FORM 10-K

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, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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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:

Name of each exchange on
Title of each class 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 18, 1995, was approximately $1,212,845,315 (55,763,003
shares at closing price on the NYSE of $21.75). 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 18, 1995, were
75,757,052.

Exhibit index appears on pages 14-15.

DOCUMENTS INCORPORATED BY REFERENCE

Part of Form 10-K Documents from which portions are incorporated by reference
- ----------------- ------------------------------------------------------------

Part II (except for Item 5) Annual Report to Shareholders for fiscal year ended June 30, 1995

Part III Proxy Statement relating to
Company's Annual Meeting of Shareholders on
November 8, 1995

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CLAYTON HOMES, INC.

PART I
ITEM 1. BUSINESS

GENERAL

Clayton Homes, Inc. and its subsidiaries (The Company) produces, sells,
finances and insures primarily low to medium priced manufactured homes. The
Company's 16 manufacturing plants produce homes which are marketed in 28 states
through 668 retail dealers, of which 192 are Company-owned sales centers and 55
are Company-owned community sales centers. The Company provides installment
financing to purchasers of manufactured homes sold by its retail centers and by
selected independent dealers. Such financing is provided through its
wholly-owned finance subsidiary, Vanderbilt Mortgage and Finance, Inc. The
Company acts as agent, earns commissions and reinsures risks on physical
damage and credit life insurance policies issued by a non-related insurance
company (ceding company) in connection with the Company's retail sales. The
Company also develops, owns, and manages manufactured housing communities.

The Company is a Tennessee corporation whose predecessor was incorporated in
1968 in Tennessee. Its principal executive offices are located in Knoxville,
Tennessee.

The following table shows the percentage of revenue derived from sales by
Company-owned retail centers, sales to independent dealers and financial
services operations and other income for each of the last three fiscal years.

YEAR ENDED JUNE 30,
1995 1994 1993

Sales by Company-owned retail centers
and communities.......................... 53% 54% 56%
Sales to independent dealers.............. 29 27 25
Financial services and other.............. 18 19 19
---- ---- ----
Total..................................... 100% 100% 100%
==== ==== ====

For information relating to the Company's three major business segments, see
Note 11 to the Consolidated Financial Statements in the Company's Annual Report
to Shareholders.

Company sales reflect the seasonality of the manufactured housing industry. In
recent years, approximately 30% of the Company's sales have occurred in its
fourth quarter ended June 30.

MANUFACTURED HOMES

A manufactured home made by the Company is a factory-built, completely finished
dwelling. Constructed to be transported by truck, the home is mounted on
wheels attached to its frame. Manufactured homes are designed to be permanent,
primary residences sited and attached to utilities.

The Company manufactures a variety of single and multi-section homes in a wide
price range. Retail prices range from $13,000 to $75,000 with sizes from 675
to 1,900 square feet.

The Company markets homes under a variety of model names. Homes include as
standard equipment central heating, range, refrigerator, and color-coordinated
window, wall and floor coverings. Optional features include central air
conditioning, wood-burning fireplaces, bay windows, hardwood floors, whirlpool
tubs, skylights, and furniture.

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MANUFACTURING OPERATIONS

The Company owns or leases 16 manufacturing plants, ranging in size from
53,000 to 226,000 square feet. Plants are located in Andersonville, Ardmore,
two in Bean Station, Halls, Maynardville, Rutledge, Savannah and White Pine,
Tennessee; in Henderson, Oxford and Richfield, North Carolina; in Waycross,
Georgia and one in Bonham and two in Waco, Texas. See "Properties (item 2)."
The Company's manufactured homes are built in its plants using assembly-line
techniques. Completion of a home ordinarily takes two days. Homes are
generally produced against orders received from independent and Company-owned
retail centers; therefore the Company does not normally maintain a significant
inventory of homes at its plants. Completed homes are transported to the
retail centers by independent carriers.

The Company's plants operate on a one-shift-per-day basis, normally for a
five-day week, with the capacity to produce approximately 31,000 homes per
year. During the fiscal year ended June 30, 1995, the Company produced 18,713
homes.

The principal materials utilized in the production of the Company's homes are
steel, aluminum, wood, fiberglass, carpet, vinyl floor covering, hardware
items, appliances and electrical items. The Company purchases, among other
things, steel for the frames, appliances, plumbing fixtures, furniture, windows
and doors. The Company uses a number of supply sources, and it believes that
the materials and parts necessary for the construction and assembly of its
homes will remain readily available from these sources. In the event that any
of these items are not readily available or are available at a higher cost than
could be passed on to consumers, the operations of the Company could be
materially adversely affected.

The Company offers a one-year, limited warranty covering manufacturing defects
in materials or workmanship in a home. Warranties covering appliances and
equipment installed in the homes generally are obligations of the manufacturers
of such items and not those of the Company. Warranty and service costs during
the years ended June 30, 1995, and June 30, 1994, amounted to approximately
$9,420,000 and $7,510,000, respectively.

