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, 2001
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COMMISSION FILE NUMBER 1-8824
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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 September 30, 2001
- -137,268,992.
1
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
Three Months Ended
September 30,
2001 2000
--------- --------
REVENUES
Net sales $227,503 $229,908
Financial services 61,026 53,227
Rental and other income 17,541 17,672
--------- --------
Total revenues 306,070 300,807
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COSTS AND EXPENSES
Cost of sales 149,099 153,631
Selling, general and administrative 96,162 94,361
Financial services interest 127 207
Provision for credit losses 13,560 7,200
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Total expenses 258,948 255,399
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OPERATING INCOME 47,122 45,408
Interest income (expense), net and other (5,002) 574
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Income before income taxes 42,120 45,982
Provision for income taxes 15,600 17,000
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Net income $ 26,520 $ 28,982
========= ========
NET INCOME PER COMMON SHARE
Basic $ 0.19 $ 0.21
Diluted 0.19 0.21
DIVIDENDS PAID PER COMMON SHARE $ - $ 0.016
AVERAGE SHARES OUTSTANDING
Basic 138,030 137,519
Diluted 139,129 137,838
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
September 30, June 30,
2001 2001
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ASSETS
Cash and cash equivalents $ 93,289 $ 47,763
Trade receivables 12,386 14,683
Other receivables, net 593,639 657,224
Residual interests in installment contract receivables 176,335 170,122
Inventories 173,828 185,695
Property, plant and equipment, net 308,496 309,438
Other assets 250,468 269,245
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Total assets $1,608,441 $1,654,170
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 108,333 $ 118,057
Debt obligations 95,292 141,862
Other liabilities 237,073 246,773
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Total liabilities 440,698 506,692
SHAREHOLDERS' EQUITY
Accumulated other comprehensive income 11,023 8,949
Other shareholders' equity 1,156,720 1,138,529
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Total shareholders' equity 1,167,743 1,147,478
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Total liabilities and shareholders' equity $1,608,441 $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)
Three Months Ended
September 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26,520 $ 28,982
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,089 5,569
Amortization of installment contract receivables, net of gain on sale 998 5,058
Provision for credit losses 13,560 7,200
Deferred income taxes (3,190) (3,310)
Decrease (increase) in other receivables, net (16,242) 10,752
Decrease in inventories 11,867 12,554
Decrease in accounts payable, accrued liabilities, and other (24,995) (27,437)
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Cash provided by operations 13,607 39,368
Origination of installment contract receivables (217,390) (201,226)
Proceeds from sales of originated installment contract receivables 235,035 245,511
Principal collected on originated installment contract receivables 14,473 8,854
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Net cash provided by operating activities 45,725 92,507
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables (59,759) (127,251)
Proceeds from sales of acquired installment contract receivables 92,096 19,010
Principal collected on acquired installment contract receivables 7,083 5,894
Acquisition of property, plant and equipment (4,147) (9,625)
Decrease in restricted cash and investments 19,371 10,407
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Net cash provided by (used in) investing activities 54,644 (101,565)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends - (2,368)
Repayment of debt obligations (46,570) (793)
Issuance of stock for incentive plans and other 1,364 808
Repurchase of common stock (9,637) (482)
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Net cash used in financing activities (54,843) (2,835)
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Net increase (decrease) in cash and cash equivalents 45,526 (11,893)
Cash and cash equivalents at beginning of period 47,763 43,912
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Cash and cash equivalents at end of period $ 93,289 $ 32,019
========== ==========
(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 September 30, 2001,
the results of its operations and its cash flows for the three month periods
ended September 30, 2001 and 2000. All such adjustments are of a normal
recurring nature.
2. The results of operations for the three months ended September 30, 2001
are not necessarily indicative of the results to be expected for the respective
full year.
