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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
Commission file number 1-8824
CLAYTON HOMES, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-0794407
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 15169
623 Market Street
Knoxville, Tennessee 37902
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(Address of principal executive offices) (zip code)
615-970-7200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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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
December 31, 1993 - 56,365,118
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CLAYTON HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands except per share data)
Three Months Ended Six Months Ended
December 31 December 31,
REVENUES 1993 1992 1993 1992
Net sales $116,822 $ 86,416 $228,726 $172,947
Financial services 21,016 13,692 40,844 34,134
Rental and other income 8,113 5,902 12,340 8,776
-------- -------- -------- --------
Total Revenues 145,951 106,010 281,910 215,857
EXPENSES
Cost of sales 80,061 58,260 157,758 118,503
Selling, general and administrative 39,380 27,235 70,313 54,939
Financial services interest 2,135 3,092 4,415 6,579
Provision for credit losses and contingencies 1,000 1,123 2,000 2,300
-------- -------- -------- --------
Total Expenses 122,576 89,710 234,486 182,321
-------- -------- -------- --------
OPERATING INCOME 23,375 16,300 47,424 33,536
Interest income (expense) (41) (132) (762) (61)
-------- -------- -------- --------
Income before income taxes and cumulative
effect of change in method of accounting
for income taxes 23,334 16,168 46,662 33,475
Provision for income taxes 8,500 5,756 17,000 11,900
-------- -------- -------- --------
INCOME BEFORE ACCOUNTING CHANGE 14,834 10,412 29,662 21,575
Cumulative effect as of July 1, 1993 of change
in method of accounting for income taxes --- --- 3,000 ---
-------- -------- -------- --------
NET INCOME $ 14,834 $ 10,412 $ 32,662 $ 21,575
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Income per share before accounting change:(1)
Primary $.26 $.18 $.52 $.38
Fully diluted (2) .25 .18 .50 .37
Net income per share:(1)
Primary $.26 $.18 $.57 $.38
Fully diluted (2) .25 .18 .55 .37
Average shares outstanding: (1)
Primary 57,543 57,056 57,439 57,005
Fully diluted (2) 61,471 61,041 61,396 60,990
(1) Adjusted for the December 8, 1993 5-for-4 stock split.
(2) Computed assuming conversion of convertible subordinated debentures.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1993 1993
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Assets:
Cash and cash equivalents $ 61,564 $ 28,668
Receivables, net of reserve for credit losses
and unamortized discounts 311,787 319,159
Inventories 69,868 64,727
Property, plant and equipment, net 109,145 100,938
Other assets 107,568 73,540
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TOTAL ASSETS $659,932 $587,032
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Liabilities and Shareholders' Equity:
Accounts payable and accrued liabilities $ 29,596 $ 35,644
Long-term obligations 123,255 137,038
Deferred income taxes 7,100 7,334
Other liabilities 116,108 58,386
Shareholders' equity 383,873 348,630
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $659,932 $587,032
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CLAYTON HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
SIX MONTHS ENDED
DECEMBER 31,
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1993 1992
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 32,662 $ 21,575
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 3,433 2,991
Decrease in deferred income taxes (234) (60)
Gain on sale of installment contract
receivables, net of amortization (8,856) (2,939)
Provision for credit losses and contingencies 2,000 2,300
Amortization of discount and accretion
on installment contract receivables (2,305) (2,526)
Decrease in manufactured housing receivables 2,163 1,491
Increase in inventories (5,141) (3,512)
Decrease in accounts payable and accrued
liabilities, net of short-term borrowing (6,048) (5,189)
Increase in other liabilities, net
of other assets 6,677 5,915
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Cash provided by operations 24,351 20,046
Origination of installment
contract receivables (127,154) (98,087)
Proceeds from sales of originated
installment contract receivables 172,633 104,364
Principal collected on originated
installment contract receivables 6,000 9,853
-------- --------
Net cash provided by operations 75,830 36,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of installment contract receivables (55,848) (12,217)
Proceeds from sales of acquired installment
contract receivables 7,888 18,980
Principal collected on acquired installment
contract receivables 1,995 9,003
Acquisition of property, plant and equipment (11,617) (20,832)
Increase in restricted cash and investments (6,948) ---
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Net cash provided (used) by investing
activities (64,530) (5,066)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowing 32,798 ---
Repayment of debt collateralized by
installment contract receivables (13,783) (22,834)
Assumption of manufactured housing obligations --- 5,136
Proceeds from stock issued for incentive plan,
employee benefit plan and convertible debt 2,581 794
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Net cash provided (used)
by financing activities 21,596 (16,904)
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Net increase in cash and cash equivalents 32,896 14,206
Cash and cash equivalents at beginning of year 28,668 63,397
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Cash and cash equivalents at end of period $ 61,564 $ 77,603
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,022 $ 8,347
Income taxes 17,383 14,453
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Clayton Homes, Inc.