The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $68,700,000 and
$42,300,000 on June 30, 1995, and 1994, respectively. Based on the Company's
current production rate, approximately seven weeks would be required to fill
backlog orders at June 30, 1995.

SALES OF HOMES MANUFACTURED BY THE COMPANY

The following table sets forth manufacturing sales data for number of homes
shipped to Company-owned retail centers and to independent dealers, total
number of homes sold, number of plants, number of independent dealers and
number of Company-owned retail centers for the periods indicated.

AT OR FOR THE
YEAR ENDED JUNE 30,
1995 1994 1993

Number of homes sold to independent dealers . . . . . . . . . . . . . . 11,025 9,389 6,890
Number of homes shipped to Company-owned retail centers . . . . . . . . 7,917 6,948 6,155
------ ------ ------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,942 16,337 13,045
====== ====== ======
Number of plants operating . . . . . . . . . . . . . . . . . . . . . . 16 13 13
Number of independent dealers . . . . . . . . . . . . . . . . . . . . . 421 372 371
Number of Company-owned communities . . . . . . . . . . . . . . . . . . 55 46 33
Number of Company-owned retail centers . . . . . . . . . . . . . . . . 192 165 143

INDEPENDENT DEALERS

In the years ended June 30, 1995, and 1994, 58% and 57%, respectively, of homes
manufactured by the Company were sold to its independent dealers. As of June
30, 1995, the Company had 421 independent dealers in 25 states. The Company's
independent dealer network enables it to distribute homes to more markets, more
quickly, without as large an investment in management resources and overhead
expenses as is required with Company-owned retail centers. Sales to
independent dealers also help the Company ensure that its homes are competitive
with other manufacturers in terms of consumer acceptability, product design,
quality and price.

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The Company generally does not assist independent dealers in arranging
financing for their retail customers. However, the Company's finance
subsidiary, Vanderbilt Mortgage and Finance, Inc.(VMF), may provide financing
for retail customers of selected independent dealer locations with terms and
conditions similar to those provided to Company-owned dealerships.

The Company establishes relationships with independent dealers through sales
representatives from its manufacturing plants. These representatives visit
independent dealers in assigned areas to solicit orders for the Company's
homes. The area is generally limited to a 400 to 500 mile radius from each of
the Company's manufacturing plants due to the relatively significant cost of
transporting a home. Depending on the cost of the home and the wholesale
competition within the area, a home may be competitively shipped shorter or
longer distances. During each of the last three fiscal years no dealer
accounted for more than 2% of the Company's consolidated revenues.

Because independent dealers have their own source of inventory financing, the
Company typically receives payment for homes within two weeks of delivery to
the independent dealer. The Company has no written agreements with its
independent dealers, and the relationship between the Company and each of its
independent dealers may be terminated at any time by either party. The
Company believes its relations with independent dealers are good, and has
experienced relatively little turnover among independent dealers in the past
five years. The Company generally has no control over the operations of
independent dealers.

Typically the Company neither provides inventory financing arrangements for
independent dealer purchases nor consigns homes. As is customary in the
industry, lenders financing independent dealer purchases require that the
Company execute repurchase agreements which provide that, in the event of
dealer default under the dealer's inventory financing arrangements, the Company
will repurchase homes for the amount remaining unpaid to the lender, excluding
interest and repossession costs. Historically, any homes repurchased under
such agreements have been resold to other dealers, including Company-owned
retail centers, at no less than the repurchase price. During the last five
fiscal years, the Company has incurred no significant losses resulting from
these contingent obligations, but there can be no assurance that losses will
not occur in the future.

COMPANY RETAIL OPERATIONS

As of June 30, 1995, the Company sold homes through 192 Company-owned retail
centers in 18 states. In addition to selling homes built by the Company,
virtually all of these retail centers sell new homes manufactured by other
companies and previously owned manufactured homes.

The following table indicates the number of Company-owned retail centers and
certain information relating to homes they sold during the last three fiscal
years.

YEAR ENDED JUNE 30,
1995 1994 1993

Number of Company-owned centers . . . . . 192 165 143
Number of new homes sold (including homes
built by the Company and by other
manufacturers) . . . . . . . . . . . . 11,352 10,071 8,752
Average retail price of new homes sold . $30,565 $29,103 $26,434
Number of previously-owned homes sold . . 2,746 2,523 2,126

All of the Company-owned retail centers employ salespeople who are primarily
compensated on a commission basis. The retail centers do not have
administrative staffs since most administrative functions are performed at the
Company's corporate headquarters.

To provide customers a wider price range of homes, the Company purchases
previously-owned homes from individuals and from other dealers, as well as
repossessed homes from lenders throughout its trade territory.

