FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------ to ------
Commission file number 1-8824
CLAYTON HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1671360
---------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5000 Clayton Road
Maryville, Tennessee 37804
--------------------------------- -----------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 865-380-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
----------------------------------------- ----------------------------
COMMON STOCK, $.10 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 30, 2000, was approximately $947,184,564 (98,357,691
shares at closing price on the NYSE of $9.63).
Shares of common stock, $.10 par value, outstanding on August 30, 2000, were
137,540,170.
Exhibit index appears on pages 14-15.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of Form 10-K Documents from which portions are incorporated by reference
-------------------- ------------------------------------------------------------------
<S> <C>
Part II (except for Item 5) Annual Report to Shareholders for fiscal year ended June 30, 2000
Part III Proxy Statement relating to Company's
Annual Meeting of Shareholders on November 1, 2000
</TABLE>
1
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CLAYTON HOMES, INC.
PART I
ITEM 1. BUSINESS.
GENERAL
Clayton Homes, Inc. and its subsidiaries (the Company) produce, sell, finance
and insure primarily low to medium-priced manufactured homes. The Company's 20
manufacturing plants produce homes which are marketed in 33 states through 1,101
retailers, of which 318 are Company-owned sales centers and 76 are Company-owned
community sales offices. Installment financing and insurance products are
offered to its homebuyers and those buying from selected independent retailers.
Such financing is provided through its wholly-owned finance subsidiary,
Vanderbilt Mortgage and Finance, Inc. (VMF). The Company acts as agent, earns
commissions and reinsures risks on physical damage, family protection, and home
buyer protection insurance policies issued by a non-related insurance company
(ceding company) in connection with its home sales. The Company also develops,
owns, and manages manufactured housing communities.
The Company is a Delaware corporation whose predecessor was incorporated in 1968
in Tennessee. Its principal executive offices are located near Knoxville,
Tennessee.
The following table indicates the percentage of revenue derived from sales by
Company-owned retail centers, sales to independent retailers and financial
services operations and other income for each of the last three fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Sales by Company-owned retail centers
and communities 55% 53% 50%
Sales to independent retailers 22% 25% 28%
Financial services and other 23% 22% 22%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
For information relating to the Company's four major business segments, see Note
10 to the Consolidated Financial Statements in the Company's Annual Report to
Shareholders.
MANUFACTURED HOMES
A manufactured home made by the Company is a factory-built, completely finished
dwelling. Constructed to be transported by truck, the home is mounted on wheels
attached to its frame. Manufactured homes are designed to be permanent,
owner-occupied residences sited and attached to utilities.
The Company manufactures a variety of single and multi-section homes in a wide
price range. Retail prices range from $10,000 to $75,000 with sizes from 500 to
2,400 square feet.
The Company markets homes under the names of Clayton and Norris. Included
standard features are central heating, range, refrigerator, and
color-coordinated window, wall and floor treatments. Optional features include
central air conditioning, wood-burning fireplaces, hardwood floors, whirlpool
tubs, entertainment systems, microwaves, dishwashers, washers and dryers,
skylights and furniture.
MANUFACTURING OPERATIONS
The Company manufactures homes in 20 facilities, ranging in size from 63,000 to
194,000 square feet. See "Item 2. Properties" for a listing by location. The
Company's manufactured homes are built in its plants using assembly-line
techniques. Completion of a home ordinarily takes two days. Homes are generally
produced to fill orders received from independent and Company-owned retail
centers; therefore the Company does not normally maintain a significant
inventory of homes at its plants. Completed homes are transported to the retail
centers by independent carriers.
2
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The Company's plants operate on a one-shift-per-day basis, normally for a
five-day week, with the capacity to produce approximately 35,000 homes per year.
During the fiscal year ended June 30, 2000, the Company produced 26,504 homes.
The principal materials utilized in the production of the Company's homes are
steel, aluminum, wood, fiberglass, carpet, vinyl floor covering, hardware items,
appliances and electrical items. The Company purchases these and other items
from a number of supply sources, and it believes that the materials and parts
necessary for the construction and assembly of its homes will remain readily
available from these sources. In the event that any of these items are not
readily available or are available at a higher cost than could be passed on to
consumers, the operations of the Company could be adversely affected.
The Company offers one year limited warranty programs covering manufacturing
defects in materials or workmanship in a home. Warranties covering appliances
and equipment installed in the homes generally are obligations of the
manufacturers of such items and not those of the Company. Warranty and service
costs during the years ended June 30, 2000, June 30, 1999, and June 30, 1998,
amounted to approximately $14,589,000, $16,085,000, and $14,801,000,
respectively.