Notes to Quarterly Financial Statements
(unaudited)
1. The condensed consolidated financial statements of Clayton
Homes, Inc. and its subsidiaries 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 Principals 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, 1993.
The information furnished reflects all adjustments which are
necessary for a fair presentation of the Company's financial
position as of December 31, 1993 and the results of its
operations for the six-month and quarter periods ended
December 31, 1993 and 1992 and the changes in its cash
position for the same periods.
2. The results of operations for the six months and quarters
ended December 31, 1993 and 1992 are not necessarily
indicative of the results to be expected for the respective
full years.
3. Certain reclassifications have been made to the fiscal 1993
financial statements to conform to the fiscal 1994
presentation.
4. Effective for the fiscal year beginning July 1, 1993, the
Company adopted Financial Accounting Standards Statement No.
109 that revised the accounting for income taxes. The effect
of the adoption of this standard was to increase net income by
$3 million and is reported in the Consolidated Statements of
Income as a cumulative change in method of accounting for
income taxes effective as of July 1, 1993.
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PART 1 - - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
See Pages 2 and 4.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992:
The following table shows the percentage changes in retail sales by
the Company's retail and community sales centers and in wholesale sales to
independent dealers. It also shows percentage increases in the average number
of company-owned retail sales centers, communities and independent dealers.
Comparative percentages are given for the six month periods ended December 31,
1993 and 1992:
First Six Months
Fiscal year 1994 vs 1993
Retail:
Dollar sales +28.6%
Average number of sales centers +12.5%
Average dollar sales per sales center +14.3%
Average home price + 9.2%
Wholesale:
Dollar sales +42.1%
Average number of independent dealers +18.8%
Average dollar sales to
independent dealer +19.6%
Average home price +10.9%
Communities:
Dollar Sales +17.4%
Average number of communities +36.0%
Average dollar sale per community -13.7%
Average home price -5.5%
Total revenues for the six months ended December 31, 1993, increased 31%
because of the 32% increase in manufactured housing sales to $229 million and
the 20% increase in financial services income to $41 million. The balance of
revenue growth resulted from the 41% increase in rental and other income to $12
million.
Net sales of the Retail Division rose 29% to $146 million due to the
5% increase in the average number of homes sold per Company sales center, the
9% rise in the average home price, and the 13% increase in the average number
of company-owned sales centers. The rise in the average home price is
primarily attributable to a continued shift in the product mix toward the more
expensive multi-section home and to market factors affecting supply and demand.
These market factors allow the Company, in certain cases, to raise retail
prices on individually negotiated transactions.
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Net sales of the Manufacturing Division increased 42% to $74 million
due to the 28% rise in the number of homes sold and the 11% increase in the
average wholesale price to independent dealers. The increase in the average
home price is primarily attributable to a shift in the product mix toward the
more expensive multi-section home. Additionally, home prices were effected by
rising lumber costs which were passed through to dealers each month.
Net sales of the Communities Division rose 17% to $8 million primarily
due to the 36% increase in the average number of communities owned. This was
partially offset by the 9% decrease in the average number of homes sold per
community and by the 6% drop in the average home price. The price decrease is
related to a shift in the product mix toward less-expensive, previously owned
homes.
