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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, 2000
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COMMISSION FILE NUMBER 1-8824
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CLAYTON HOMES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 62-1671360
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5000 Clayton Road
Maryville, Tennessee 37804
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(Address of principal executive offices) (zip code)
865-380-3000
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(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, 2000
-137,540,170.
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<TABLE>
<CAPTION>
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
Three Months Ended
September 30,
2000 1999
--------------- -----------
<S> <C> <C>
REVENUES
Net sales $ 229,908 $ 265,740
Financial services 53,227 54,348
Rental and other income 17,672 17,209
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Total revenues 300,807 337,297
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COSTS AND EXPENSES
Cost of sales 153,631 178,483
Selling, general and administrative 94,361 98,248
Financial services interest 207 289
Provision for credit losses 7,200 4,000
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Total expenses 255,399 281,020
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OPERATING INCOME 45,408 56,277
Interest income (expense), net/other 574 147
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Income before income taxes 45,982 56,424
Provision for income taxes 17,000 20,900
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Net income $ 28,982 $ 35,524
=============== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.21 $ 0.25
Diluted 0.21 0.25
DIVIDENDS PAID PER COMMON SHARE $ 0.016 $ 0.016
AVERAGE SHARES OUTSTANDING
Basic 137,519 141,040
Diluted 137,838 141,413
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
September 30, June 30,
2000 2000
--------------- -----------
ASSETS
Cash and cash equivalents $ 32,019 $ 43,912
Trade receivables 14,560 21,796
Other receivables, net 537,300 500,942
Residual interests in installment
contract receivables 153,144 150,329
Inventories 209,877 222,431
Property, plant and equipment, net 309,535 305,479
Other assets 245,998 261,489
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Total assets $ 1,502,433 $1,506,378
=============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 112,515 $ 122,760
Debt obligations 98,423 99,216
Other liabilities 227,500 248,027
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Total liabilities 438,438 470,003
SHAREHOLDERS' EQUITY
Accumulated other comprehensive income (loss) (1) (681)
Other shareholders' equity 1,063,996 1,037,056
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Total shareholders' equity 1,063,995 1,036,375
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Total liabilities and shareholders' equity $ 1,502,433 $1,506,378
=============== ===========
(See accompanying notes to the condensed consolidated financial statements)
</TABLE>
2
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,982 $ 35,524
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 5,569 4,990
Amortization of installment contract receivables,
net of gain on sale 5,058 (311)
Provision for credit losses 7,200 4,000
Deferred income taxes (3,310) (4,710)
Decrease in other receivables, net 5,013 23,301
Decrease in inventories 12,554 3,997
Decrease in accounts payable, accrued liabilities,
and other (21,698) (32,353)
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Cash provided by operations 39,368 34,438
Origination of installment contract receivables (201,226) (264,435)
Proceeds from sales of originated installment
contract receivables 245,511 197,925
Principal collected on originated installment
contract receivables 8,854 11,161
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Net cash provided by (used in) operating activities 92,507 (20,911)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables (127,251) (32,388)
Proceeds from sales of acquired installment
contract receivables 19,010 77,191
Principal collected on acquired installment
contract receivables 5,894 6,161
Acquisition of property, plant and equipment (9,625) (9,426)
Decrease in restricted cash 10,407 10,454
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Net cash provided by (used in) investing activities (101,565) 51,992
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (2,368) (2,351)
Repayment of long-term debt (793) (822)
Issuance of stock for incentive plans and other 808 947
Repurchase of common stock (482) (26,622)
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Net cash used in financing activities (2,835) (28,848)
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Net increase (decrease) in cash and cash equivalents (11,893) 2,233
Cash and cash equivalents at beginning of period 43,912 2,680
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Cash and cash equivalents at end of period $ 32,019 $ 4,913
========== ==========
(See accompanying notes to the condensed consolidated financial statements)
</TABLE>
3
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CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its 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, 2000.
The information furnished reflects all adjustments which are necessary for a
fair presentation of the Company's financial position as of September 30, 2000,
the results of its operations and its cash flows for the three month periods
ended September 30, 2000 and 1999. All such adjustments are of a normal
recurring nature.
In the first quarter of 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, which was subsequently amended by SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. Such adoption did not
have a material impact on the Company's reported results of operations,
financial position or cash flows.
The Company also adopted the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and
Handling Revenues and Costs, in the first quarter of 2001. Such adoption did
not have a material impact on the Company's reported results of operations,
financial position or cash flows.
2. The results of operations for the three months ended September 30, 2000
and 1999 are not necessarily indicative of the results to be expected for the
respective full years.
3. Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 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 the sale of manufactured housing contracts. The facility was not
utilized as of September 30, 2000.
5. Reconciling items in excess of bank balances have been reclassified to
Accounts payable and accrued liabilities.
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CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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,
(in thousands except per share data) 2000 1999
-------- --------
<S> <C> <C>
Net income $ 28,982 $ 35,524
Average shares outstanding
Basic 137,519 141,040
Add: common stock equivalents (1) 319 373
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Diluted 137,838 141,413
Net income per common share
Basic $ 0.21 $ 0.25
Diluted $ 0.21 $ 0.25
(1) Common stock equivalents are principally stock options.
</TABLE>
7. The reserves for credit losses and contingent liabilities at September
30, 2000, and June 30, 2000, were $36,231,000 and $35,725,000, respectively.
8. In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. It summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. An amendment was
issued in June 2000, which delays the implementation until no later than the
fourth quarter of fiscal years beginning after December 15, 1999. The Company
believes that its practices already comply with the provisions of SAB No. 101,
and its adoption is not expected to have a material impact on the Company's
reported results of operations, financial position or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for fiscal years
ending after December 15, 2000. Such adoption is not expected to have a
material impact on the Company's reported results of operations, financial
position or cash flows.
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CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. 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, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
(in thousands) 2000 1999
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<S> <C> <C>
REVENUES
Retail $ 173,245 $ 192,994
Manufacturing 131,634 159,250
Financial Services 42,812 44,943
Communities 22,600 21,511
Intersegment sales (69,484) (81,401)
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Total revenues $ 300,807 $ 337,297
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INCOME FROM OPERATIONS
Retail $ 8,167 $ 15,409
Manufacturing 11,307 15,371
Financial Services 23,883 25,194
Communities 3,454 3,268
Eliminations/Other (1,403) (2,965)
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Total income from operations $ 45,408 $ 56,277
========== ==========
CAPITAL EXPENDITURES
Retail $ 2,168 $ 3,009
Manufacturing 1,326 3,318
Financial Services 93 105
Communities 6,394 2,943
Eliminations/Other (356) 51
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Total capital expenditures $ 9,625 $ 9,426
========== ==========
As of September 30, As of June 30,
2000 2000
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IDENTIFIABLE ASSETS
Retail $ 269,644 $ 287,705
Manufacturing 91,233 100,112
Financial Services 908,181 902,913
Communities 190,392 185,784
Eliminations/Other 42,983 29,864
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Total identifiable assets $1,502,433 $1,506,378
========== ==========
</TABLE>
6
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PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements.
----------------------
See pages 2 through 6.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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THREE MONTHS ENDED SEPTEMBER 30, 2000:
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 Three Months
Fiscal Year 2001 vs 2000
------------------------
<S> <C>
Retail
Dollar sales -11.2%
Number of retail centers + 3.2%
Dollar sales per retail center -14.0%
Price of home - 2.4%
Wholesale
Dollar sales -20.5%
Number of independent retailers + 3.5%
Dollar sales per independent retailer -23.1%
Price of home + 2.8%
Communities
Dollar sales + 0.5%
Number of communities + 1.3%
Dollar sales per community - 0.8%
Price of home - 0.8%
</TABLE>
Total revenues for the three months ended September 30, 2000, declined 11% to
$301 million, which consisted of a 13% decrease in manufactured housing sales to
$230 million, a 2% reduction in financial services income to $53 million and a
3% increase in rental and other income to $18 million.
Current conditions in the manufactured housing industry are highly competitive
at both the retail and wholesale levels. Presently, the industry is faced with
over-capacity in manufacturing and too many retail centers. This competitive
environment, as well as rising interest rates and general credit tightening, has
contributed to decreased industry and Company sales.
The Retail group experienced a reduction of net sales of 11% to $158 million as
the average home price decreased 2% and the number of Company-owned sales
centers increased 3%. Reflecting the
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competitive industry environment, as well as increased repossessed home sales
and higher interest rates, the average number of homes sold per sales center
declined 12%. In addition, net sales of the Manufacturing group to independent
retailers decreased 20% to $62 million, and the number of homes sold decreased
23% to 2,645. However, the Communities group net sales increased slightly to
$10 million as 1% more homes were sold, while the average home selling price
decreased 1%.
Within the Financial Services segment, interest and loan servicing revenues
increased $4 million, and insurance related revenues rose $2 million. Rental
and other income increased 3% on a 9% rise in Communities rental income.
