-----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, WT9QboLAe9C8oINMyhxq9OWONbQS74d+uwZ3/d7uljMxLwNgMZMBzEQep5u9TSFz Rsi5h3BsxyB7oI9c6mwCLg== 0000950144-96-006864.txt : 19961007 0000950144-96-006864.hdr.sgml : 19961007 ACCESSION NUMBER: 0000950144-96-006864 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961004 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLAYTON HOMES INC CENTRAL INDEX KEY: 0000719547 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 620794407 STATE OF INCORPORATION: TN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08824 FILM NUMBER: 96639227 BUSINESS ADDRESS: STREET 1: 623 MARKET ST CITY: KNOXVILLE STATE: TN ZIP: 37902 BUSINESS PHONE: 6159707200 MAIL ADDRESS: STREET 1: PO BOX 15169 CITY: KNOXVILLE STATE: TN ZIP: 37901 10-K/A 1 CLAYTON HOMES ANNUAL REPORTED AMENDED 1 FORM 10-K/A 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, 1996 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) Tennessee 62-0794407 - -------------------------------------------- --------------------------------------- State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization 623 Market Street Knoxville, Tennessee 37902 - -------------------------------------------- --------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615-970-7200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on 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 16, 1996, was approximately $1,343,529,615 (69,343,464 shares at closing price on the NYSE of $19.375). For this purpose all shares beneficially held by executive officers and the Board of Directors of the Registrant are shares owned by "affiliates," a status which each of the officers and directors individually disclaims. Shares of common stock, $.10 par value, outstanding on August 16, 1996, were 95,122,078. 2 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 Knoxville, State of Tennessee, on September 25, 1996 CLAYTON HOMES, INC. By: s/Joseph H. Stegmayer ------------------------- Joseph H. Stegmayer President and Chief Operating Officer 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. s/James L. Clayton September 25, 1996 Chairman of the Board and - ---------------------- Chief Executive Officer James L. Clayton (Principal Executive Officer) s/Joseph H. Stegmayer September 25, 1996 President, Chief Operating - ---------------------- Officer, Treasurer and Joseph H. Stegmayer Director s/John J. Kalec September 25, 1996 Vice President and Chief Financial - ---------------------- Officer (Principal Financial John J. Kalec Officer) s/B. Joe Clayton September 25, 1996 Director - ---------------------- B. Joe Clayton s/James D. Cockman September 25, 1996 Director - ---------------------- James D. Cockman s/Wallace C. Doud September 25, 1996 Director - ---------------------- Wallace C. Doud s/Dan W. Evins September 25, 1996 Director - ---------------------- Dan W. Evins s/Wilma H. Jordan September 25, 1996 Director - ---------------------- Wilma H. Jordan s/C. Warren Neel September 25, 1996 Director - ---------------------- C. Warren Neel
2 3 CONSOLIDATED BALANCE SHEETS Clayton Homes, Inc. and Subsidiaries
June 30, (in thousands) 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 47,400 $ 49,394 Receivables, principally installment contracts and residual interests, net of reserves for credit losses of $4,787 and $8,329, respectively and unamortized discount of $4,359 and $9,001, respectively 402,039 343,408 Inventories 124,280 88,455 Securities held-to-maturity, approximate market value of $19,774 and $20,193 20,361 20,361 Restricted cash and investments 70,403 66,214 Property, plant and equipment, net 184,271 166,048 Other assets 37,596 27,271 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $886,350 $761,151 ============================================================================================================================= LIABILITIES AND SHAREHOLDERS EQUITY Accounts payable and accrued liabilities $ 91,064 $ 63,949 Long-term debt 30,290 48,737 Deferred income taxes 5,680 9,382 Other liabilities 109,127 94,896 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 236,161 216,964 Shareholders equity Preferred stock, $.10 par value, authorized 1,000 shares, none issued Common stock, $.10 par value, authorized 200,000 shares, issued 95,091 at June 30, 1996 and 94,463 at June 30, 1995 9,509 9,446 Additional paid-in capital 174,642 168,280 Retained earnings 466,038 366,461 - ----------------------------------------------------------------------------------------------------------------------------- Total shareholders equity 650,189 544,187 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders equity $886,350 $761,151 =============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. REPORT OF INDEPENDENT ACCOUNTANTS We have audited the accompanying consolidated balance sheets of Clayton Homes, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clayton Homes, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its methods of accounting for securities and income taxes in 1995 and 1994, respectively. COOPERS & LYBRAND L.L.P. Knoxville, Tennessee August 5, 1996 16 4 CONSOLIDATED STATEMENTS OF INCOME Clayton Homes, Inc. and Subsidiaries
