-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FKGWneNjAD6qu29N3RLEsCFScw8zhJlL7430AR0UOkz3rLf2SLCdwOrQ5p/a6b46 /AcspiH58RFzzyEE6k4UBQ== 0000719547-02-000003.txt : 20020414 0000719547-02-000003.hdr.sgml : 20020414 ACCESSION NUMBER: 0000719547-02-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLAYTON HOMES INC CENTRAL INDEX KEY: 0000719547 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 621671360 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08824 FILM NUMBER: 02536780 BUSINESS ADDRESS: STREET 1: 5000 CLAYTON ROAD CITY: MARYVILLE STATE: TN ZIP: 37804 BUSINESS PHONE: 8653803000 MAIL ADDRESS: STREET 1: 5000 CLAYTON ROAD CITY: MARYVILLE STATE: TN ZIP: 37804 10-Q 1 doc1.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 December 31, 2001 ----------------------- 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 (zip code) executive offices) 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 January 31, 2001: 137,618,480. 1 CLAYTON HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited - in thousands except per share data)
Three Months Ended Six Months Ended December 31, December 31, 2001 2000 2001 2000 -------- --------- --------- --------- REVENUES Net sales $207,753 $204,138 $435,256 $434,046 Financial services 80,631 61,511 141,657 114,738 Rental and other income 18,436 19,204 35,977 36,876 -------- --------- --------- --------- Total revenues 306,820 284,853 612,890 585,660 -------- --------- --------- --------- COSTS AND EXPENSES Cost of sales 135,425 136,367 284,524 289,998 Selling, general and administrative 101,238 92,731 197,400 187,092 Financial services interest 109 187 236 394 Provision for credit losses 16,640 10,100 30,200 17,300 -------- --------- --------- --------- Total expenses 253,412 239,385 512,360 494,784 -------- --------- --------- --------- OPERATING INCOME 53,408 45,468 100,530 90,876 Interest income (expense), net/other - (1,903) (5,002) (1,329) -------- --------- --------- --------- Income before income taxes 53,408 43,565 95,528 89,547 Provision for income taxes 19,700 16,100 35,300 33,100 -------- --------- --------- --------- Net income $ 33,708 $ 27,465 $ 60,228 $ 56,447 ======== ========= ========= ========= NET INCOME PER COMMON SHARE Basic $ 0.25 $ 0.20 $ 0.44 $ 0.41 Diluted 0.24 0.20 0.43 0.41 DIVIDENDS PAID PER COMMON SHARE $ - $ 0.016 $ - $ 0.032 AVERAGE SHARES OUTSTANDING Basic 137,391 137,631 137,711 137,575 Diluted 138,438 138,073 138,785 137,944
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
(unaudited) December 31, June 30, 2001 2001 ---------- ---------- ASSETS Cash and cash equivalents $ 25,010 $ 47,763 Trade receivables 8,824 14,683 Other receivables, net 644,416 657,224 Residual interests in installment contract receivables 197,805 170,122 Inventories 180,473 185,695 Property, plant and equipment, net 309,501 309,438 Other assets 263,040 269,245 ---------- ---------- Total assets $1,629,069 $1,654,170 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued liabilities $ 81,095 $ 118,057 Debt obligations 94,492 141,862 Other liabilities 250,075 246,773 ---------- ---------- Total liabilities 425,662 506,692 SHAREHOLDERS' EQUITY Accumulated other comprehensive income 10,771 8,949 Other shareholders' equity 1,192,636 1,138,529 ---------- ---------- Total shareholders' equity 1,203,407 1,147,478 ---------- ---------- Total liabilities and shareholders' equity $1,629,069 $1,654,170 ========== ========== (See accompanying notes to the condensed consolidated financial statements)
2 CLAYTON HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - in thousands)