3. In April 2001, the Company adopted Emerging Issues Task Force (EITF) 99-20,
Recognition of Interest Income and Retained Beneficial Interests in Securitized
Financial Assets. Under the new guidelines, the Company evaluated the expected
future cash flows from its available-for-sale interest-only securities on an
disaggregate security by security basis and determined that there was a
favorable difference in estimated cash flows of $1.8 million ($1.1 million after
tax) for the quarter ended September 30, 2001. This favorable adjustment has
been recorded as an element of accumulated other comprehensive income.
4. 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 model, weighted average life of 4.52 years, expected credit losses of
1.98% 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.
5. 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.
A committed one-year $150 million participation facility is available to
facilitate the sale of manufactured housing contracts. The facility was not
utilized as of September 30, 2001.
4
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. The changes in accumulated other comprehensive income were reflected by a
$1.1 million after tax unrealized gain on residual interests as well as a $1.0
million after tax unrealized gain on securities available-for sale.
7. 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) 2001 2000
-------- --------
Net income $26,520 $ 28,982
Average shares outstanding
Basic 138,030 137,519
Add: common stock equivalents (1) 1,099 319
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Diluted 139,129 137,838
Net income per common share
Basic $0.19 $0.21
Diluted $0.19 $0.21
(1) Common stock equivalents are principally stock options.
8. 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 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 (early application is encouraged).
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.
In October 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.
5
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
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, 2001 and 2000:
Three Months Ended
September 30,
(in thousands) 2001 2000
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REVENUES
Retail $ 175,397 $ 173,245
Manufacturing 131,519 131,634
Financial Services 49,649 42,812
Communities 20,425 22,600
Intersegment sales (70,920) (69,484)
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Total revenues $ 306,070 $ 300,807
=========== ===========
INCOME FROM OPERATIONS
Retail $ 8,135 $ 8,167
Manufacturing 12,151 11,307
Financial Services 25,844 23,883
Communities 2,830 3,454
Eliminations/Other (1,838) (1,403)
----------- -----------
Total income from operations $ 47,122 $ 45,408
=========== ===========
CAPITAL EXPENDITURES
Retail $ 1,283 $ 2,168
Manufacturing 898 1,326
Financial Services 274 93
Communities 1,346 6,394
Eliminations/Other 346 (356)
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Total capital expenditures $ 4,147 $ 9,625
=========== ===========
As of September 30, As of June 30,
2001 2001
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IDENTIFIABLE ASSETS
Retail $ 239,408 $ 255,793
Manufacturing 75,460 82,616
Financial Services 989,685 1,080,416
Communities 193,299 191,802
Eliminations/Other 110,589 43,543
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Total identifiable assets $1,608,441 $1,654,170
=========== ===========
6
PART I - - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
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See pages 2 through 6.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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THREE MONTHS ENDED SEPTEMBER 30, 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, 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 + 0.8%
Number of retail centers - 6.8%
Dollar sales per retail center + 8.1%
Price of home + 5.6%
Wholesale
Dollar sales - 2.1%
Number of independent retailers - 9.0%
Dollar sales per independent retailer + 7.6%
Price of home +10.7%
Communities
Dollar sales -23.7%
Number of communities + 5.9%
Dollar sales per community -27.9%
Price of home - 1.1%
Total revenues for the three months ended September 30, 2001, increased 2% to
$306 million, which consisted of a 1% decrease in manufactured housing sales to
$228 million, a 15% increase in financial services income to $61 million and a
1% decrease in rental and other income to $18 million.
Manufactured housing industry conditions remain highly competitive at both the
retail and wholesale levels. This competitive environment, as well as an
increase in industry foreclosures and aging retail inventory, has contributed to
decreased industry and Company sales and significant closings of industry retail
stores.
The Retail group experienced an increase in net sales of 1% to $159 million as
the average home price increased 6%, the average number of homes sold per sales
center increased 2%, and the number of Company-owned sales centers decreased 7%.
In addition, net sales of the Manufacturing group to
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independent retailers decreased 2% to $61 million, and the number of homes sold
decreased 12% to 2,340. The Communities group net sales decreased 24% to $8
million as 23% fewer homes were sold and the average home selling price
decreased 1%.