The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $16,000,000 and
$42,600,000 on June 30, 2000, and 1999, respectively. Based on the Company's
production rate, approximately two weeks would be required to fill backlog
orders at June 30, 2000.
SALES OF HOMES MANUFACTURED BY THE COMPANY
The following table sets forth manufacturing sales and other data for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Number of homes sold to independent retailers 12,247 14,980 14,728
Number of homes shipped to Company-owned retail centers 14,101 13,364 12,922
------ ------ ------
Total 26,348 28,344 27,650
====== ====== ======
Number of plants operating 20 19 18
Number of independent retailers 707 671 702
Number of Company-owned communities 76 75 71
Number of Company-owned retail centers 318 306 273
</TABLE>
COMPANY RETAIL OPERATIONS
As of June 30, 2000, the Company sold homes through 318 Company-owned retail
centers in 23 states. In addition to selling homes built by the Company,
virtually all of these retail centers sell new homes manufactured by other
companies and previously-owned manufactured homes.
The following table indicates the number of Company-owned retail centers and
certain information relating to homes sold during the last three fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Number of Company-owned retail centers 318 306 273
Number of new homes sold (including homes built by the
Company and by other manufacturers) 14,022 14,894 13,250
Average retail price of new homes sold $43,892 $41,173 $37,864
Number of previously-owned homes sold 3,910 4,580 3,287
</TABLE>
All of the Company-owned retail centers employ salespeople who are primarily
compensated on a commission basis. The retail centers do not have
administrative staffs since most administrative functions are performed at the
Company's corporate headquarters.
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To provide customers a wider price range of homes, the Company purchases
and acquires on trade previously-owned homes from individuals and from other
retailers, as well as foreclosed homes from lenders throughout its trade
territory.
Homes sold by Company-owned retail centers are delivered to the homeowners'
sites by trucks either owned by the Company or leased for the particular
delivery. The purchase price of the home may include delivery and setup of the
home at the retail homeowner's site. Electrical, water, and gas connections are
performed by licensed technicians.
INDEPENDENT RETAILERS
In the years ended June 30, 2000, and 1999, 46% and 53%, respectively, of homes
manufactured by the Company were sold to its independent retailers. As of June
30, 2000, the Company supplied 707 independent retailers in 30 states with
homes. The Company's independent retailer network enables it to distribute
homes to more markets, more quickly, without as large an investment in
management resources and overhead expenses as is required with Company-owned
retail centers. Sales to independent retailers ensure the Company that its
homes are competitive with other manufacturers in terms of consumer
acceptability, product design, quality and price.
The Company's finance subsidiary, VMF, provides financing for retail customers
of select independent retailers with terms and conditions similar to those
provided to Company-owned locations.
The Company establishes relationships with independent retailers through sales
representatives from its manufacturing plants. These representatives visit
independent retailers in assigned areas to solicit orders for the Company's
homes. The area is generally limited to a 500 mile radius from each of the
Company's manufacturing plants due to the relatively significant cost of
transporting a home. Depending on the cost of the home and the manufacturing
competition within the area, a home may be competitively shipped shorter or
longer distances. During each of the last three fiscal years no retailer
accounted for more than 2% of the Company's consolidated revenues.
The Company's independent retailers provide their own inventory financing,
allowing the Company to receive payment for homes within two weeks after the
home is constructed. The Company does not require agreements with its
independent retailers, and the relationship between the Company and each of its
independent retailers may be terminated at any time by either party. The
Company believes its relationships with independent retailers are good, and has
experienced relatively little turnover among independent retailers in the past
several years. The Company generally has little control over the operations of
independent retailers.
Typically the Company neither provides inventory financing arrangements for
independent retailer purchases nor consigns homes. As is customary in the
industry, lenders financing independent retailer purchases require that the
Company execute repurchase agreements which provide that, in the event of
retailer default under the retailer's inventory financing arrangements, the
Company will repurchase homes for the amount remaining unpaid to the lender,
excluding interest and repossession costs. Historically, any homes repurchased
under such agreements are immediately resold to other retailers, including
Company-owned retail centers, at the repurchase price. During the last five
fiscal years, the Company has incurred no significant losses resulting from
these contingent obligations, but there can be no assurance that losses will not
occur in the future.
FINANCIAL SERVICES
The Company believes that the ability to make financing available to retail
purchasers is a material factor affecting the market acceptance of its product.