Six Months Ended December 31, 2001 2000 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 60,228 $ 56,447 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,489 10,824 Amortization associated with sale of installment contract receivables 22,525 20,484 Gain on sale of installment contract receivables (35,510) (14,124) Provision for credit losses 30,200 17,300 Realized loss on securities available-for-sale - 588 Deferred income taxes (3,027) (3,689) Decrease (increase) in other receivables, net (52,508) 10,887 Decrease in inventories 5,222 17,964 Decrease in accounts payable, accrued liabilities, and other (40,956) (82,791) ---------- ---------- Cash provided by operations (4,337) 33,890 Origination of installment contract receivables (436,279) (393,123) Proceeds from sales of originated installment contract receivables 670,374 468,213 Principal collected on originated installment contract receivables 23,430 20,104 ---------- ---------- Net cash provided by operating activities 253,188 129,084 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of installment contract receivables (885,451) (214,021) Proceeds from sales of acquired installment contract receivables 643,902 64,594 Principal collected on acquired installment contract receivables 32,539 10,913 Proceeds from sales of securities available-for-sale - 19,427 Acquisition of property, plant and equipment (9,552) (14,328) Decrease (increase) in restricted cash (3,888) 9,161 ---------- ---------- Net cash used in investing activities (222,450) (124,254) CASH FLOWS FROM FINANCING ACTIVITIES Dividends - (4,627) Repayment of debt obligations (47,370) (1,587) Issuance of stock for incentive plans and other 3,516 1,734 Repurchase of common stock (9,637) (482) ---------- ---------- Net cash used in financing activities (53,491) (4,962) ---------- ---------- Net decrease in cash and cash equivalents (22,753) (132) Cash and cash equivalents at beginning of period 47,763 43,912 ---------- ---------- Cash and cash equivalents at end of period $ 25,010 $ 43,780 ========== ========== (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, 2001. The information furnished reflects all adjustments which are necessary for a fair presentation of the Company's financial position as of December 31, 2001, and the results of its operations and its cash flows for the three and six month periods ended December 31, 2001 and 2000. All such adjustments are of a normal recurring nature. The results of operations for the three and six months ended December 31, 2001, are not necessarily indicative of the results to be expected for the respective full year. 2. The Company follows the accounting requirements of Emerging Issues Task Force (EITF) 99-20, Recognition of Interest Income and Retained Beneficial Interests in Securitized Financial Assets. Under these guidelines, the Company evaluated the expected future cash flows from its available-for-sale interest-only securities on a disaggregate security by security basis and determined that there was a favorable difference in estimated cash flows of $3.3 million ($2.1 million after tax) for the six months ended December 31, 2001. This favorable adjustment has been recorded as an element of accumulated other comprehensive income. Other changes in accumulated other comprehensive income are included in the following:
Three Months ended Six Months ended December 31, December 31, 2001 2000 2001 2000 ------- ------ ------- ------ Accumulated other comprehensive income beginning balance 11,023 (1) 8,949 (681) Unrealized gains (losses) on securities available-for-sale (1,230) 667 (277) 1,347 Unrealized gains (losses) on residual interests 978 - 2,099 - Reclassification of realized losses on securities available-for-sale included in net income - 370 - 370 ------- ------ ------- ------ Accumulated other comprehensive income ending balance. . 10,771 1,036 10,771 1,036 ======= ====== ======= ======
3. The Company follows the provisions of SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The key economic assumptions used in the valuation of the residual interest for the securitization completed during the quarter were: prepayment speed of 300% of the MHP (Manufactured Housing Prepayment speed) model, weighted average life of 4.48 years, expected credit losses of 2.44% and residual cash flow discount rate of 15.75%. The key economic assumptions used in the valuation of the existing portfolio generally remained the same as those used at June 30, 2001. 