Loans sold through asset-backed securities totaled $265 million, compared to
$356 million during the same period last year. Financial services interest
expense decreased 28% to $.2 million. Debt collateralized by installment
contract receivables dropped 29% to an average of $8 million, and the weighted
average interest rate increased to 10.6% from 10.4%.
Gross profit margins increased to 33.2% from 32.8%. This increase was partially
attributable to a higher percentage of retail sales in the total sales mix.
Selling, general and administrative expenses, as a percent of revenues,
increased to 31.4% from 29.1% in the prior year period. This increase was
primarily due to a decline in overall sales volume in addition to growth of
Company-owned sales centers with a decrease in sales, and reduced capacity
utilization in manufacturing. Additional set up costs associated with the shift
in mix toward larger homes was also a factor. The increase in the provision for
credit losses was primarily due to the additional number of contracts in
repossession from the same period last year.
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.
<TABLE>
<CAPTION>
September 30,
2000 1999
----- -----
<S> <C> <C>
Total delinquency as a percentage
of contracts outstanding:
All contracts 3.30% 2.53%
Contracts originated by VMF 2.71% 2.13%
Contracts acquired from other institutions 6.09% 4.61%
</TABLE>
8
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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,
2000 1999
------ ------
<S> <C> <C>
Net losses as a percentage of average
loans outstanding (annualized):
All contracts 1.5% 1.4%
Contracts originated by VMF 1.5% 1.2%
Contracts acquired from other institutions 1.4% 3.2%
Number of contracts in repossession:
All contracts 2,557 1,977
Contracts originated by VMF 2,083 1,567
Contracts acquired from other institutions 474 410
Total number of contacts in repossession
as a percentage of total contracts 1.9% 1.6%
</TABLE>
The overall decrease in inventories as of September 30, 2000, from June 30,
2000, is explained as follows:
<TABLE>
<CAPTION>
($ in millions)
Manufacturing Increase (decrease)
------------- -------------------
<S> <C>
Finished goods $ 8.4
Raw materials (9.0)
Retail
------
Decrease in inventory levels at 318
Company-owned retail centers open at
June 30, 2000 (11.6)
Communities
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Decrease in inventory levels at 76
Communities open at June 30, 2000 (0.6)
Inventory to stock one new Community 0.2
-------------------
$(12.6)
-------------------
</TABLE>
On September 30, 2000, the order backlog for the Manufacturing group (consisting
of Company-owned and independent retailer orders) decreased to $18 million, as
compared to $33 million for the same period last year.
9
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Liquidity and Capital Resources
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Cash at September 30, 2000, was $32 million as compared to $44 million at June
30, 2000. 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.
The Company's debt to capital ratio was 8% at September 30, 2000. The Company
had long-term debt outstanding of $98 million and $99 million at September 30,
2000 and June 30, 2000, respectively. Short-term debt available consists of
$186 million committed and $67 million uncommitted lines of credit. These lines
of credit do not require collateral and are priced on LIBOR rates. 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 available
to facilitate the sale of manufactured housing contracts. The facility was not
utilized at September 30, 2000. The Company owns its inventory; therefore no
floorplanning arrangements are necessary.
New Accounting Pronouncements
-------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
It summarizes the SEC's views in applying generally accepted accounting
principles to selected revenue recognition issues. An amendment was issued in
June 2000, which delays the implementation until no later than the fourth
quarter of fiscal years beginning after December 15, 1999. The Company believes
that its practices already comply with the provisions of SAB No. 101, and its
adoption is not expected to have a material impact on the Company's reported
results of operations, financial position or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for fiscal years
ending after December 15, 2000. Such adoption 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
10
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adjustments by both captive and independent retailers, availability of wholesale
and retail financing, 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, 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
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PART II -- OTHER INFORMATION
ITEM 1 - There were no reportable events for Items 1 through 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 2000C. Filed
August 15, 2000.
Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc.
incorporation of financial statements of Clayton Homes, Inc. into
registration statement file no. 333-75405 pertaining to Senior
Subordinate Pass-Through Certificates Series 2000C. Filed
August 28, 2000.
Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. pooling
and servicing agreement pertaining to Senior Subordinate Pass-
Through Certificates Series 2000C. Filed September 8, 2000.
12
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CLAYTON HOMES, INC.
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SIGNATURES
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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 13, 2000 /s/ Kevin T. Clayton
------------------- -----------------------
Kevin T. Clayton
Chief Executive Officer and President
Date: November 13, 2000 /s/ Amber W. Krupacs
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Amber W. Krupacs
Vice President Finance
Date: November 13, 2000 /s/ Greg A. Hamilton
------------------- -----------------------
Greg A. Hamilton
Vice President and Controller
13
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