The Company facilitates retail sales by offering various finance and insurance
programs. The following table reflects the relative percentages of homes sold
by Company-owned retail centers which were financed through the Company, either
by VMF or by conventional lenders, and those sales made to customers who
arranged their own financing or paid cash.
4
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
----- ---- ----
<S> <C> <C> <C>
VMF 76% 72% 75%
Conventional lenders 3% 7% 5%
Customer arranged or cash 21% 21% 20%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
VMF also purchases and originates manufactured housing installment contract
receivables (also referred to as manufactured housing contracts) on an
individual basis from independent retailers. Retailers submit homebuyer
applications to VMF for approval and, provided that credit reports, employment
verification, and income and debt analysis meet VMF's criteria, a contract
purchase commitment is issued to the selling retailer.
VMF makes bulk purchases of manufactured housing contracts from banks and
commercial lenders. It also performs, on behalf of other institutions, servicing
of manufactured housing contracts that were not purchased or originated by VMF.
These purchases and servicing arrangements may relate to the portfolios of other
lenders or finance companies, governmental agencies, or other entities that
purchase and hold manufactured housing contracts.
UNDERWRITING POLICIES. Retail customers of the Company who express a desire to
obtain financing by or through the Company complete a credit application form
which is initially reviewed by the manager of the retail center and then
forwarded to VMF.
VMF's underwriting guidelines require that each applicant's credit, residence,
employment history and income to debt payment ratios meet predetermined
guidelines. If in the judgment of the VMF credit manager an applicant does not
meet minimum underwriting criteria, there must be other determining criteria in
order for an applicant to be approved. Credit managers confirm that the credit
investigation gives a complete and up-to-date accounting of the applicant's
creditworthiness and are encouraged to obtain second opinions on loans for
relatively large dollar amounts or those which tend to rank lower in terms of
underwriting criteria. Generally, the sum of the monthly installment housing
obligation, which includes the manufactured home loan payment and monthly site
costs, should not exceed 28% of the applicant's gross monthly income.
With respect to those homebuyers which are approved, VMF requires a down payment
in the form of cash, the trade-in value of a previously-owned manufactured home,
and/or the estimated value of equity in real property pledged as additional
collateral. For previously-owned homes, the trade-in allowance accepted by the
retailer must be consistent with the value of the home as determined by VMF in
light of current market conditions. The value of real property pledged as
additional collateral is estimated by retail personnel, who are not appraisers
but are familiar with the area in which the property is located. The average
down-payment for 2000 was 19% of the purchase price, while the minimum
down-payment for qualified buyers was 5%. The purchase price includes the
stated cash sale price of the manufactured home, sales or other taxes and fees
and set-up costs.
The balance of the purchase price is financed using various installment sales
contracts or mortgage instruments providing for a purchase money security
interest in the manufactured home and a mortgage on any real property pledged as
additional collateral. Normally, the contracts provide for equal monthly
payments, generally over a period of seven to thirty years at fixed or variable
rates of interest. VMF believes the typical manufactured home purchaser is
primarily sensitive to the amount of the monthly payment and not necessarily to
the underlying interest rate.
The Company offers a bi-weekly payment program which provides for 26 payments
per year, allowing homebuyers the convenience of electronically drafting
payments from their checking accounts while reducing the overall term of the
loan. The Company believes that such financing options are attractive to the
customer and improve market acceptance of its homes as well as improve
delinquency and repossession experience.
During the last 12 fiscal years, VMF was the most significant source of
financing for purchasers of homes sold by the Company-owned retail centers. In
fiscal 1988, VMF originated 5,692 contracts and in fiscal 2000, VMF originated
26,161 contracts. At June 30, 2000, VMF was servicing approximately 142,000
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contracts with an aggregate dollar amount of $3.9 billion. VMF originated or
purchased approximately 130,000 of these contracts with an aggregate dollar
amount of $3.7 billion. The Company expects that VMF will continue to originate
a significant portion of the financing for purchasers of its homes.
The volume of manufactured housing contracts originated by VMF for the periods
indicated below and certain other information at the end of such periods is as
follows:
<TABLE>
<CAPTION>
CONTRACT ORIGINATIONS
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Principal balance of contacts originated
(in thousands) $982,570 $1,085,484 $801,865
Number of contracts originated 26,161 30,165 24,304
Average contract size $ 37,559 $ 35,985 $ 32,993
Average interest rate 10.85% 10.40% 10.51%
</TABLE>
The following table indicates the number of loans (in thousands) serviced by VMF
on the dates indicated:
<TABLE>
<CAPTION>
LOANS SERVICED (IN THOUSANDS)
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Originated and purchased loans serviced 130 120 109
Master servicing contracts 12 15 17
--- --- ---
Total 142 135 126
</TABLE>
VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans, while long-term financing is obtained through the
capital markets. In fiscal 2000, VMF completed four public offerings of
asset-backed securities totaling $1.3 billion. In excess of $5.4 billion of
securities have been issued and sold since 1991.