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5

Homes sold by Company-owned retail centers are delivered to the home owner's
site by trucks either owned by the Company or leased for the particular
delivery. The purchase price of the home includes delivery and setup of the
home at the retail purchaser's site. Electrical, water and gas connections are
done by licensed technicians at the home owner's expense.

FINANCIAL SERVICES

The Company believes that the ability to make financing available to retail
purchasers is a materially important factor affecting the market acceptance of
its product. The Company facilitates retail sales by making loans through its
finance subsidiary, VMF, and by maintaining relationships with conventional
lenders such as banks and finance companies for the pre-arranged sale of retail
installment contracts. The following table reflects the relative percentages
of homes sold by the Company's retail centers which were financed through the
Company, either by VMF or by conventional lenders, and those sales made to
customers who arranged their own financing or paid cash.

YEAR ENDED JUNE 30,
1995 1994 1993

VMF . . . . . . . . . . . . . . . . 72% 74% 74%
Conventional lenders . . . . . . . 5 5 4
Customer arranged or cash . . . . . 23 21 22
---- ---- ----
TOTAL . . . . . . . . . . . . . . . 100% 100% 100%
==== ==== ====

VMF also purchases and originates manufactured housing installment contract
receivables (also referred to as manufactured housing contracts) on an
individual basis from dealers not owned by the Company. Such dealers must make
an application to VMF for dealer approval. Upon satisfactory results of VMF's
investigation of the dealer's creditworthiness and general business reputation,
VMF and the dealer enter into a dealer agreement.

In addition to purchasing manufactured housing contracts from Company-owned and
independent dealers on an individual basis, VMF makes bulk purchases of
manufactured housing contracts. It also performs, on behalf of other
institutions, servicing of manufactured housing contracts that were not
purchased or originated by VMF. These purchases and servicing arrangements may
relate to the portfolios of other lenders or finance companies, governmental
agencies or instrumentalities, or other entities that purchase and hold
manufactured housing contracts.

VMF is actively seeking arrangements by which it can service manufactured
housing contracts originated by other lenders. VMF currently anticipates that
it will only seek servicing responsibilities which relate to manufactured
housing contracts.

UNDERWRITING POLICIES. Retail customers of the Company who express a desire to
obtain financing by or through the Company complete a credit application form
which is initially reviewed by the manager of the Company-owned retail center.
The manager then forwards the application to VMF or another source of
financing.

Credit applications are then evaluated by VMF credit managers. VMF's
underwriting guidelines generally require that each applicant's credit history,
residence history, employment history and income to debt payment ratios be
examined. There are no requirements on the basis of which, if met, credit is
routinely approved; or if they are not met, credit is routinely denied. If in
the judgment of the VMF credit manager an applicant does not meet minimum
underwriting criteria, there generally must be compensating higher ratings with
respect to other criteria in order for an applicant to be approved. Credit
managers must confirm that the credit investigation gave a complete and
up-to-date accounting of the applicant's creditworthiness. Credit managers are
encouraged to obtain second opinions on loans for relatively large dollar
amounts or those which in their judgment, tend to rank lower in terms of
underwriting criteria. Generally, the sum of the monthly installment housing
obligation, which includes the manufactured home loan payment and monthly site
costs, should not exceed 28% of the applicant's gross monthly income.

With respect to those customers determined to be credit worthy, VMF requires a
down payment in the form of cash, the trade-in value of a previously owned
manufactured home, and/or the estimated value of equity in real property
pledged as additional collateral. For previously-owned homes, the trade-in
allowance accepted by the dealer must be consistent with the value of the home
as determined by VMF in light of current market

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conditions. The value of real property pledged as additional collateral is
estimated by dealer personnel, who are not appraisers but are familiar with the
area in which the property is located. The minimum amount of the down payment
is 5% of the purchase price. The purchase price includes the stated cash sale
price of the manufactured home, sales or other taxes and fees, set-up costs and
certain insurance premiums (including up to five years of premiums on required
hazard insurance). The balance of the purchase price is financed by an
installment sales contract providing for a purchase money security interest in
the manufactured home and a mortgage on any real property pledged as additional
collateral. Normally, the contracts provide for equal monthly payments,
generally over a period of five to fifteen years at fixed rates of interest.
VMF's installment contracts may provide for either fixed rates or adjustable
rates of interest. VMF believes the typical manufactured home purchaser is
primarily sensitive to the amount of the monthly payment, and not to the
interest rate.

VMF has developed financing options such as contracts with a seven-year term
(compared to the industry norm of 15 to 20 years) which provide financing to
its customers at a relatively lower cost. The Company also offers a bi-weekly
payment contract which provides for 26 payments a year which are made by
electronically drafting the purchaser's checking account. The Company believes
that such financing options are attractive to the customer and improve market
acceptance of its homes as well as improve its delinquency and repossession
experience.