Within the Financial Services segment, interest and loan servicing revenues
increased $3 million, and insurance related revenues rose $1 million. Rental
and other income decreased 1% while Communities rental income rose 2%.
Loans sold through issuance of asset-backed securities totaled $400 million
(including pre-funding of $73 million), compared to $265 million during the same
period last year. Debt collateralized by installment contract receivables
dropped 40% to an average of $5 million, and the weighted average interest rate
increased to 10.8% from 10.6%.
Gross profit margins increased to 34.5% from 33.2%. This increase was partially
attributable to a shift in mix towards multi-sectional homes. Selling, general
and administrative expenses, as a percent of revenues, remained steady at 31.4%.
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 $5.6 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 quarter ended September 30, 2001,
there was an unfavorable mark-to-market adjustment of $3.9 million relating to
the swaps. In the comparable quarter last year, there was a $1.7 million
mark-to-market favorable swap adjustment.
The following table represents delinquent installment sales contracts and loan
agreements 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,
2001 2000
----- -----
Total delinquency as a percentage of contracts outstanding:
All contracts 4.14% 3.30%
Contracts originated by VMF 3.71% 2.71%
Contracts acquired from other institutions 6.45% 6.09%
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,
2001 2000
------ ------
Net losses as a percentage of average
loans outstanding (annualized):
All contracts 2.0% 1.5%
Contracts originated by VMF 2.1% 1.5%
Contracts acquired from other institutions 1.6% 1.4%
Number of contracts in repossession:
All contracts 2,899 2,557
Contracts originated by VMF 2,443 2,083
Contracts acquired from other institutions 456 474
Total number of contracts in repossession
as a percentage of total contracts 2.1% 1.9%
The overall decrease in inventories as of September 30, 2001, from June 30,
2001, is explained as follows:
Manufacturing Increase (decrease)
- ------------- --------------------
Finished goods $ 1.3
Raw materials (6.7)
Retail
- ------
Decrease in inventory levels at 296
Company-owned retail centers open at
June 30, 2001 (8.2)
Communities
- -----------
Increase in inventory levels at 81
Communities open at June 30, 2001 1.7
--------------------
$(11.9)
====================
On September 30, 2001, the order backlog for the Manufacturing group (consisting
of Company-owned and independent retailer orders) increased to $43 million, as
compared to $18 million for the same period last year.
9
Liquidity and Capital Resources
- ----------------------------------
Cash at September 30, 2001, was $93 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 participation facility, senior notes, and
sales of installment contract and mortgage loan receivables.
The Company's debt to capital ratio was 8% at September 30, 2001. The Company
had debt outstanding of $95 million and $142 million at September 30, 2001 and
June 30, 2001, respectively. This reduction of debt resulted from the Company's
$400 million ABS transaction in August, 2001. 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 based on LIBOR. 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,
proceeds of which are used 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 $150 million participation facility is available to
facilitate the sale of manufactured housing contracts. The facility was not
utilized at September 30, 2001. The Company owns its inventory; therefore no
floorplanning arrangements are necessary.
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 and experience affects its overall ability to anticipate
and meet consumer preferences, maintain successful marketing programs, continue
quality manufacturing output, keep a strong cost management oversight, and
achieve stable results from its securitization activities.
Lastly, management has little 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.
10
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 2001B. Filed August 14, 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
2001B. Filed August 24, 2001.
Clayton Homes, Inc./ Vanderbilt Mortgage & Finance, Inc. pooling and servicing
agreement pertaining to Senior Subordinate Pass-Through Certificates Series
2001B. Filed September 6, 2001.
11
CLAYTON HOMES, INC.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLAYTON HOMES, INC.
---------------------
(Registrant)
Date: November 13, 2001 /s/ Kevin T. Clayton
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Kevin T. Clayton
Chief Executive Officer and President
Date: November 13, 2001 /s/ John J. Kalec
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John J. Kalec
Senior Vice President and
Chief Financial Officer
Date: November 13, 2001 /s/ Greg A. Hamilton
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Greg A. Hamilton
Vice President and Controller
12