Financial services income increased 20% primarily due to the $5.9
million increase related to gains on the sales of installment contract
receivables as compared to the prior year.
Rental and other income increased 41% primarily due to the 38%
increase in the average number of sites owned in communities and the 49%
increase in the number of sites rented.
The following table shows the fluctuations in interest and loan
servicing revenues and financial services interest expense related to changes
in interest and servicing rates and changes in the average balances of
receivables owned, receivables sold and debt. Receivables owned or sold are
the installment contract receivables related to the retail sale of homes by the
Company or are purchased from independent dealers and unrelated financial
institutions. Receivables owned generate interest income and are used to
collateralize debt or, in certain cases, represent the Company's subordinated
interest in a pool of receivables accounted for by the consolidated method.
Receivables sold are pooled and sold and generate loan service revenues equal
to the excess of principal and interest collected over the amount required to
be remitted to investors. Servicing is retained by the Company in all cases.
The change due to both rate and volume has been allocated to rate and volume
fluctuations in proportion to the relationship of the absolute dollar amounts
of the change in each. Comparative fluctuations are given between the first
six months ended December 31, 1993 and 1992:
First Six Months
Fiscal year 1993 vs 1992
Increase (Decrease) Due to
--------------------------------
Rate Volume Total
---- ------ -----
(in thousands)
Interest and loan servicing
revenues:
Receivables owned $(2,979) $ 11 $(2,968)
Receivables sold (1,220) 2,615 1,395
Master Servicing Contracts 244 671 915
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$(3,955) $3,297 $ (658)
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Financial services
interest expense $ 519 $(2,738) $(2,219)
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Interest and loan servicing revenues decreased 2% to $27.9 million.
The average balance of receivables owned remained at $251 million with a
decrease in the weighted average interest rate to 11.9% from 14.2%. The
average balance of receivables sold with servicing retained increased 28% to
$596 million with a decrease in the weighted average loan service spread to
3.8% from 4.3%. In October 1993, a financial institution contracted with the
Company to act as master servicer for $283 million of manufactured housing
service receivables.
Financial Services interest expense decreased $2.2 million, or 33%, to
$4.4 million. Average debt collateralized by installment contract receivables
dropped 39% to $81 million with an increase in the weighted average interest
rate to 10.8% from 9.9%. The higher rate occurred because the terms of the
debt precludes the Company from prepaying it.
Gross profit margins decreased to 31.0% from 31.5% in the prior year's
first half. The decrease is primarily attributable to a decline in the
proportion of retail sales as a percent of total Company sales. Retail sales
represented 64% of consolidated sales this year versus 66% last year. Rising
lumber prices and additional provisions for LIFO reserves also contributed to
the decrease.
Selling, general and administrative expenses were 30.7% of sales
versus 31.8% in the prior comparable period. The decrease is primarily due to
higher growth in sales dollars as compared to selling, general and
administrative expenses.
Provisions for credit losses and contingencies declined as a percent
of sales to .9% from 1.3% last year primarily due to the trend of credit losses
as a percent of average loans outstanding continuing to decline.
The following table sets forth delinquent installment sales contracts as a
percentage of the total number of installment sales contracts on which the
Company provided servicing and was either contingently liable or owner. A
contract is considered delinquent if any payment is past due 30 days or more.
Delinquency Percentage
on December 31
1993 1992
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Total delinquencies as percentage
of contracts outstanding:
All contracts 2.08% 2.32%
Contracts originated by VMF 1.68% 1.99%
Contracts acquired from other
institutions 4.01% 3.67%
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The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the company is
either contingently liable or owner:
Loan Loss/Repossession Experience
for the six months ended or
as of December 31
1993 1992
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Net losses as percentage of average
loans outstanding (annualized):
All contracts .4% .8%
Contracts originated by VMF .1% .2%
Contracts acquired from
other institutions 1.9% 3.7%
Number of contracts in repossession:
Total 551 616
Contracts originated by VMF 389 375
Contracts acquired from other
institutions 162 241
Total number of contracts in repossession
as percentage of total contracts .94% 1.26%
The $5.1 million increase in inventories as December 31, 1993 from June 30,
1993 is explained as follows:
Manufacturing Division (in millions)
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Decrease in raw materials $(4.6)
Increase in finished goods 4.2
Retail Division
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Increase in average stocking
levels at 143 sales centers
owned by Company at June 30, 1993 3.0
Increase in inventory due to seven
new company-owned sales centers 2.6
Communities Division
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Decrease in inventory (.1)
-----
$ 5.1
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On December 31, 1993, order backlogs at the Manufacturing Division
consisting of company-owned and independent dealer orders totaled $31.5
million, compared to $12.1 million at last December 31.