During the last eight fiscal years, VMF has become the most significant source
of financing for purchasers of the Company's homes. In fiscal 1988, VMF
originated 5,692 contracts and in fiscal 1995, VMF originated 13,857 contracts.
At June 30, 1995, VMF was servicing approximately 90,000 contracts with an
aggregate dollar amount of $1,434 million of which VMF has ownership interest
or contingent liability on approximately 67,000 contracts with an aggregate
dollar amount of $1,201million. The Company expects that VMF will continue to
originate a significant portion of the financing for purchasers of its homes.

The volume of manufactured housing contracts originated by VMF for the periods
indicated below and certain other information at the end of such periods are as
follows:

Contract Originations
Year Ended June 30,
1995 1994 1993
(Dollars in thousands)

Principal Balance of Contracts
Originated (in thousands) . . . . . $345,260 $292,435 $230,733
Number of Contracts Originated . . . 13,857 12,401 10,880
Average Contract Size (1) . . . . . . $ 24,916 $ 23,582 $ 21,207
Average Interest Rate (1) . . . . . . 12.24% 10.84% 11.61%

(1) At period end.

The following table shows the size of the portfolio of manufactured housing
contracts serviced by VMF on which it was contingently liable or owner on the
dates indicated:

Contract Servicing Portfolio
Year Ended June 30,
1995 1994 1993

Total Number of Contracts Being
Serviced . . . . . . . . . . . . . . 66,960 60,165 52,433
Originated by VMF . . . . . . . . . 55,923 47,944 42,656
Acquired from other
institutions . . . . . . . . . . . 11,037 12,221 9,777

VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans. After short-term warehousing, VMF transfers or
pledges these loans, generally in pools, to institutional investors or
long-term lenders.

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VMF maintains long-term committed credit facilities and other arrangements or
relationships with institutional investors. It acts as a permanent lender on
certain conventional loans in that it holds these loans as long-term
receivables, pledging them as collateral for borrowings. VMF also permanently
funds conventional loans by pooling them for sale to institutional investors.
Proceeds of both sources of funding are principally used to repay short-term
borrowings. VMF retains servicing in both cases.

Loans insured by the Federal Housing Administration (FHA) or guaranteed by the
Veterans Administration (VA) are permanently funded through the Government
National Mortgage Association (GNMA) pass-through program. Under the GNMA
program, installment sales contracts are warehoused by VMF and then pooled in
denominations of approximately $1,000,000 to collateralize the issuance by VMF
of securities guaranteed by GNMA under the provisions of the National Housing
Act. Under the GNMA program, VMF retains the servicing of the installment
sales contracts and is responsible for passing through payments under the
contracts to GNMA security holders. During the fiscal year ended June 30,
1995, VMF originated installment sales contracts eligible for financing under
the GNMA program having aggregate principal balances of $58 million. As of
June 30, 1995, VMF was servicing 238 GNMA pools totaling $158 million in
principal balances. Use of GNMA financing minimizes the Company's contingent
liability for these installment sales contracts because of the
government-insured nature of the loans. Accordingly, the Company believes that
the use of this form of financing, for customers who qualify, increases the
marketability of its manufactured homes.

Certain of the agreements related to borrowings include covenants with respect
to the Company's financial condition, corporate existence and employment of
certain key individuals. The Company may remain contingently liable on
installment sales contracts sold with recourse to institutional investors; this
contingent liability amounted to approximately $49 million as of June 30, 1995.
See Note 6 to the Consolidated Financial Statements in the Company's Annual
Report to Shareholders.

The interest rates on 99% of the long-term credit facilities or the
pass-through certificates representing ownership of the pools are fixed or have
adjustable rates with ceilings, while the remaining 1% have variable rates
which provide for no minimum or maximum rate of interest. VMF attempts to
match liabilities and assets as to both term and rate. This reduces loss
exposure from interest rate fluctuations. VMF uses a number of techniques to
achieve this result, principally by pricing its fixed rate receivables at or
above the maximum rate allowed under such arrangements. When loans are funded
under arrangements which do not have a maximum rate, the Company attempts to
price these loans at or above forecasted interest rates. The Company minimizes
the use of credit facilities which do not carry a maximum rate.

The Company believes that, as long as buyers of the Company's homes remain
sensitive primarily to the amount of their monthly payments rather than
interest rates and VMF is able to continue to implement its loan practice and
pricing policies, changes in interest rates will not materially effect its
business. There can be no assurance, however, that a significant change in
interest rates will not have a material effect on the Company's business and
financial condition. Generally, the Company's and VMF's existing borrowing
arrangements do not provide for interest rate hedging.

ACQUIRED CONTRACTS AND SERVICING ARRANGEMENTS. The Acquired Contracts were
originated by savings and loan associations or savings banks and acquired
indirectly or directly from them by VMF. The Acquired Contracts were
underwritten on the basis of underwriting criteria that were different from
and, as a whole, not as strict as VMF's underwriting criteria.