Year ended June 30, (in thousands except per share data) 1996 1995 1994 ========================================================================================================================== Revenues: Net sales $762,396 $621,351 $510,153 Financial services 115,987 102,108 95,198 Other income 50,358 34,633 22,885 - -------------------------------------------------------------------------------------------------------------------------- 928,741 758,092 628,236 - -------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 521,200 431,826 357,698 Selling, general and administrative 236,188 188,835 153,698 Financial services interest 3,649 5,533 8,196 - -------------------------------------------------------------------------------------------------------------------------- 761,037 626,194 519,592 - -------------------------------------------------------------------------------------------------------------------------- Operating income 167,704 131,898 108,644 Interest income (expense), net 4,596 3,902 (359) - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in method of accounting 172,300 135,800 108,285 Provision for income taxes (65,500) (48,800) (39,000) - -------------------------------------------------------------------------------------------------------------------------- Income before change in method of accounting 106,800 87,000 69,285 Change in method of accounting for income taxes 3,000 - -------------------------------------------------------------------------------------------------------------------------- Net income $106,800 $ 87,000 $ 72,285 ========================================================================================================================== Income per common share before change in method of accounting: Primary $ 1.12 $ .92 $ .75 Fully diluted $ 1.12 $ .92 $ .74 Cumulative effect of change in method of accounting per common share: Primary $ - $ - $ 1.03 Fully diluted $ - $ - $ .03 Net income per common share: Primary $ 1.12 $ .92 $ .78 Fully diluted $ 1.12 $ .92 $ .77 Average shares outstanding: Primary 95,477 94,903 92,061 Fully diluted 95,477 94,903 95,920 - --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Total Additional Shareholders Common Paid-in Retained (in thousands) Equity Stock Capital Earnings ========================================================================================================================== Balance at June 30, 1993 $348,630 $ 8,754 $128,025 $211,851 Net income 72,285 - - 72,285 Conversion of subordinated debt 40,265 622 39,643 - Purchase of 210 shares of common stock (4,175) (33) (4,142) - Issuances related to stock incentive, employee benefit plans and other 5,149 70 5,079 - - -------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 462,154 9,413 168,605 284,136 Net income 87,000 - - 87,000 Purchase of 317 shares of common stock (5,156) (40) (5,116) - Dividends declared ($.048 per share) (4,675) - - (4,675) Issuances related to stock incentive, employee benefit plans and other 4,864 73 4,791 - - -------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 544,187 9,446 168,280 366,461 NET INCOME 106,800 - - 106,800 PURCHASE OF 100 SHARES OF COMMON STOCK (1,893) (13) (1,880) - DIVIDENDS DECLARED ($.076 PER SHARE) (7,223) - - (7,223) ISSUANCES RELATED TO STOCK INCENTIVE, EMPLOYEE BENEFIT PLANS AND OTHER 8,318 76 8,242 - - ------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1996 $650,189 $9,509 $174,642 $466,038 =========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 17 5 CONSOLIDATED STATEMENTS OF CASH FLOWS Clayton Homes, Inc. and Subsidiaries
Year ended June 30, (in thousands) 1996 1995 1994 =================================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net income $106,800 $ 87,000 $ 72,285 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,163 8,296 6,679 Gain on sale of installment contract receivables, net of amortization (11,315) (14,744) (16,276) Gain on sale of property (4,828) -- -- Stock issued for profit-sharing 401(k) contribution 3,915 3,281 2,171 Deferred income taxes (3,702) 2,124 2,924 Cumulative effect of change in method of accounting for income taxes -- -- (3,000) Increase in other receivables, net (16,972) (22,964) (13,290) Increase in inventories (35,825) (11,138) (12,590) Increase in accounts payable and accrued liabilities 27,115 6,906 21,393 Other (1,482) (1,390) 28,908 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Provided By Operations 74,869 57,371 89,204 Origination of installment contract receivables (476,467) (345,260) (292,435) Proceeds from sales of originated installment contract receivables 394,087 369,873 262,346 