Liquidity and Capital Resources
Cash at December 31, 1993, was $61.6 million as compared to $28.7
million on June 30, 1993. The Company anticipates meeting cash needs with cash
flows from operations, current cash balances, and the issuance of asset-backed
securities and GNMA certificates.
On January 27, 1994, the Company notified the holders of the 7.75%
convertible subordinated debt due 2003 of its intent to redeem the remaining
debt on March 1, 1994. It is anticipated that substantially all of the debt
will be converted at 99.65 shares per $1,000 face. This will beneficially
affect our debt to equity ratio and cash flow.
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SECOND QUARTER ENDED DECEMBER 31, 1993 AND 1992:
The following table reflects the percentage changes in retail sales by
the Company's retail sales centers and in wholesale sales to independent
dealers. It also shows the percentage increases in the average number of
company-owned retail sales centers and in independent dealers. Comparative
percentages are given for the second quarters ended December 31, 1993 and 1992:
Second Quarter
Fiscal year 1994 vs 1993
Retail:
Dollar sales +29.4%
Average number of sales centers +11.7%
Average dollar sales per sales center +15.8%
Average home price +9.4%
Wholesale:
Dollar sales +57.6%
Average number of independent dealers +15.4%
Average dollar sales to independent dealer +36.6%
Average home price +19.4%
Communities:
Dollar Sales -19.7%
Average number of communities +29.6%
Average dollar sale per community -38.0%
Average home price -6.6%
Total revenues for the three months ended December 31, 1993, increased
38% because of the 35% increase in manufactured housing sales to $117 million
and the 54% increase in financial services income to $21 million. The balance
of revenue growth resulted from the 38% increase in rental and other income to
$8 million.
Net sales of the Retail Division rose 29% to $73 million primarily due
to the 6% increase in the average number of homes sold per Company sales
center, the 9% rise in the average home price and the 12% increase in the
average number of company-owned sales centers. The rise in the average home
price is primarily attributable to a continuing shift in the product mix toward
the more expensive multi-section home and to market factors affecting supply
and demand allowing the Company, in certain cases, to raise retail prices on
these individually negotiated transactions.
Net sales of the Manufacturing Division increased 58% to $40 million
due to the 32% rise in the number of homes sold and the 19% increase in the
average wholesale price to independent dealers. The average price rose
primarily due to the change in product mix to multi-section homes and to
increases in lumber cost.
Net sales of the Communities Division decreased 20% to $3.5 million
primarily due to the 34% decrease in the average number of homes sold per
community and the 7% drop in the average home price. The decline in the
average home price in Communities relates to a slight shift in the product mix
toward less-expensive, previously owned and single-section homes.
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The 54% rise in financial services income to $21 million was fueled
principally by the $5.9 million increase related to gains on the sales of
installment contract receivables, as compared to the prior year. Rental and
other income increased 38% primarily due to the 22% increase in the average
number of sites owned in communities and the 25% increase in the number of
sites rented.
The following table shows the fluctuations in interest and loan
servicing revenues and financial services interest expense related to changes
in interest and servicing rates and changes in the average balances of
receivables owned, receivables sold and debt. The change due to both rate and
volume has been allocated to rate and volume fluctuations in proportion to the
relationship of the absolute dollar amounts of the change in each.