4 CLAYTON HOMES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. The Company has $75 million of 6.25% Senior Notes due December 30, 2003, the proceeds of which are primarily used 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. On December 21, 2001, the Company acquired manufactured housing installment contract receivables with an aggregate outstanding principal balance of $900 million. In conjunction with that transaction, the Company sold $500 million of the receivables through a committed one-year sales facility, while retaining the servicing rights. This sale resulted in a pre-tax gain of $6.2 million during the quarter ended December 31, 2001 as a result of the servicing asset for the same amount being recorded. In addition, a committed one-year $150 million participation facility is available to facilitate the future sale of manufactured housing contracts. The participation facility was not utilized as of December 31, 2001. 5. The following reconciliation details the numerators and denominators used to calculate basic and diluted earnings per share for the respective periods:
Three Months Ended Six Months Ended December 31, December 31, (in thousands except per share data) 2001 2000 2001 2000 -------- -------- -------- -------- Net income $ 33,708 $ 27,465 $ 60,228 $ 56,447 Average shares outstanding Basic 137,391 137,631 137,711 137,575 Add: common stock equivalents (1) 1,047 442 1,074 369 -------- -------- -------- -------- Diluted 138,438 138,073 138,785 137,944 Net income per common share Basic $ 0.25 $ 0.20 $ 0.44 $ 0.41 Diluted $ 0.24 $ 0.20 $ 0.43 $ 0.41
(1) Common stock equivalents are principally stock options. Stock options to purchase 219,000 and 2,877,916 shares of common stock for the three months ending December 31, 2001, and 2000, respectively, and stock options to purchase 218,212 and 2,877,916 shares of common stock for the six month periods ending December 31, 2001 and 2000, respectively, were not included in the computation of diluted earnings per share because their inclusion would have been antidilutive. 6. In June 2001, the FASB issued Statement No. 141 (SFAS 141), Business Combinations, and Statement No. 142 (SFAS 142), Goodwill and Other Intangible Assets. SFAS 141 supercedes APB 16, Business Combinations, and requires the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS 142 supercedes APB 17, Intangible Assets and primarily requires that goodwill and indefinite lived intangible assets no longer be amortized and will be tested for impairment at least annually at a reporting unit level. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 141 had no effect and the 5 CLAYTON HOMES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) adoption of SFAS 142 is not expected to have a material impact on the Company's reported results of operations, financial position or cash flows. In June 2001, the FASB issued Statement No. 143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143 requires that obligations associated with the retirement of a tangible long-lived asset to be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. SFAS 143 will be effective for financial statements for fiscal years beginning after June 15, 2002. Adoption of this statement is not expected to have a material impact on the Company's reported results of operations, financial position or cash flows. On July 6, 2001, the staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 102 (SAB 102), Selected Loan Loss Allowance Methodology and Documentation Issues. SAB 102 affects registrants that are creditors in loan transactions where such transactions, individually or in the aggregate, have a material effect on the registrant's financial statements. Among other things, it contains: - - Current loan loss allowance guidance under generally accepted accounting principles and under the SEC's rules and interpretations; SAB 102 does not, however, change any of the current accounting rules related to loan loss provisions or allowances. - - General factors or elements to consider when developing and documenting a systematic methodology for loan loss allowances. SEC staff expectations for measuring and documenting loan impairment under FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan, and FASB Statement No. 5, Accounting for Contingencies. - - SEC staff expectations regarding a registrant's documentation of the results of its systematic loan loss methodology. Guidance on validating, and documenting the validation of, the systematic loan loss methodology. The Company believes that its practices already comply with the provisions of SAB 102, 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 August 2001, the FASB issued Statement No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS 121 and applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30 (APB 30), Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. Adoption of this statement is not expected to have a material impact on the Company's reported results of operations, financial position or cash flows. 