Principal collected on originated installment contract receivables 35,199 25,003 33,046 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 27,688 106,987 92,161 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of installment contract receivables (36,105) (26,074) (91,882) Proceeds from sales of acquired installment contract receivables 36,007 7,112 57,588 Principal collected on acquired installment contract receivables 16,935 17,760 15,098 Acquisition of property, plant and equipment, net (40,829) (44,462) (35,601) Proceeds from sale of property 21,271 -- -- Decrease (increase) in restricted cash and investments (4,189) 3,141 (21,149) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,910) (42,523) (75,946) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends Paid (6,835) (3,162) -- Proceeds from short-term borrowings 208,949 111,394 106,319 Repayment of short-term borrowings (208,949) (136,394) (83,521) Repayment of long-term debt (18,447) (21,943) (26,368) Issuance of stock for incentive plans and other 4,403 1,269 1,784 Repurchase of common stock (1,893) (5,156) (4,175) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (22,772) (53,992) (5,961) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,994) 10,472 10,254 Cash and cash equivalents at beginning of year 49,394 38,922 28,668 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 47,400 $ 49,394 $ 38,922 =================================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 4,016 $ 5,823 $ 10,049 Income taxes $ 63,366 $ 54,725 $ 22,441 Supplemental disclosure of non-cash activities: In 1995, pass-through certificates aggregating $9,500 were received coincidental with the sale of receivables. - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 18 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidated Financial Statements The consolidated financial statements include the accounts of Clayton Homes, Inc. (CHI) and its wholly-owned subsidiaries. CHIand its subsidiaries are collectively referred to as the Company. Clayton Homes, Inc. is a vertically-integrated manufactured housing company headquartered in Knoxville, Tennessee. Employing more than 5,400 people and operating in 28 states, the Company builds, sells, finances and insures manufactured homes, as well as owns and operates residential manufactured housing communities. Significant intercompany accounts and transactions have been eliminated in the financial statements. See Note 11 for information related to the Companys business segments. Income Recognition Sales to independent retailers of homes produced by CHI are recognized as revenue upon shipment. Retail sales are recognized when cash payment is received or, in the case of credit sales, which represent the majority of retail sales, when a down payment is received and the customer enters into an installment sales contract. Most of these installment sales contracts, which are normally payable over 36 to 180 months, are financed by Vanderbilt Mortgage and Finance, Inc. (VMF), the Companys mortgage banking subsidiary. Premiums from credit life and physical damage insurance policies reinsured by the insurance subsidiaries which represent single payment contracts with terms of one to five years, are recognized as income over the terms of the contracts. Claims and expenses are matched to recognize profits over the life of the contracts. This matching is accomplished by means of the deferral and recognition of unearned premiums and the deferral and amortization of policy acquisition costs. Installment Contract Receivables Installment contract receivables originated or purchased by VMF are sold to investors or pledged as collateral to long-term lenders. VMF retains servicing in both cases. Profit (loss) on installment contract receivables sold to investors is recorded at the time of sale and represents the discounted present value of the excess (deficiency) of principal and interest to be collected during the expected normal life of the contracts over: 1) the amount required to be remitted to investors; 2) the normal service spread of comparable contracts; and 3) the estimated net credit losses. Profit from installment contract receivables sold without recourse is increased, in certain cases, by the reversal of the reserve for credit losses attributable to the receivables sold. Installment contract receivables held for sale of $225,951,000 and $154,356,000 in 1996 and 1995, respectively, are included in Receivables and are carried at the lower of aggregate cost or market. Certain of the installment contract receivables are purchased in bulk at a discount. The purchase discounts are allocated between unamortized discount and the reserve for credit losses based on managements assessment of risks existing in the portfolio. Unamortized discount is amortized into revenue over the life of the related portfolio after giving consideration to anticipated prepayments. Adjustments between the reserve for credit losses and unamortized discount are made to reflect changes in the estimated collectibility of each portfolio purchased. Estimated principal receipts under installment contract receivables for each of the five fiscal years subsequent to 1996 are as follows: 1997 $154,270,000 1998 18,412,000 1999 18,965,000 2000 17,395,000 2001 17,525,000