In fiscal 1992 and 1994, VMF became the servicer of 15,409 and 20,180
manufactured housing installment sales contracts with an approximate principal
balance of $199 million and $285 million, respectively. VMF acts solely as
servicer with respect to these contracts and, thus, has no ownership interest
nor contingent liability related to this portfolio. At June 30, 1995, VMF was
servicing approximately 22,565 of these installment sales contracts with an
approximate principal balance of $240 million.

DELINQUENCY AND REPOSSESSION EXPERIENCE. VMF performs recordkeeping and
collection activities on all loans that it originates or purchases through
portfolio acquisitions. Unrelated institutions purchasing the Company's
installment sales contracts individually and directly from Company-owned retail
centers perform their own recordkeeping and collection activities, although the
Company is in some cases responsible for repossessing homes in the event such
action becomes necessary.

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Although the terms of the installment sales contracts vary according to the
financial institutions which purchase the contracts, most contracts provide
that the failure to make a payment as scheduled is an event of default which
gives rise to the right to repossess the home. However, it is the policy of
the Company, not to repossess the home until payments are three months
delinquent unless the borrower has no apparent ability to bring payments
current, in which case repossession may occur sooner. The Company generally
follows the same policy with respect to loans insured by the FHA or guaranteed
by the VA, although the Company must also file a notice of claim within nine
months after default with the agency to preserve its rights under the programs.

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 at June 30
1995 1994 1993
---- ---- ----

Total delinquencies as percentage of
contracts outstanding:
All contracts . . . . . . . . . . . . . . . . 2.03% 1.97% 1.63%
Contracts originated by VMF . . . . . . . . . 1.67 1.16 1.39
Contracts acquired from other institutions . . 4.04 5.14 2.68

The following table sets forth information related to loan loss/repossession
experience for all installment contract receivables on which the Company is
either owner or contingently liable:

Loan Loss/Repossession Experience
at or for the year ended June 30

1995 1994 1993
---- ---- ----

Net losses as percentage of
Average loans outstanding:
All contracts . . . . . . . . . . . . . . . . . . . . . 0.2% 0.3% 0.6%
Contracts originated by VMF . . . . . . . . . . . . . . 0.0% 0.1% 0.2%
Contracts acquired from other institutions. . . . . . . 2.2% 1.8% 2.9%

Number of contracts in repossession:
Total . . . . . . . . . . . . . . . . . . . . . . . . . 540 565 523
Contracts originated by VMF . . . . . . . . . . . . . . 422 388 333
Contracts acquired from other institutions. . . . . . . 118 177 190

Total number of contracts in repossession as
percentage of total contracts . . . . . . . . . . . . . 0.81% 0.94% 1.00%

Generally, the Company pays off the related installment sales contract upon
repossession of a home and then resells the home. The Company believes that as
long as it is able to sell repossessed homes at satisfactory margins, the
increased repossession costs associated with payoffs of installment sales
contracts will be largely offset by resales of repossessed homes. See Note 6 to
the Consolidated Financial Statements in the Company's Annual Report to
Shareholders. There can be no assurance that the Company's future results with
respect to the payoff and resale of repossessed homes will be consistent with
its past experience.

INSURANCE OPERATIONS. The Company acts as agent on physical damage and credit
life insurance written by unaffiliated insurance companies (ceding companies)
for purchasers of its manufactured homes. During the fiscal year ended June
30, 1995, the Company acted as the agent on physical damage and credit life
insurance policies on approximately 73% and 45%, respectively, of Company
retail sales. Physical damage policies issued through the Company's agency are
reinsured through Vanderbilt Property and Casualty Insurance Co., LTD (VPC), a
wholly-owned subsidiary of the Company incorporated during fiscal year 1993.
The credit life insurance policies issued through the Company's agency are
reinsured through Vanderbilt Life and Casualty Insurance Co., LTD, (VLCIC) a
majority-owned subsidiary of the Company.

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MANUFACTURED HOUSING COMMUNITIES

In fiscal 1995 the Communities Group acquired 2,538 sites in nine communities
bringing total sites owned to 15,541 at June 30, 1995, a 20% increase from the
prior year. See "Properties. (item 2)". The following table lists the number
of community sites owned and under exclusive marketing agreements and the
aggregate occupancy rate at the end of the last three fiscal years:

June 30
1995 1994 1993
---- ---- ----

Home sites owned 15,541 13,003 9,950

Exclusive marketing 0 0 480
------ ------ ------
Total 15,541 13,003 10,430
====== ====== ======

