10-Q 1 test.txt 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 ----------------------- 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, 2000 -137,540,170. 1
CLAYTON HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited - in thousands except per share data) Three Months Ended September 30, 2000 1999 --------------- ----------- REVENUES Net sales $ 229,908 $ 265,740 Financial services 53,227 54,348 Rental and other income 17,672 17,209 --------------- ----------- Total revenues 300,807 337,297 --------------- ----------- 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 --------------- ----------- Total expenses 255,399 281,020 --------------- ----------- OPERATING INCOME 45,408 56,277 Interest income (expense), net/other 574 147 --------------- ----------- Income before income taxes 45,982 56,424 Provision for income taxes 17,000 20,900 --------------- ----------- 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 --------------- ----------- 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 --------------- ----------- Total liabilities 438,438 470,003 SHAREHOLDERS' EQUITY Accumulated other comprehensive income (loss) (1) (681) Other shareholders' equity 1,063,996 1,037,056 --------------- ----------- Total shareholders' equity 1,063,995 1,036,375 --------------- ----------- Total liabilities and shareholders' equity $ 1,502,433 $1,506,378 =============== =========== (See accompanying notes to the condensed consolidated financial statements)
2 CLAYTON HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - in thousands)
Three Months Ended September 30, 2000 1999 ---------- ---------- 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) ---------- ---------- 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 ---------- ---------- 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 ---------- ---------- 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) ---------- ---------- Net cash used in financing activities (2,835) (28,848) ---------- ---------- Net increase (decrease) in cash and cash equivalents (11,893) 2,233 Cash and cash equivalents at beginning of period 43,912 2,680 ---------- ---------- Cash and cash equivalents at end of period $ 32,019 $ 4,913 ========== ========== (See accompanying notes to the condensed consolidated financial statements)
3 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. 4 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:
Three Months Ended September 30, (in thousands except per share data) 2000 1999 -------- -------- Net income $ 28,982 $ 35,524 Average shares outstanding Basic 137,519 141,040 Add: common stock equivalents (1) 319 373 -------- -------- 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.
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. 5 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:
Three Months Ended September 30, (in thousands) 2000 1999 ---------- ---------- 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) ---------- ---------- Total revenues $ 300,807 $ 337,297 ========== ========== 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) ---------- ---------- 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 ---------- ---------- Total capital expenditures $ 9,625 $ 9,426 ========== ========== As of September 30, As of June 30, 2000 2000 ---------- ---------- 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 ---------- ---------- Total identifiable assets $1,502,433 $1,506,378 ========== ==========
6 PART I -- FINANCIAL INFORMATION ITEM 1. Financial Statements. ---------------------- See pages 2 through 6. ITEM 2. Management's Discussion and Analysis of Financial Condition and ------------------------------------------------------------------- Results of Operations. ---------------------- 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.
First Three Months Fiscal Year 2001 vs 2000 ------------------------ 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%
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 7 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.
September 30, 2000 1999 ----- ----- 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%
8 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.
Three Months Ended September 30, 2000 1999 ------ ------ 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%
The overall decrease in inventories as of September 30, 2000, from June 30, 2000, is explained as follows:
($ in millions) Manufacturing Increase (decrease) ------------- ------------------- 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 ----------- Decrease in inventory levels at 76 Communities open at June 30, 2000 (0.6) Inventory to stock one new Community 0.2 ------------------- $(12.6) -------------------
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 Liquidity and Capital Resources ---------------------------------- 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 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 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 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 13, 2000 /s/ Kevin T. Clayton ------------------- ----------------------- Kevin T. Clayton Chief Executive Officer and President Date: November 13, 2000 /s/ Amber W. Krupacs ------------------- ----------------------- Amber W. Krupacs Vice President Finance Date: November 13, 2000 /s/ Greg A. Hamilton ------------------- ----------------------- Greg A. Hamilton Vice President and Controller 13