The estimated principal receipts are based on the scheduled payments and estimated prepayments of principal of the installment contract receivables. Estimated principal receipts for the year ending June 30, 1997 include amounts relating to the sale of $174 million of installment contract receivables in July, 1996. VMF provides servicing for investors in installment contract receivables. Total contracts serviced at June 30, 1996 and 1995, including contracts held for investment, were approximately $1,638 million and $1,434 million, respectively. Most of the installment contract receivables are with borrowers in the east, south and southwest portions of the United States and are collateralized by manufactured homes. Interest income on installment contract receivables is recognized by a method which approximates the interest method. Service fee income is recognized as the service is performed. Investment Securities Effective July 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFASNo. 115), Accounting for Certain Investments in Debt and Equity Securities. Investments in certain debt and equity securities are classified as either Held-to-Maturity (reported at amortized cost), Trading (reported at fair value with unrealized gains and losses included in earnings), or Available-for-Sale (reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders equity). Premiums and discounts on debt securities are recognized in interest income on the level interest yield method over the period to maturity. 19 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Gains and losses on the sale of securities are determined using the specific identification method. Inventories New homes and raw materials are valued at the lower of cost, using the last-in, first-out (LIFO) method of inventory valuation, or market. Previously-owned manufactured homes are valued at estimated wholesale prices, which are not in excess of net realizable value. Property, Plant and Equipment Land and improvements, buildings, and furniture and equipment are valued at cost. Major renewals and improvements are capitalized while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed currently. When depreciable assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in earnings for the period. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the respective assets. Income Taxes Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate. The adoption resulted in a decrease in the deferred tax liability and an increase in income of $3 million in fiscal 1994. Reserves for Credit Losses and Contingent Liabilities Reserves for credit losses are established related to installment contract receivables. Actual credit losses are charged to the reserves when incurred. The reserves established for such losses are determined based on the Companys historical loss experience after adjusting for current economic conditions. Management, in assessing the loss experience and economic conditions, adjusts reserves through periodic provisions. The Company also maintains a reserve for contingent liabilities related to guarantees of installment contract receivables sold with recourse. Reserves and the applicable provisions related to guarantees are considered as part of the Manufactured Housing business segment. Earnings Per Share Primary earnings per share are computed based on the weighted average number of shares of common stock outstanding during the periods presented, adjusted for subsequent common stock splits and include common share equivalents arising from stock options. Fully diluted earnings per share for 1994 have been computed assuming conversion of the Companys convertible subordinated debentures (called in the third quarter of fiscal 1994). Cash Equivalents For purposes of the statements of cash flows, all unrestricted highly liquid debt instruments purchased with an original maturity of three months or less are considered to be cash equivalents. Other Per share and share data have been retroactively adjusted to reflect 5-for-4 stock splits in December 1995, December 1994 and December 1993. Restricted Cash and Investments Restricted cash and investments represent reserves required by: 1) certain VMF servicing and debt agreements to be maintained until such time as specified minimum repayments have been made, 2) trust account cash balances required by certain VMF servicing agreements, and 3) insurance reserves required by escrow or trust agreements. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - INVENTORIES Inventories at June 30, 1996, and 1995 are as follows:
(in thousands) 1996 1995 ====================================================== Manufactured homes: New $ 89,699 $65,735 Previously-owned 18,458 11,259 Raw materials 16,123 11,461 - ------------------------------------------------------ $ 124,280 $88,455 ======================================================
If the first-in, first-out (FIFO) method of inventory valuation had been used, inventories would have been higher by $17,637,000 and $15,402,000 at June 30, 1996, and 1995, respectively. NOTE 3 - SECURITIES HELD-TO-MATURITY At June 30, 1996 and 1995, manufactured housing contract senior/subordinate pass-through certificates have been classified in the consolidated financial statements according to managements intent. These securities can be reasonably expected to mature after ten years. 20 8 NOTE 4 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at June 30, 1996, and 1995 are as follows:
(in thousands) 1996 1995 ===================================================================== Land and improvements $115,647 $108,968 Buildings 88,749 71,292 Furniture and equipment 24,445 19,679 - --------------------------------------------------------------------- 228,841 199,939 Less: accumulated depreciation and amortization (44,570) (33,891) - --------------------------------------------------------------------- $184,271 $166,048 =====================================================================
Depreciation charged to operations was $11,163,000, $8,296,000, and $6,679,000 for each of the years ended June 30, 1996, 1995, and 1994, respectively. NOTE 5 - LONG-TERM DEBT Long-term debt at June 30, 1996, and 1995 are summarized as follows:
(in thousands) 1996 1995 =================================================================== CHI 10% note payable due June 1, 1998, extinguished in June 1996 -- $ 4,866 Other notes payable $ 153 231 - ------------------------------------------------------------------- 153 5,097 VMF Debt collateralized by installment contract receivables: Demand note payable to Clayton Employees Savings Plan at prime, extinguished in 1996 3,000 Maturing in fiscal years through: 1997 to 2004: weighted average rate of 10.07% at June 30, 1996 27,380 33,264 1996 to 2005:9.4%REMIC trust senior certificates 2,855 1997 to 2002: adjustable rates, weighted average rate of 10.18% at June 30, 1996, weighted average maximum rate 13.83% at June 30, 1996 1,091 2,147 1998 to 2001: adjustable rates, average rate of 7.79% at June 30, 1996, no maximum rate 1,666 2,374 - ------------------------------------------------------------------- 30,137 43,640 - ------------------------------------------------------------------- Total $30,290 $48,737 ===================================================================
Expected principal payments of long-term debt of VMF for the five fiscal years subsequent to 1996 and thereafter are as follows: 1997 $6,263,000 1998 7,554,000 1999 4,897,000 2000 6,796,000 2001 3,570,000 Thereafter 1,057,000 The estimated principal payments on the debt of VMF are based on the scheduled payments and estimated prepayments of principal of the installment contract receivables collateralizing such debt. Certain debt agreements require fixed payments which approximate the scheduled payments of the underlying installment contract receivables. Certain of the long-term debt have various covenants, which among other things, require a minimum tangible net worth and the maintenance of certain financial ratios. NOTE 6 - RESERVES FOR CREDIT LOSSES AND CONTINGENT LIABILITIES An analysis of the reserve for losses on installment contract receivables and reserve for contingent liabilities for the years ended June 30, 1996, 1995 and 1994 is as follows:
(in thousands) 1996 1995 1994 - ------------------------------------------------------------------ Balance, beginning of year $11,895 $14,082 $17,229 Losses, net of recoveries applicable to installment contract receivables: Purchased (2,494) (1,900) (2,230) Other 442 (287) (526) Reserves transferred (to) from unamortized discount Reserves associated with receivables purchased (sold) (2,077) -- 1,207 - ------------------------------------------------------------------ Balance, end of year $ 7,766 $11,895 $14,082 ================================================================== Reserves for credit losses $ 4,787 $ 8,329 $ 9,877 Reserve for contingencies 2,979 3,566 4,205 - ------------------------------------------------------------------ $ 7,766 $11,895 $14,082 ==================================================================
The reserves for credit losses are netted against receivables and the reserve for contingencies is included in other liabilities on the consolidated balance sheets. The Company is contingently liable as guarantor on installment contract receivables sold with recourse. The installment contract receivables and related contingent liabilities are shown in the table below.