Occupancy rate 68% 64% 60%
====== ===== =====

REGULATION

The Company's manufactured homes are subject to a number of federal, state and
local laws. Construction of manufactured housing is governed by the National
Mobile Home Construction and Safety Standards Act of 1974. In 1976, the
Department of Housing and Urban Development (HUD) issued regulations under this
Act establishing comprehensive national construction standards. The HUD
regulations cover all aspects of manufactured home construction, including
structural integrity, fire safety, wind loads and thermal protection. The
Company's manufacturing facilities and the plans and specifications for its
manufactured homes have been approved by a HUD-designated inspection agency. A
HUD-approved organization regularly inspects the Company's manufactured homes
for compliance during construction. Failure to comply with the HUD regulations
could expose the Company to a wide variety of sanctions, including closing the
Company's plants. The Company believes the homes it manufactures comply with
all present HUD requirements. In addition, certain components of manufactured
homes are subject to regulation by the Consumer Product Safety Commission which
is empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require the manufacturer to repair
defects in components in its homes. In February 1983, the Federal Trade
Commission adopted regulations requiring disclosure of a manufactured home's
insulation specification.

A variety of laws affect the sale of manufactured homes on credit by the
Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z (issued by the Board of Governors of the Federal Reserve System)
require written disclosure of information relative to such credit sales,
including the amount of the annual percentage rate and the finance charge. The
Federal Fair Credit Reporting Act also requires disclosure of certain
information used as a basis to deny credit. The Federal Equal Credit
Opportunity Act and Regulation B (issued by the Board of Governors of the
Federal Reserve System) prohibit discrimination against any credit applicant
based on sex, marital status, race, color, religion, national origin, age
(provided the applicant has the capacity to contract), receipt of income from
any public assistance program or the good faith exercise by the applicant of
any right under the Consumer Credit Protection Act. Regulation B establishes
administrative requirements for compliance with the Equal Credit Opportunity
Act and, among other things, requires the Company to provide a customer whose
credit request has been denied with a statement of reasons for the denial. The
Federal Trade Commission has issued or proposed various Trade Regulation Rules
dealing with unfair credit practices, collection efforts, preservation of
consumers' claims and defenses and the like. Installment sales contracts
eligible for inclusion in the GNMA Program are subject to credit underwriting
requirements of the FHA or the VA.

The movement and use of the Company's manufactured homes are subject to highway
use laws, ordinances and regulations of various federal, state and local
authorities. Such regulations may prescribe size and road use limitations and
impose lower than normal speed limits and various other requirements. The
Company's manufactured homes and its development of manufactured housing
communities are also subject to local zoning and housing regulations.

9
10

The Company is subject to the Magnuson-Moss Warranty Improvement Act which
regulates the descriptions of warranties on products. The description and
substance of the Company's warranties are also subject to a variety of state
laws and regulations.

VPC and VLCIC are subject to insurance and other regulations of the British
Virgin Islands.

COMPETITION

The manufactured housing industry is highly competitive at the manufacturing
and retail levels in terms of price, service, delivery capabilities and product
performance. There are many firms in direct competition with the Company. The
Company believes it has a competitive advantage over firms which do not have
manufacturing, retailing and financing capabilities. Since the Company's homes
are a form of low-cost housing, they compete with other forms of such housing
including apartments and conventionally-built and prefabricated homes. Some of
the Company's competitors are larger and have significant financial resources
while other competitors are quite small in relation to the size of the Company.
The capital requirements for entry into both the manufacturing and retail
fields are relatively small, with retail and inventory financing generally
available to a prospective dealer. The Company is not able to estimate the
total number of competitors in its marketing area.

EMPLOYEES

As of June 30, 1995, the Company employed 4,728 persons. Of these, 1,218 were
employed in retail sales, 2,872 in manufacturing, 269 in financial services,
305 in communities and 64 in executive and administrative positions. The
Company does not have any collective bargaining agreements and considers its
employee relations to be good.

SECTION 16 COMPLIANCE

For the fiscal year ended June 30, 1995, all Forms 3, 4 and 5, as required by
the Securities and Exchange Commission Rules under Section 16 of the Securities
Exchange Act of 1934, were filed on time, except that amendments to Form 4
filed by Kevin T. Clayton for the sale of Common Stock in August 1994 and for
the acquisition of Common Stock in April 1995, were filed late.

ITEM 2. PROPERTIES

The Company's executive offices and Financial Services operations are located
in Knoxville, Tennessee in several wholly-owned one-story buildings made up of
modular units (built by the Bean Station single-section plant) which total
approximately 30,000 square feet of office space and approximately 16,000
square feet in an office building owned 50% by the Company and 50% by a related
party. See "Item 13. Certain Relationships and Related Transactions." The
following table sets forth the properties which the Company uses for its
manufacturing operations and locations of its manufactured housing communities.
All of the buildings used for manufacturing operations are constructed of
fabricated metal on a concrete slab.