VMF's capital market activity, the primary source of permanent funding for its
lending activities, is in the form of asset-backed securities issued through its
special purpose entity. These securities, which are sold in public markets, are
collateralized by manufactured housing receivables which are either originated
or acquired by VMF. Certain of these receivables are originated and subserviced
by other entities. With respect to the securitized pools that contain
receivables originated or acquired by other entities, VMF is servicer for all
loans in the pools, with a subservicing arrangement on some loans originated or
acquired from other entities.
Loans insured by the Federal Housing Administration (FHA) or guaranteed by the
Veterans Administration (VA) are permanently funded through the Government
National Mortgage Association (GNMA) pass-through program. Under the GNMA
program, installment sales contracts are warehoused by VMF and then pooled in
denominations of approximately $2,500,000 to collateralize the issuance by VMF
of securities guaranteed by GNMA under the provisions of the National Housing
Act. Under the GNMA program, VMF retains the servicing of the installment sales
contracts and is responsible for passing through payments under the contracts to
GNMA security holders. During the fiscal year ended June 30, 2000, VMF
originated installment sales contracts eligible for financing under the GNMA
program having aggregate principal balances of $138,000. As of June 30, 2000,
VMF was servicing 241 GNMA pools totaling $101 million in principal balances.
Use of FHA financing minimizes the Company's contingent liability for these
installment sales contracts because of the government-insured nature of the
loans. Accordingly, the Company believes that the use of this form of
financing, for customers who qualify, increases the marketability of its
manufactured homes.
Certain of the agreements related to borrowings include covenants with respect
to the Company's financial condition and corporate existence. The Company
is contingently liable as guarantor on installment contract receivables sold
with recourse. At June 30, 2000, and 1999, the outstanding principal balances
of these receivables totaled approximately $117 million and $164 million,
respectively. The associated contingent liability is approximately $14 million
and $22 million, respectively. There were no receivables sold with recourse in
2000, 1999 and 1998.
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ACQUIRED CONTRACTS AND SERVICING ARRANGEMENTS. Certain acquired contracts are
originated by banks or commercial lenders, and acquired indirectly or directly
by VMF. The acquired contracts are purchased on the basis of underwriting
criteria that may be different from and may not be as strict as VMF's
underwriting criteria.
In fiscal 1994 and 1998, VMF became the servicer of 20,180 and 10,013
manufactured housing installment sales contracts with approximate principal
balances of $285 million and $267 million, respectively. VMF acts solely as
servicer with respect to these contracts and, thus, has no ownership interest
nor contingent liability related to these portfolios. At June 30, 2000, VMF was
servicing approximately 12,000 of these installment sales contracts with an
approximate principal balance of $222 million.
DELINQUENCY AND REPOSSESSION EXPERIENCE. VMF performs recordkeeping and
collection activities on all loans that it originates or purchases through
portfolio acquisitions. Although the terms of the installment sales
contracts vary according to the financial institutions which purchase the
contracts, most contracts provide that the failure to make a payment as
scheduled is an event of default which gives rise to the right to repossess
the home. However, generally the Company does not repossess the home until
payments are three months delinquent, unless the borrower does not have apparent
ability to bring payments current, in which case repossession may occur sooner.
The Company generally follows the same policy with respect to loans insured by
the FHA or guaranteed by the VA, although the Company must also file a notice
of claim within nine months after default with the agency to preserve its
rights under the programs.
The following table sets forth delinquent installment sales contracts as a
percentage of the total number of installment sales contracts on which the
Company provided servicing and was either contingently liable or owner. An
account is considered delinquent if any payment is past-due 30 days or more.