Comparative fluctuations are given between the quarters ended December 31, 1993
and 1992:
Second Quarter
Fiscal year 1994 vs 1993
Increase (Decrease) Due to
--------------------------------
Rate Volume Total
---- ------ -----
(in thousands)
Interest and loan servicing
revenues:
Receivables owned $(1,892) $(1,552) $(3,444)
Receivables sold (958) 1,881 923
Master Servicing Contracts 183 994 1,177
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$(2,667) $ 1,323 $(1,344)
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Financial services
interest expense $ 328 $(1,312) $ (984)
======= ======= =======
Interest and loan servicing revenues decreased $1.3 million or 9% to $12.8
million. The average balance of receivables owned decreased 20% to $201
million with a decrease in the weighted average interest rate to 10.6% from
14.0%. The average balance of receivables sold with servicing retained
increased 39% to $664 million with a decrease in the weighted average loan
service spread to 3.8% from 4.5%. In October 1993, a financial institution
contracted with the Company to act as master servicer for $283 million of
manufactured housing service receivables.
Financial Services interest expense decreased $1 million, or 32%, to
$2.1 million. Average debt collateralized by installment contract receivables
dropped 39% to $78 million with an increase in the weighted average interest
rate to 10.8% from 9.7% as debt with lower rates was reduced.
Gross profit margins decreased to 31.5% from 32.6% in last year's
second quarter. The decrease is primarily attributable to a decline in the
proportion of retail sales as a percent of total Company sales. Retail sales
represented 63% of consolidated sales this year versus 66% last year. Rising
lumber prices and additional provisions for LIFO reserves also contributed to
the decrease.
Selling, general and administrative expenses were 33.7% of sales
versus 31.5% in the prior comparable period. The increase is primarily due to
higher compensation costs, insurance claims, and expenses relating to the
recently formed casualty insurance companies.
Provisions for credit losses and contingencies declined as a percent of
sales to .9% from 1.3% last year primarily due to the trend of credit losses as
a percent of average loans outstanding continuing to decline.
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The following table presents write-off experience for the quarter
ended December 31, 1993:
Second Quarter Ended
December 31,
--------------------
1993 1992
---- ----
Net losses as percentage of average
loans outstanding (annualized):
All contracts .4% .6%
Contracts originated by VMF .2% .1%
Contracts acquired from
other institutions 1.8% 3.4%
PART II - - OTHER INFORMATION
ITEM 1 - There were no reportable events for Item 1 through Item 5.
ITEM 6 - - Exhibits and Reports for Form 8-K.
(a) 11. Statement regarding computation of per share earnings:
Net income per share on a primary basis is computed on the weighted
average number of shares outstanding during the quarter after giving
effect to the equivalent shares which are issuable upon the exercise
of stock options determined by the treasury stock method. Fully
diluted earnings per share is computed assuming conversion of
convertible subordinated debentures. The calculation of primary and
fully diluted earnings per share follow:
Six Months Quarter
Period Ended December 31,
(in thousands except per share data) 1993 1992 1993 1992
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Reported income before accounting
change (primary) $29,662 $21,575 $14,834 $10,412
Add: Convertible debentures interest
expense, net of tax 955 964 477 484
------- ------- ------- -------
Income before accounting change
(fully diluted) $30,617 $22,539 $15,311 $10,896
======= ======= ======= =======
Reported net income (primary) $32,662 $21,575 $14,834 $10,412
Add: Convertible debentures
interest expense, net of tax 955 964 477 484
------- ------- ------- -------
Net income (fully diluted) $33,617 $22,539 $15,311 $10,896
======= ======= ======= =======
Weighted average shares
outstanding (primary) 57,439 57,005 57,543 57,056
Shares issuable upon
conversion of all debentures 3,957 3,985 3,928 3,985
------- ------- ------- -------
Weighted average shares
outstanding (fully diluted) 61,396 60,990 61,471 61,041
======= ======= ======= =======
Earnings per share before
accounting change:
Primary $ .52 $ .38 $ .26 $ .18
Fully diluted .50 .37 .25 .18
Earnings per share:
Primary $ .57 $ .38 $ .26 $ .18
Fully diluted .55 .37 .25 .18
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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: 10/February/1994 /s/Richard B. Ray
----------------------- ------------------------
Richard B. Ray, Jr.
Executive Vice President
Chief Financial Officer
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