amber  W.  Krupacs
                                       Vice  President  Finance



Date:           November  12,  1999    /s/  Greg  A.  Hamilton
                -------------------    -----------------------------------------
                                       Greg  A.  Hamilton
                                       Vice  President  and  Controller

                                       13
<PAGE>


<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLAYTON HOMES, INC. FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>  1000
<CURRENCY>  U.S.  Dollars

<S>                                     <C>
<PERIOD-TYPE>                           3-MOS
<FISCAL-YEAR-END>                       JUN-30-2000
<PERIOD-START>                          JUL-01-1999
<PERIOD-END>                            SEP-30-1999
<EXCHANGE-RATE>                         1
<CASH>                                        4913
<SECURITIES>                                 43453
<RECEIVABLES>                               690196
<ALLOWANCES>                                  4913
<INVENTORY>                                 180447
<CURRENT-ASSETS>                                 0
<PP&E>                                      382137
<DEPRECIATION>                               86198
<TOTAL-ASSETS>                             1411562
<CURRENT-LIABILITIES>                       129038
<BONDS>                                      95655
                            0
                                      0
<COMMON>                                     13994
<OTHER-SE>                                  939775
<TOTAL-LIABILITY-AND-EQUITY>               1411562
<SALES>                                     265740
<TOTAL-REVENUES>                            337297
<CGS>                                       178483
<TOTAL-COSTS>                               276731
<OTHER-EXPENSES>                                 0
<LOSS-PROVISION>                              4000
<INTEREST-EXPENSE>                             142
<INCOME-PRETAX>                              56424
<INCOME-TAX>                                 20900
<INCOME-CONTINUING>                          35524
<DISCONTINUED>                                   0
<EXTRAORDINARY>                                  0
<CHANGES>                                        0
<NET-INCOME>                                 35524
<EPS-BASIC>                                  .25
<EPS-DILUTED>                                  .25


</TABLE>


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