<TABLE>
<CAPTION>
DELINQUENCY PERCENTAGE AT JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Total delinquencies as percentage of
contracts outstanding
All contracts 2.19% 2.07% 3.34%
Contracts originated by VMF 1.67 1.84 1.98
Contracts acquired from other institutions 4.88 3.14 8.68
</TABLE>
The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the Company is
either owner or contingently liable:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net losses as percentage of average
loans outstanding
All contracts 1.4% 1.4% 0.8%
Contracts originated by VMF 1.2% 1.0% 0.8%
Contracts acquired from other institutions 2.8% 3.7% 1.8%
Number of contracts in repossession
All contracts 2,231 1,857 1,682
Contracts originated by VMF 1,774 1,374 1,229
Contracts acquired from other institutions 457 483 453
Total number of contracts in repossession as
percentage of total contracts 1.72% 1.54% 1.54%
</TABLE>
The Company pays the unpaid balance of an installment sales contract for which
it is liable upon repossession of the home. The Company believes that as long
as it is able to sell repossessed homes promptly at satisfactory prices, the
costs associated with remarketing these homes can be mitigated. There can be no
assurance that the Company's future results with respect to the payoff and
resale of repossessed homes will be consistent with its past experience. See
Note 5 to the Consolidated Financial Statements in the Company's Annual Report
to Shareholders.
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INSURANCE OPERATIONS. The Company acts as agent on physical damage, family
protection, and home buyer protection plan insurance policies written by
unaffiliated insurance companies (ceding companies) for purchasers of its
manufactured homes. During the fiscal year ended June 30, 2000, the Company
acted as the agent on physical damage, family protection, and home buyer
protection policies on approximately 70%, 57%, and 78%, respectively, of Company
retail sales. Physical damage and home buyer protection plan policies issued
through the Company's agency are reinsured through Vanderbilt Property and
Casualty Insurance Co., LTD (VPAC), a wholly-owned subsidiary of the Company.
The family protection insurance policies issued through the Company's agency are
reinsured through Vanderbilt Life and Casualty Insurance Co., LTD, (VLAC),
Midland States Life Insurance Company (MSLC) and Eastern States Life Insurance
Company (ESLC), which are majority-owned subsidiaries of the Company.
MANUFACTURED HOUSING COMMUNITIES
The Company owns and operates 76 manufactured home communities in 12 states.
These communities provide attractive living environments to residents leasing
sites for manufactured homes, many of which are built and sold by the Company.
In addition, these communities also lease sites to residents who already own
their homes. Some communities also lease or rent Company-owned manufactured
homes and the sites.
In fiscal 2000 the Communities group purchased or developed 76 home sites in one
community and added 384 sites at existing locations, bringing total sites owned
to 20,168 at June 30, 2000, a 2% increase from the prior year. See "Item 2.
Properties." Communities' overall revenues were up 17.2% in 2000. Rental
revenues rose 8.6% and sales increased 28.4%. The following table lists the
number of community sites owned and the aggregate occupancy rate at the end of
the last three fiscal years:
<TABLE>
<CAPTION>
JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Homes sites owned 20,168 19,708 18,964
Occupancy rate 75% 73% 72%
</TABLE>
REGULATION
The Company's manufactured homes are subject to a number of federal, state and
local laws. Construction of manufactured housing is governed by the National
Mobile Home Construction and Safety Standards Act of 1974. In 1976, the
Department of Housing and Urban Development (HUD) issued regulations under this
Act establishing comprehensive national construction standards. The HUD
regulations cover all aspects of manufactured home construction, including
structural integrity, fire safety, wind loads and thermal protection. The
Company's manufacturing facilities and the plans and specifications for its
manufactured homes have been approved by a HUD-designated inspection agency. A
HUD-approved organization regularly inspects the Company's manufactured homes
for compliance during construction. Failure to comply with the HUD regulations
could expose the Company to a wide variety of sanctions, including closing the
Company's plants. The Company believes the homes it manufactures comply with
all present HUD requirements. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product Safety Commission which
is empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require the manufacturer to repair
defects in components in its homes. In February 1983, the Federal Trade
Commission adopted regulations requiring disclosure of a manufactured home's
insulation specifications.
A variety of laws affect the sale of manufactured homes on credit by the
Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z (issued by the Board of Governors of the Federal Reserve System)
require written disclosure of information relative to such credit sales,
including the amount of the annual percentage rate and the finance charge. The
Federal Fair Credit Reporting Act also requires disclosure of certain
information used as a basis to deny credit. The Federal Equal Credit
Opportunity Act and Regulation B (issued by the Board of Governors of the
Federal Reserve System) prohibit discrimination against any credit applicant
based on sex, marital status, race, color, religion, national origin, age
(provided the applicant has the capacity to contract), receipt of income from
any public assistance program or the good faith exercise by the applicant of any
right under the Consumer Credit Protection Act. Regulation B establishes
administrative requirements for compliance with the Equal Credit Opportunity Act
and, among other things, requires the Company to provide a customer whose credit
request has been denied with a
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<PAGE>
statement of reasons for the denial. The Federal Trade Commission has
issued or proposed various Trade Regulation Rules dealing with unfair credit
practices, collection efforts, preservation of consumers' claims and defenses
and the like. Installment sales contracts eligible for inclusion in the GNMA
Program are subject to credit underwriting requirements of the FHA or the VA.