6 CLAYTON HOMES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. The Company operates primarily in four business segments: Retail, Manufacturing, Financial Services and Communities. The following table summarizes information with respect to the Company's business segments for the three and six-month periods ended December 31, 2001 and 2000:
Three Months Ended Six Months Ended December 31, December 31, (in thousands) 2001 2000 2001 2000 ----------- ----------- ---------- ---------- REVENUES Retail $ 162,028 $ 159,063 $ 337,425 $ 332,308 Manufacturing 134,370 117,273 265,889 248,907 Financial Services 69,023 50,930 118,672 93,742 Communities 20,768 19,954 41,193 42,554 Intersegment sales (79,369) (62,367) (150,289) (131,851) ----------- ----------- ---------- ---------- Total revenues $ 306,820 $ 284,853 $ 612,890 $ 585,660 =========== =========== ========== ========== OPERATING INCOME Retail $ 5,681 $ 4,349 $ 13,816 $ 12,516 Manufacturing 12,104 8,244 24,255 19,551 Financial Services 37,650 29,655 63,494 53,538 Communities 2,163 2,836 4,993 6,290 Eliminations/Other (4,190) 384 (6,028) (1,019) ----------- ----------- ---------- ---------- Total operating income $ 53,408 $ 45,468 $ 100,530 $ 90,876 =========== =========== ========== ========== CAPITAL EXPENDITURES Retail $ 958 $ 1,423 $ 2,241 $ 3,591 Manufacturing 1,723 1,055 2,621 2,381 Financial Services - 53 80 146 Communities 2,590 1,937 3,936 8,331 Eliminations/Other 134 235 674 (121) ----------- ----------- ---------- ---------- Total capital expenditures $ 5,405 $ 4,703 $ 9,552 $ 14,328 =========== =========== ========== ========== December 31, June 30, 2001 2001 ----------- ----------- IDENTIFIABLE ASSETS Retail $ 250,312 $ 255,793 Manufacturing 75,003 82,616 Financial Services 1,067,426 1,080,416 Communities 194,747 191,802 Eliminations/Other 41,581 43,543 ----------- ----------- Total identifiable assets $1,629,069 $1,654,170 =========== ===========
7 PART I -- FINANCIAL INFORMATION (Unaudited) ITEM 1. Financial Statements. ---------------------- See pages 2 through 7. ITEM 2. Management's Discussion and Analysis of Financial Condition and ------------------------------------------------------------------- Results of Operations. ---------------------- SIX MONTHS ENDED DECEMBER 31, 2001: 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, independent retailers and communities, the average sales per location, and the average price per home sold in each category.
First Six Months Fiscal Year 2002 vs 2001 ------------------------- Retail Dollar sales + 0.9% Number of retail centers - 6.2% Dollar sales per retail center + 7.6% Price of home + 3.4% Wholesale Dollar sales + 0.5% Number of independent retailers -13.0% Dollar sales per independent retailer +15.5% Price of home + 7.7% Communities Dollar sales -11.2% Number of communities + 5.9% Dollar sales per community -16.2% Price of home - 0.3%
Total revenues for the six months ended December 31, 2001, increased 5% to $613 million, which consisted of a slight increase in manufactured housing sales to $435 million, a 23% increase in financial services income to $142 million and a 2% decrease in rental and other income to $36 million. Manufactured housing industry conditions remain highly competitive at the retail, wholesale, and finance levels. This competitive environment, as well as industry foreclosures and aging retail inventory, has contributed to decreased industry sales and significant closings of industry retail stores and manufacturing plants. However, the closings of industry plants