LOCATION OF PROPERTY
APPROXIMATE
MANUFACTURING OPERATIONS SQUARE FEET

Owned by company
Tennessee
Maynardville 98,000
Savannah 85,000
Ardmore 53,000
Rutledge 87,000
Bean Station #1 103,000
Bean Station #2 128,000
Andersonville 126,000
White Pine 130,000
North Carolina
Henderson 100,000
Oxford 80,000
Richfield 226,000
Georgia
Waycross 80,000

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11

APPROXIMATE
MANUFACTURING OPERATIONS(CON'T) SQUARE FEET

Texas
Waco #1 93,000
Waco #2 80,000
Bonham 113,000
Leased
Halls, Tennessee 69,000

APPROXIMATE
COMMUNITIES ACRES

Owned by company
Arizona
Phoenix 47
Colorado
Denver 125
Thornton 184
Florida
Gainesville (2) 132
Jacksonville (2) 85
Kissimmee 41
Mulberry 28
Georgia
Douglasville (2) 97
Iowa
Carter Lake 41
Missouri
Independence 90
Michigan
Kalamazoo 126
North Carolina
Greensboro 83
Oklahoma
Norman 44
Tennessee
Farragut 23
Knoxville (3) 147
LaVergne 76
Morristown 12
Maryville (2) 67
Powell 23
Rockford 13
Tullahoma 18
Texas
Arlington 43
Dallas (2) 84
Denton (3) 201
Fort Worth (4) 104
Flower Mound 18
Greenville 25
Houston (3) 115
Humble 55
Little Elm 48
Mesquite 27
Pearland 30
San Angelo 90
San Antonio (4) 206
Schertz 71
Wylie (2) 179
Virginia
Evington 70

The Company-owned retail centers are generally one to four acre sites with a
manufactured office unit serving as sales office. The balance of a retail
center site is devoted to the display of homes. Of the 192 retail centers, 86
are owned and 106 occupy leased property. The Company does not believe that
any of the property owned or leased for an individual retail center is material
to its overall business.

11
12

All of the properties described above are well maintained, adequately insured
and suitable for the purposes for which they are being used by the Company.
The Company believes that its properties are adequate for its near-term needs.

ITEM 3. LEGAL PROCEEDINGS.

No material legal proceedings are pending other than routine litigation
incidental to the business of the Company. The Company believes that such
proceedings will not have any material adverse effect on it or its operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

No matters were submitted to shareholders during the last quarter of the fiscal
year.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.

(a) The Company's Common Stock is traded on the New York Stock Exchange. The
following table sets forth, for the period from July 1, 1993 to June 30, 1995,
the range of high and low closing sale prices as reported by the New York Stock
Exchange, Inc.

Fiscal Fiscal
1995 1994
QUARTER ENDED HIGH LOW HIGH LOW

September $18.60 $14.20 $19.68 $14.72
December 15.90 12.30 19.40 14.56
March 18.13 14.00 21.30 15.70
June 18.00 15.38 18.00 13.60

(b) As of August 18, 1995, there were 1,991 holders of record (approximately
27,000 beneficial holders) of the Company's Common Stock.

(c) It is the policy of the Board of Directors of the Company to reinvest
substantially all earnings in its business. The Board of Directors initiated
the payment of cash dividends at the November 9, 1994 shareholders meeting of
$.02 per share per quarter. Future dividend policy will depend on the
Company's earnings, capital requirements, financial condition and other factors
considered relevant by the Board of Directors. Additionally, certain of the
Company's financing agreements have various covenants that restrict payments
which may be made for dividends and other stock transactions. At June 30,
1995, the aggregate amount of earnings available for cash dividends or for
repurchase of the Company's stock was $368,000,000.

The following portions of the Company's 1995 Annual Report to Shareholders are
incorporated herein by reference (page number references are to Annual Report):

ITEM 6. SELECTED FINANCIAL DATA.
Ten Year Review on page 14.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 12-18.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

- Quarterly Results (unaudited) on page 13.
- Report of Independent Accountants on page 16.
- Consolidated Balance Sheets on page 16.
- Consolidated Statements of Income on page 17.
- Consolidated Statements of Changes in Shareholders' Equity on page 17.
- Consolidated Statements of Cash Flows on page 18.
- Notes to the Consolidated Financial Statements on pages 19-36.

12
13

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Executive Officers of the Company

NAME AGE POSITION

James L. Clayton 61 Chairman of the Board and
Chief Executive Officer

Joseph H. Stegmayer 44 President and Chief Operating Officer (a)

David M. Booth 42 Executive Vice President - Retail

Kevin T. Clayton 32 Secretary (b)

Timothy R. Rhoades 43 Treasurer (c)

(a) Mr. Stegmayer joined the Company in July 1993 as President and Chief
Operating Officer. From 1982 to July 1993 he served as Vice President, Chief
Financial Officer, Treasurer and Director of Worthington Industries, Inc.

(b) Secretary since December 1993. Prior to December 1993, he was in various
management positions within The Company.