The movement and use of the Company's manufactured homes are subject to highway
use laws, ordinances and regulations of various federal, state and local
authorities. Such regulations may prescribe size and road use limitations and
impose lower than normal speed limits and various other requirements. The
Company's manufactured homes and its development of manufactured housing
communities are also subject to local zoning and housing regulations.
The Company is subject to the Magnuson-Moss Warranty Improvement Act which
regulates the descriptions of warranties on products. The description and
substance of the Company's warranties are also subject to a variety of state
laws and regulations. Insurance agency activities are subject to state insurance
laws and regulations as determined by the particular insurance commissioner for
each state in accordance with the McCarran-Ferguson Act. Sales practices are
governed at both the federal and state level through various consumer protection
trade practices and public accommodation laws and regulations.
VPAC and VLAC are subject to insurance and other regulations of the British
Virgin Islands. MSLC and ESLC are subject to insurance and other regulations of
the Turks and Caicos Islands.
COMPETITION
The manufactured housing industry is highly competitive at the manufacturing,
retail and finance levels in terms of price, service, delivery capabilities and
product performance. There are many firms in direct competition with the
Company. The Company believes it has a competitive advantage over firms which
do not have manufacturing, retailing and financing capabilities. Since the
Company's homes are a form of low-cost housing, they compete with other forms of
such housing including apartments and conventionally-built and prefabricated
homes. Some of the Company's competitors are larger and have significant
financial resources while other competitors are quite small in relation to the
size of the Company. The capital requirements for entry into both the
manufacturing and retail segments are relatively small, with financing available
to them. The Company is not able to estimate the total number of competitors in
its marketing area.
EMPLOYEES
As of June 30, 2000, the Company employed 7,429 persons. Of these, 2,028 were
employed in retail sales, 4,295 in manufacturing, 538 in financial services, 487
in communities and 81 in executive and administrative positions. The Company
does not have any collective bargaining agreements and considers its employee
relations to be good.
ITEM 2. PROPERTIES.
The Company's Financial Services operations and executive offices are located
near Knoxville, Tennessee in a wholly-owned, two-story building with 135,000
square feet of space. The following table sets forth the properties which the
Company uses for its manufacturing operations and locations of its manufactured
housing communities. All of the buildings used for manufacturing operations are
constructed of fabricated metal on a concrete slab.
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<PAGE>
LOCATION OF PROPERTY
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
MANUFACTURING OPERATIONS SQUARE FEET MANUFACTURING OPERATIONS SQUARE FEET
<S> <C> <C> <C>
Owned by Company Owned by Company
Arizona Tennessee (continued)
El Mirage 123,000 Ardmore 100,000
Georgia Rutledge 87,000
Waycross 100,000 Bean Station #1 114,000
Kentucky Bean Station #2 137,000
Hodgenville 130,000 Andersonville 128,000
North Carolina White Pine 137,000
Henderson 112,000 Texas
Oxford 92,000 Waco #1 148,000
Richfield 194,000 Waco #2 99,000
Tennessee Bonham 117,000
Maynardville 110,000 Sulphur Springs 113,000
Savannah #1 104,000
Savannah #2 109,000 Leased
Halls, Tennessee 63,000
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
COMMUNITIES ACRES COMMUNITIES ACRES
<S> <C> <C> <C>
Owned by Company Owned by Company
Arizona Tennessee
El Mirage 35 Knoxville (4) 189
Glendale 14 LaVergne 76
Phoenix 47 Louisville 41
Florida Millington 29
Gainesville (2) 132 Morristown 12
Jacksonville (5) 330 Maryville (2) 34
Kissimmee 41 Powell (2) 69
Mulberry (2) 91 Sevierville 115
Princeton 37 Smyrna 26
Tallahassee 39 Tullahoma 18
Georgia Texas
Douglasville (2) 97 Arlington 39
Iowa Dallas (3) 130
Carter Lake 41 Denton (3) 201
Michigan Fort Worth (4) 154
Kalamazoo 126 Flower Mound 18
Missouri Greeneville 36
Independence 90 Houston (3) 153
North Carolina Humble 55
Greensboro 83 Little Elm 86
Oklahoma Pearland 45
Edmond 37 San Angelo 90
Enid 20 San Antonio (5) 240
Lawton 38 Schertz 71
Midwest City 25 Wylie (2) 208
Norman 44 Virginia
Oklahoma City (2) 116 Evington 70
South Carolina Blacksburg 38
Columbia 97
Florence (2) 97
</TABLE>
10
<PAGE>
The Company-owned retail centers are three to four acre sites with a special
manufactured office unit serving as the sales office. The remainder of the
retail center site is devoted to the display of homes. Of the 318 retail
centers, 163 are owned and 155 occupy leased property. The Company does not
believe that any individual retail sales center property is material to its
overall business.