and retail stores have slowed recently, and industry conditions could improve in calendar 2002. Within revenues of the Retail segment, the group experienced a slight increase in net sales to $303 million as the average home price increased 3% and the average number of homes sold per sales center 8 rose 4%. The number of Company-owned sales centers declined 6% and the number of independent retailers decreased 13% as a result of continuous evaluation of existing markets' strategic fit into the Company's operating model and distribution channels. In addition, net sales of the Manufacturing group to independent retailers increased slightly to $116 million, while the number of homes sold decreased 7% to 4,453. Within the Communities segment revenues, net sales decreased 11% to $16 million as 11% less homes were sold, and the average home selling price decreased slightly. Interest and loan servicing revenues within the Financial Services segment increased $7 million, and insurance related revenues rose $2 million. Rental and other income decreased 2% as Communities rental income rose 2%. Loans sold through asset-backed securities totaled $815 million, compared to $533 million during the same period last year. Gross profit margins increased to 34.6% from 33.2% primarily due to internalization of retail sales. Selling, general and administrative expenses, as a percent of revenues, increased to 32.2% from 31.9% in the prior year period. The increase in the provision for credit losses was primarily due to the additional number of contracts in foreclosure from the same period last year. Interest and other expense increased $3.7 million to $5 million. This increase was attributable to falling interest rates which adversely impacted the value of the Company's interest rate swaps. During the six months ended December 31, 2001, there was an unfavorable mark-to-market adjustment of $3.2 million relating to the swaps. In the comparable period last year, there was a $.5 million mark-to-market unfavorable swap adjustment. The following table represents delinquent installment sales contracts as a percentage of the total number of installment sales contracts which the Company services and either owns or for which it is contingently liable. A contract is considered delinquent if any payment is more than one month past due.
December 31, 2001 2000 ----- ----- Total delinquency as a percentage of contracts outstanding: All contracts 4.23% 3.62% Contracts originated by VMF 3.37% 2.93% Contracts acquired from other institutions 7.37% 7.07%
9 The following table sets forth information related to loan loss/repossession experience for all installment contract receivables which the Company either owns or for which it is contingently liable.
Six Months Ended December 31, 2001 2000 ------ ------ Net losses as a percentage of average loans outstanding (annualized): All contracts 2.0% 1.7% Contracts originated by VMF 2.0% 1.6% Contracts acquired from other institutions 1.9% 2.0% Number of contracts in repossession: All contracts 2,930 2,726 Contracts originated by VMF 2,420 2,252 Contracts acquired from other institutions 510 474 Total number of contracts in repossession as a percentage of total contracts 1.9% 2.0%
The overall decrease in inventories as of December 31, 2001, from June 30, 2001, is explained as follows:
($ in millions) Manufacturing Increase (decrease) - ------------- -------------------- Finished goods $ (0.9) Raw materials (1.7) Retail - ------ Decrease in inventory levels at Company-owned retail centers (4.8) Communities - ----------- Increase in inventory levels at 77 Communities open at June 30, 2001 1.7 Inventory to stock four new Communities 0.5 -------------------- $(5.2) ====================
On December 31, 2001, the order backlog for the Manufacturing group (consisting of Company-owned and independent retailer orders) increased to $40 million, as compared to $9 million for the same period last year. 10 SECOND QUARTER ENDED DECEMBER 31, 2001: 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, independent retailers and communities, the average sales per location, and the average price per home sold in each category.