(c) Mr. Rhoades joined the Company in August 1993 as Corporate Controller and
became Treasurer in November of 1993. From August 1992 to February 1993, he
served as Chief Financial Officer of Lexalite International Corporation and
prior to that held various financial positions with Worthington Industries,
Inc.

All other officers have been in their positions for at least five years.

The Company's executive officers serve at the pleasure of the Board of
Directors.

All other required information is incorporated by reference to the Company's
Proxy Statement under the heading ELECTION OF DIRECTORS.

ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Company's Proxy Statement under the heading
EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Company's Proxy Statement under the headings
ELECTION OF DIRECTORS and VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF;
SECURITIES OWNERSHIPS OF DIRECTORS AND OFFICERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Company's Proxy Statement.

13
14

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this report:

1. Financial Statements: (Included in Annual Report - Exhibit 13).

The following Consolidated Financial Statements of
Clayton Homes, Inc. and its subsidiaries included in
Part II, Item 8 are incorporated by reference to the
1995 Annual Report to Shareholders for the year ended
June 30, 1995.

Report of Independent Accountants.

Consolidated Balance Sheets - June 30, 1995 and 1994.

Consolidated Statements of Income - years ended June
30, 1995, 1994 and 1993.

Consolidated Statements of Changes in Shareholders'
Equity - years ended June 30, 1995, 1994 and 1993.

Consolidated Statements of Cash Flows - years ended
June 30, 1995, 1994 and 1993.

Notes to the Consolidated Financial Statements.

3. Exhibits:

3. (a) Restated charter as amended.(A)

(b) Bylaws.(B)

4. (a) Specimen stock certificates.(E)

(b) The Company agrees to furnish to the Commission,
upon request, instruments relating to the long term
debt of the Company or its subsidiaries.

10. (a) Form of shareholders' agreement between Clayton
Homes, Inc. and Progressive Partners.(B)

(b) Lease Agreement, dated June 29, 1972, as amended,
between Clayton Homes, Inc. and Dean Planters
Warehouse, Inc.(B) (subsequently assigned to CLF, a
limited partnership which includes a related party).

(d) Clayton Homes, Inc. 1985 Stock Option Plan.(F)

(e) 1991 Employee Stock Incentive Plan.(H)

(f) Directors' Equity Plan.(H)

(g) Directors' Equity Plan.(I)

(h) Directors' Equity Plan.(J)

14
15

(i) Clayton Homes, Inc. Employee Savings Plan and
partnership.(C)

(j) Description of Clayton Homes, Inc. bonus
arrangement for key executives.(J)

11. Computation of earnings per share.

13. Annual Report to Shareholders for year ended June 30,
1995.(D)

21. List of Subsidiaries of the Registrant.

23. Consent of Coopers & Lybrand L.L.P.

27. Financial Data Schedule (for SEC use only).

- -------------------------------------------
(A) Filed with the Company's Form 10-K for the year ended June 30, 1992,
and incorporated by reference thereto.

(B) Filed as Exhibits to Registration Statement on Form S-1 (SEC File No.
2-83705) and incorporated by reference thereto.

(D) For the information of the Commission only, except to the extent of
portions specifically incorporated by reference.

(E) Filed as Exhibits to Registration Statement on Form S-1 (SEC File No.
33-2665) and incorporated by reference thereto.

(F) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 4, 1985, and incorporated by reference
thereto.

(G) Filed with Registration Statement on Form S-3 (SEC File No. 39172),
and incorporated by reference thereto.

(H) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 12, 1991, and incorporated by reference
thereto.

(I) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 11, 1992, and incorporated by reference
thereto.

(J) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held November 10, 1993, and incorporated by
reference thereto.

- ---------------------------------------------
(b) Reports on Form 8-K.
No reports were filed in the Registrant's last quarter.

15
16

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 21, 1995.

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 21, 1995 Chairman of the Board and
- ------------------------ Chief Executive Officer
James L. Clayton (Principal Executive Officer)

s/Joseph H. Stegmayer September 21, 1995 President, Chief Operating Officer
- ------------------------ and Director
Joseph H. Stegmayer

s/Timothy R. Rhoades September 21, 1995 Treasurer (Principal Accounting
- ------------------------ Officer)
Timothy R. Rhoades

s/Kevin T. Clayton September 21, 1995 Secretary
- ------------------------
Kevin T. Clayton

s/B. Joe Clayton September 21, 1995 Director
- ------------------------
B. Joe Clayton

s/James D. Cockman September 21, 1995 Director
- ------------------------
James D. Cockman

s/Wallace C. Doud September 21, 1995 Director
- ------------------------
Wallace C. Doud

s/Dan W. Evins September 21, 1995 Director
- ------------------------
Dan W. Evins

s/Wilma H. Jordan September 21, 1995 Director
- ------------------------
Wilma H. Jordan

s/C. Warren Neel September 21, 1995 Director
- ------------------------
C. Warren Neel