All of the properties described above are well maintained and suitable for the
purposes for which they are being used. The Company believes that its
properties are adequate for its near-term needs.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending other than routine litigation
incidental to the business of the Company. The Company believes that such
proceedings will not have any material adverse effect on it or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
No matters were submitted to shareholders during the last quarter of the fiscal
year.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth, for fiscal years 2000 and 1999, respectively, the
range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.
<TABLE>
<CAPTION>
Fiscal Fiscal
2000 1999
---- ----
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
September $11.88 $8.56 $16.35 $12.35
December 11.94 8.50 13.81 10.80
March 10.13 7.81 15.19 10.69
June 10.38 7.94 13.25 10.69
</TABLE>
(b) As of August 30, 2000, there were 11,380 holders of record (approximately
52,000 beneficial holders) of the Company's Common Stock.
(c) It is the policy of the Board of Directors of the Company to reinvest
substantially all earnings in the business. The Board of Directors initiated
the payment of cash dividends at the November 9, 1994 shareholders meeting of
$.02 per share per quarter, amounting to $0.016 per share on a split-adjusted
basis following the December 1998 stock split. Future dividend policy will
depend on the Company's earnings, capital requirements, financial condition and
other factors considered relevant by the Board of Directors. Additionally,
certain of the Company's financing agreements have various covenants that
restrict payments which may be made for dividends and other stock transactions.
The following portions of the Company's 2000 Annual Report to Shareholders are
incorporated herein by reference (page number references are to Annual Report):
ITEM 6. SELECTED FINANCIAL DATA.
Eleven Year Review on page 12.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 13-15.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk on page 15.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- Quarterly Results (unaudited) on page 13.
- Report of Independent Accountants on page 16.
- Consolidated Balance Sheets on page 16.
- Consolidated Statements of Income on page 17.
- Consolidated Statements of Shareholders' Equity on page 17.
- Consolidated Statements of Cash Flows on page 18.
- Notes to the Consolidated Financial Statements on pages 19-24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Kevin T. Clayton 37 Chief Executive Officer, President, and President, Financial Services (a)
David M. Booth 47 Executive Vice President and President, Retail (b)
Richard D. Strachan 58 Executive Vice President and President, Manufacturing (c)
Allen Morgan 53 Vice President and General Manager, Communities (d)
Amber W. Krupacs 36 Vice President Finance (e)
Greg A. Hamilton 42 Vice President and Controller (f)
</TABLE>
(a) Mr. Clayton has been President of Financial Services since 1995. Prior to
that time, he served in various management positions with the Company. In
August 1997, he was named President and Chief Operating Officer of the Company.
In July 1999, he was named Chief Executive Officer.
(b) Mr. Booth has been Executive Vice President of the Company since 1997 and
President of Retail since 1995. Prior to that time, he served as Executive Vice
President of Retail and in other management positions with the Company.
(c) Mr. Strachan has been Executive Vice President of the Company and President
of Manufacturing since 1998 and President of Manufacturing since 1997. Prior to
that time, he served as Vice President and General Manager of Manufacturing as
well as other significant management positions with the Company and within the
industry.
(d) Prior to joining the Company in 1998, as General Manager of the Communities
Group, Mr. Morgan was Superintendent of Knox County, Tennessee Schools from 1992
to 1998. In September 1999, he was named Vice President of the Company.
(e) Ms. Krupacs has been Vice President Finance since 1998. She joined the
Company in December 1993 as Tax Manager. From August 1998 through August
1999, she served as Secretary.
(f) Mr. Hamilton joined the Company in February 1997 as Corporate Controller
and was named Vice President and Controller of the Company in August 1998. From
1984 to 1997, he served in various finance and accounting positions with Philips
Consumer Electronics Company.
The Company's executive officers serve at the pleasure of the Board of
Directors.