Total Installment Contingent Contract Receivables Contingent Liabilities (in thousands) Liability % (in thousands) ==================================================================== JUNE 30, 1996 $ 33,000 30% - 88% $13,000 56,000 11% - 25% 11,000 203,000 10% and below 20,000 - -------------------------------------------------------------------- $ 292,000 $44,000 ==================================================================== June 30, 1995 $ 11,000 87% - 100% $10,000 98,000 11% - 30% 23,000 159,000 10% and below 16,000 - -------------------------------------------------------------------- $ 268,000 $49,000 ====================================================================
Proceeds from receivables sold with recourse amounted to $12 million, $7 million and $20 million, during 1996, 1995 and 1994, respectively. Approximately 99% of the installment contract receivables both owned and sold with recourse have fixed rates of interest and approximately 1% are at variable rates of interest based on either the prime rate, U.S. Treasury rates or LIBOR. Virtually all of the Companys servicing arrangements are based on interest spreads with fixed rates or variable rates with ceilings. 21 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - SHAREHOLDERS EQUITY Stock Option Plan In 1983, 1985 and 1991, the Company established Stock Option Plans for a total of 6,893,463 shares of common stock which provide for granting incentive stock options or non-qualified options and stock appreciation rights to officers and key employees of the Company. In addition, non-management members of the Board of Directors have, with shareholder approval of prices and provisions for exercise, been granted options to purchase shares of common stock. The option prices were established at not less than the fair market value as of the date of grant. Options are exercisable after one or more years and expire no later than 10 years from the date of grant. Activity and price information regarding the plans follow:
Stock Option Shares Price Range =================================================================== Balance June 30, 1993 2,933,835 $ 1.05 - $11.57 Granted 758,320 $11.78 - $16.16 Exercised (551,975) $ 1.05 - $11.57 Canceled (51,750) $ 1.05 - $16.16 - ------------------------------------------------------------------- Balance June 30, 1994 3,088,430 $ 1.05 - $16.16 Granted 472,616 $11.28 - $12.72 Exercised (555,206) $ 1.05 - $11.57 Canceled (212,592) $ 1.45 - $16.16 - ------------------------------------------------------------------- Balance June 30, 1995 2,793,248 $ 1.45 - $16.16 Granted 672,298 $13.30 - $21.40 Exercised (503,076) $ 1.45 - $12.96 Canceled (303,180) $ 2.75 - $21.40 - ------------------------------------------------------------------- Balance June 30, 1996 2,659,290 $ 1.45 - $21.40 ===================================================================
Options available for future grant at June 30, 1996 and 1995 were 1,548,430 and 1,690,803, respectively. At June 30, 1996, and 1995 options for 1,015,943 and 1,031,438 shares, respectively, were exercisable. Options were held by 547 persons at June 30, 1996. NOTE 8 - INCOME TAXES Components of the provision for income tax for each of the three years ended June 30, 1996, 1995 and 1994 are as follows:
(in thousands) 1996 1995 1994 ================================================================== Current tax provisions: Federal $63,274 $41,292 $32,772 State 5,928 5,384 3,304 - ------------------------------------------------------------------ 69,202 46,676 36,076 Deferred tax provision/ (benefit) (3,702) 2,124 2,924 - ------------------------------------------------------------------ $65,500 $48,800 $39,000 ==================================================================
The sources and tax effect of temporary differences at June 30, 1996 and 1995 are as follows:
(in thousands) 1996 1995 ================================================================== Reserves for credit losses and contingencies and discounts $ 4,584 $ 8,072 Insurance reserves 4,919 3,051 Unearned premiums 3,952 3,176 - ------------------------------------------------------------------ Total deferred tax assets 13,455 14,299 - ------------------------------------------------------------------ Residual interest in installment contract receivables (8,863) (17,876) Deferred costs (3,123) (2,679) Other (7,149) (3,126) - ------------------------------------------------------------------ Total deferred tax liabilities (19,135) (23,681) - ------------------------------------------------------------------ Net deferred tax liability $ (5,680) $ (9,382) ==================================================================