Second Three Months Fiscal Year 2002 vs 2001 ------------------------- Retail Dollar sales + 1.0% Number of retail centers - 6.4% Dollar sales per retail center + 7.8% Price of home + 1.1% Wholesale Dollar sales + 3.4% Number of independent retailers -11.6% Dollar sales per independent retailer +17.1% Price of home + 4.1% Communities Dollar sales + 5.1% Number of communities + 5.2% Dollar sales per community - 0.1% Price of home + 0.9%
Total revenues for the three months ended December 31, 2001, increased 8% to $307 million, which consisted of a 2% increase in manufactured housing sales to $208 million, a 31% increase in financial services income to $81 million and a 4% decrease in rental and other income to $18 million. Within the Retail segment revenues, the group experienced an increase in net sales of 1% to $145 million, as the average home price increased 1%, and the average number of homes sold per sales center increased 7%. The number of Company-owned sales centers and independent retailers decreased 6% and 12%, respectively, due to the Company's continuous evaluation of a retail center's strategic fit into the Company's operating model and distribution channels. In addition, net sales of the Manufacturing group to independent retailers increased 3% to $55 million, and the number of homes sold decreased 1% to 2,113. Within the Communities segment revenues, net sales increased 5% to $8 million as 4% more homes were sold, while the average home selling price increased 1%. Interest and loan servicing revenues within the Financial Services segment increased $4 million, and insurance related revenues rose $1 million. Rental and other income decreased 4% as Communities rental income rose 2%. 11 Loans sold through asset-backed securities totaled $415 million, compared to $268 million during the same period last year. Gross profit margins increased to 34.8% from 33.2% due to higher internalization of retail sales. Selling, general and administrative expenses, as a percent of revenues, increased to 33.0% from 32.6% in the prior year period. The increase in the provision for credit losses was primarily due to the additional number of contracts in foreclosure from the same period last year. The following table sets forth write-off experience for the quarters ended December 31, 2001 and 2000:
Second Quarter Ended December 31, 2001 2000 ------ ------ Net losses as a percentage of average loans outstanding (annualized): All contracts 2.0% 1.8% Contracts originated by VMF 1.9% 1.7% Contracts acquired from other institutions 2.4% 2.3%
Liquidity and Capital Resources - ---------------------------------- Cash and cash equivalents at December 31, 2001, were $25 million as compared to $48 million at June 30, 2001. The Company anticipates meeting cash requirements with cash flow from operations, revolving credit lines, a commercial paper sales facility, a participation facility, senior notes, and sales of installment contract and mortgage loan receivables and GNMA certificates. The Company's debt to capital ratio was 7% at December 31, 2001. The Company had long-term debt outstanding of $95 million and $142 million at December 31, 2001 and June 30, 2001, respectively. Short-term debt available consists of $165 million committed and $71 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. On December 21, 2001, the Company acquired manufactured housing installment contract receivables with an aggregate outstanding principal balance of $900 million. In conjunction with that transaction, the Company sold $500 million of the receivables through a committed one-year sales facility, while retaining the servicing rights. This sale resulted in a pre-tax gain of $6.2 million during the quarter ended December 31, 2001 as a result of the servicing asset for the same amount being recorded. In addition, a committed one year $150 million participation facility is also available to facilitate the future sale of manufactured housing contracts. The participation facility was not utilized at December 31, 2001. The Company owns its inventory; therefore no floorplanning arrangements are necessary. 12 Forward Looking Statements - ---------------------------- Certain statements in this quarterly report are forward looking as defined in the Private Securities Litigation Reform Law. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this report. These risks fall generally within three broad categories consisting of industry factors, management expertise, and government policy and economic conditions. Industry factors include such matters as potential periodic inventory adjustments by both captive and independent retailers, availability of wholesale and retail financing, general or seasonal weather conditions affecting sales and revenues, catastrophic events impacting insurance costs, 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. 13 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) Reports on Form 8-K. Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. Senior Subordinate Pass-Through Certificates Series 2001C. Filed November 15, 2001. Clayton Homes, Inc./ Vanderbilt Mortgage & Finance, Inc. incorporation of financial statements of Clayton Homes, Inc. into registration statement file no. 333-57532 pertaining to Senior Subordinate Pass-Through Certificates Series 2001C. Filed November 21, 2001. 14 CLAYTON HOMES, INC. ------------------- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CLAYTON HOMES, INC. --------------------- (Registrant) Date: February 12, 2002 /s/ Kevin T. Clayton ------------------- ----------------------- Kevin T. Clayton Chief Executive Officer and President Date: February 12, 2002 /s/ John J. Kalec ------------------- ----------------------- John J. Kalec Senior Vice President and Chief Financial Officer Date: February 12, 2002 /s/ Greg A. Hamilton ------------------- ----------------------- Greg A. Hamilton Vice President and Controller 15 -----END PRIVACY-ENHANCED MESSAGE-----