All other required information is incorporated by reference to the Company's
Proxy Statement under the heading ELECTION OF DIRECTORS.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Company's Proxy Statement under the heading
COMPENSATION OF MANAGEMENT TABLE.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Company's Proxy Statement under the headings
ELECTION OF DIRECTORS and PRINCIPAL STOCKHOLDERS; SECURITY OWNERSHIP OF
DIRECTORS AND OFFICERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Company's Proxy Statement.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements: (Included in Annual Report - Exhibit 13).
The following Consolidated Financial Statements of Clayton Homes,
Inc. and its subsidiaries included in Part II, Item 8 are
incorporated by reference to the 2000 Annual Report to
Shareholders for the year ended June 30, 2000.
Report of Independent Accountants.
Consolidated Balance Sheets - June 30, 2000 and 1999.
Consolidated Statements of Income - years ended June 30, 2000,
1999 and 1998.
Consolidated Statements of Shareholders' Equity - years ended
June 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows - years ended June 30,
2000, 1999 and 1998.
Notes to the Consolidated Financial Statements.
3. Exhibits:
3. (a) Restated charter as amended. (E)
(b) Bylaws. (G)
4. (a) Specimen stock certificates. (G)
(b) The Company agrees to furnish to the Commission, upon
request, instruments relating to the long term debt of the
Company or its subsidiaries.
10. (a) Lease Agreement, dated June 29, 1972, as amended, between
Clayton Homes, Inc. and Dean Planters Warehouse, Inc. (A)
(subsequently assigned to CLF, a limited partnership which
includes a related party).
*(b) Clayton Homes, Inc. 1983 Stock Option Plan. (A)
*(c) Clayton Homes, Inc. 1985 Stock Option Plan. (C)
*(d) 1991 Employees Stock Option Plan. (D)
*(e) Clayton Homes, Inc. 1997 Employees Stock Incentive Plan. (F)
*(f) Director's Equity Plan. (G)
*(g) Director's Equity Plan. (G)
*(h) Director's Equity Plan. (H)
*(i) 1996 Outside Directors Equity Plan. (E)
14
<PAGE>
13. Annual Report to Shareholders for year ended June 30, 2000. (B)
21. List of Subsidiaries of the Registrant (filed herewith).
23. Consent of independent accountants (filed herewith).
27. Financial Data Schedule (for SEC use only).
________________________________________________________________
(A) Filed as Exhibits to Registration Statement on Form S-1 (SEC File No.
2-83705) and incorporated by reference thereto.
(B) For the information of the Commission only, except to the extent of
portions specifically incorporated by reference.
(C) Filed with Registration Statement on Form S-8 (SEC File No. 33-7156) and
incorporated by reference thereto.
(D) Filed with Registration Statement on Form S-8 (SEC File No. 333-83565)
and incorporated by reference thereto.
(E) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 14, 1996, and incorporated by reference thereto.
(F) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 12, 1997, and incorporated by reference thereto.
(G) Filed with the Company's Form 10K for the fiscal year ended June 30,
1998, and incorporated by reference thereto.
(H) Filed with the Company's Form 10K for the fiscal year ended June 30,
1999, and incorporated by reference thereto.
* Management and Director's Compensation plans.
________________________________________________________________
(b) Reports on Form 8-K.
Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. Senior
Subordinate Pass-Through Certificates Series 2000B. Filed May 18, 2000,
and May 26, 2000.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Alcoa,
State of Tennessee, on September 20, 2000.
CLAYTON HOMES, INC.
By: /s/ Kevin T. Clayton
------------------------
Kevin T. Clayton
Chief Executive Officer, President
and President, Financial Services
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James L. Clayton September 20, 2000 Chairman of the Board
---------------------
James L. Clayton
/s/ Kevin T. Clayton September 20, 2000 Chief Executive Officer, President
--------------------- and President, Financial Services
Kevin T. Clayton (Principal Executive Officer)
/s/ Amber W. Krupacs September 20, 2000 Vice President Finance
---------------------
Amber W. Krupacs
/s/ Greg A. Hamilton September 20, 2000 Vice President and Controller
---------------------
Greg A. Hamilton
/s/ B. Joe Clayton September 20, 2000 Director
---------------------
B. Joe Clayton
/s/ Dan W. Evins September 20, 2000 Director
---------------------
Dan W. Evins
/s/ Wilma H. Jordan September 20, 2000 Director
---------------------
Wilma H. Jordan
/s/ John J. Kalec September 20, 2000 Director
---------------------
John J. Kalec
/s/ Thomas N. McAdams September 20, 2000 Director
---------------------
Thomas N. McAdams
/s/ C. Warren Neel September 20, 2000 Director
---------------------
C. Warren Neel
</TABLE>
16