The provision for income taxes reflected in the financial statements differs from income taxes calculated at the statutory federal income tax rate of 35% in 1996, 1995 and 1994 as follows:
(in thousands) 1996 1995 1994 ================================================================== Income taxes at statutory rate $60,305 $47,530 $37,900 State income taxes, net of federal benefit 4,150 3,769 2,313 Other, net 1,045 (2,499) (1,213) - ------------------------------------------------------------------ $65,500 $48,800 $39,000 ==================================================================
NOTE 9 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit sharing plan covering all employees who meet participation requirements. The amount of the Companys contribution is discretionary as determined by the Board of Directors, up to the maximum deduction allowed for federal income tax purposes. Contributions accrued were $4,274,000, $3,461,000, and $2,171,000, for the years ended June 30, 1996, 1995, and 1994, respectively. NOTE 10 - COMMITMENTS AND CONTINGENCIES Leases Certain operating properties are rented under non cancelable operating leases which expire at various dates through 2009. Total rental expense under operating leases was $2,722,000 in 1996, $2,721,000 in 1995, and $2,159,000 in 1994. The following is a schedule of minimum rental commitments under non cancelable operating leases, primarily for retail centers, in effect at June 30, 1996: 1997 $2,551,000 1998 2,080,000 1999 1,583,000 2000 1,098,000 2001 760,000 2002 and thereafter 1,754,000
22 10 Repurchase Agreements Institutions financing independent retailer purchases require the Company to execute repurchase agreements. As a result of these agreements, the Company is contingently liable for repurchasing homes in the event of a default by the dealer to the lending institution. These agreements are customary in the manufactured housing industry, and the Companys losses in the past have not been significant. Guarantor of Installment Contract Receivables Please see discussion of contingencies at Note 6. Other The Company has lines of credit totalling $105 million for working capital needs of which zero borrowings were outstanding at June 30, 1996. Additionally, the Company has letter of credit and financial bond needs of which $1,787,000 was outstanding at June 30, 1996. NOTE 11 - INDUSTRY SEGMENT INFORMATION The Company operates in three major business segments: Manufactured Housing, Financial Services and Communities. The Manufactured Housing segment is engaged in the production, wholesale and retail sale of manufactured homes. Financial Services includes retail financing of manufactured homes and reinsuring risk on credit life and physical damages insurance policies. Communities is engaged in marketing and management of manufactured housing communities. Operating income consists of total revenues less cost of sales, operating expenses and financial interest expense. The following items have not been included in the computation of operating income: non-operating income and expenses and income taxes. Identifiable assets are those assets used in the operation of each industry segment. Corporate assets primarily consist of short-term investments. Information concerning operations by industry segment follows:
Manufactured Financial (in thousands) Housing Services Communities Corporate Total ====================================================================================================== 1996 Revenues $ 761,111 $ 99,443 $ 68,187 $ - $ 928,741 Intersegment income 7,436 103 94 (7,633) Operating income 89,504 62,600 15,600 - 167,704 Identifiable assets 197,938 493,622 142,331 52,459 886,350 Depreciation and amortization 6,671 - 4,492 - 11,163 Capital expenditures 16,483 - 24,346 - 40,829 - ------------------------------------------------------------------------------------------------------ 1995 Revenues $ 621,474 $ 88,749 $ 47,869 $ - $ 758,092 Intersegment income 11,406 274 1,194 (12,874) - Operating income 67,898 54,800 9,200 - 131,898 Idenifiable assets 176,632 413,072 122,408 49,039 761,151 Depreciation andamortization 5,132 - 3,164 - 8,296 Capital expenditures 21,933 - 22,529 - 44,462 - ------------------------------------------------------------------------------------------------------ 1994 Revenues $ 510,329 $ 80,741 $ 37,166 $ - $ 628,236 Intersegment income 19,630 - 1,224 (20,854) - Operating income 48,183 53,620 6,841 - 108,644 Identifiable assets 122,101 440,690 99,032 39,325 701,148 Depreciationand amortization 4,005 - 2,674 - 6,679 Capital expenditures 12,777 - 22,824 - 35,601 ======================================================================================================
23 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - OTHER ASSETS AND LIABILITIES At June 30, 1996 and 1995, other assets and liabilities consisted of:
(in thousands) 1996 1995 - ------------------------------------------------------------------------- Other Assets Interest receivable and future servicing rights $ 17,312 $17,373 Prepaid expenses and other 20,284 9,898 - ------------------------------------------------------------------------- $ 37,596 $27,271 ========================================================================= Other Liabilities Investors payable $ 40,286 $37,492 Reserve for contingencies (Note 6) 2,979 3,566 Escrow deposits 14,495 13,721 Unearned insurance premiums 39,628 31,901 Other 11,739 8,216 - ------------------------------------------------------------------------- $ 109,127 $94,896 =========================================================================
NOTE 13 - FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 (SFAS No. 107), Disclosures About Fair Value of Financial Instruments, requires that CHI disclose the estimated fair values of its financial instruments. The following methodologies and assumptions were used by CHI to estimate its fair value disclosures for financial instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. The estimates do not reflect any premium or discount that could result from offering for sale in a single transaction CHIs entire holdings of a particular financial instrument. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values. Comparability to financial instruments between similar companies may not be reasonable because of varying assumptions concerning the estimates of fair value. Cash and Cash Equivalents The carrying values for cash and cash equivalents, including those restricted by agreement, equal the fair value of the assets. Residual Interests in Installment Contract Receivables Residual interests in installment contract receivables are calculated using prepayment, default and interest rate assumptions that the Company believes are appropriate at the time of the sale of the installment contract receivables. Projected performance is monitored after the sale; the Company alters the underlying rate at which the future estimated cash flows are discounted once the sale has been recorded. The fair value primarily revolves around an appropriate discount rate to be applied to the asset as a whole. The Company used a discount rate and such other assumptions as it believed to be used for similar instruments. The Company has estimated the fair value of its residual interests in installment contract receivables to approximate its carrying value as of June 30, 1996 and 1995. Contracts Held For Sale and as Collateral Contracts held for sale are generally recent originations or purchased portfolios which will be sold with limited or no recourse during the following year. CHI does not charge fees to originate loans, and, as such, its contracts have origination rates in excess of rates on the securities into which they will be pooled. CHI estimates the fair value of the contracts held for sale using expected future cash flows of the portfolio discounted at the current origination rate. The carrying values of contracts pledged as collateral to long-term lenders are estimated using discounted cash flow analyses and interest rates being offered for similar contracts. The carrying amount of contracts with a variable rate of interest is estimated to be at fair value. The carrying value of accrued interest adjusted for credit risk equals its fair value. Long-term Debt Long-term debt consist primarily of debt collateralized by contracts with maturities that coincide with the underlying contract maturities. The fair value of these financial instruments is based on the current rates offered to CHI for debt of similar maturities using a discounted cash flow calculation. Loan covenants preclude prepaying VMFs debt. The carrying amounts and estimated fair values of CHIs financial assets and liabilities are as follows:
June 30, 1996 June 30, 1995 Carrying Estimated Carrying Estimated (in thousands) Amount Fair Value Amount Fair Value ============================================================================================================================== Financial assets: Cash and cash equivalents, including restricted investments and securities held-to-maturity $138,164 $138,157 $135,969 $135,801 Residual interests in installment contract receivables 85,020 85,020 89,642 89,642 Contracts held for sale and as collateral, including accrued interest receivable 263,719 264,477 230,075 233,122 Financial liabilities: Long-term debt 30,290 34,003 48,737 51,710 - ------------------------------------------------------------------------------------------------------------------------------
24 -----END PRIVACY-ENHANCED MESSAGE-----