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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 March 31, 1998
COMMISSION FILE NUMBER 1-8824
CLAYTON HOMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1671360
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P. O. Box 9790
5000 Clayton Road
Maryville, Tennessee 37804
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(Address of principal executive offices) (zip code)
423-380-3000
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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 .
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 March 31, 1998 -
118,992,411.
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- --------
Revenues
Net sales $209,305 $178,091 $610,329 $563,262
Financial services 44,429 37,050 131,633 98,941
Rental and other income 14,641 11,483 40,177 35,297
-------- -------- -------- --------
Total revenues 268,375 226,624 782,139 697,500
-------- -------- -------- --------
Costs and expenses
Cost of sales 142,251 118,432 418,871 380,451
Selling, general and administrative 74,446 64,557 213,111 187,856
Financial services interest 444 621 1,641 2,127
Provision for credit losses 2,000 1,000 4,000 3,000
-------- -------- -------- --------
Total expenses 219,141 184,610 637,623 573,434
-------- -------- -------- --------
Operating income 49,234 42,014 144,516 124,066
Interest income (expense), net/other 984 284 3,790 2,611
-------- -------- -------- --------
Income before income taxes 50,218 42,298 148,306 126,677
Provision for income taxes 19,100 16,000 56,400 48,100
-------- -------- -------- --------
Net income $ 31,118 $ 26,298 $ 91,906 $ 78,577
======== ======== ======== ========
Earnings per share: (1)
Basic $ 0.26 $ 0.22 $ 0.77 $ 0.66
Diluted $ 0.26 $ 0.22 $ 0.77 $ 0.66
Dividends paid per share: (1) $ 0.020 $ 0.020 $ 0.060 $ 0.056
Average shares outstanding: (1)
Basic 118,887 118,457 118,726 118,726
Fully Diluted 119,728 119,214 119,558 119,582
(1) Adjusted for the December 11, 1996 5-for-4 stock split.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
March 31, June 30,
1998 1997
---------- ----------
ASSETS:
Cash and cash equivalents $ 37,817 $ 89,695
Receivables, net 525,961 478,691
Inventories 143,952 119,434
Property, plant and equipment, net 249,383 214,072
Other assets 152,142 143,869
---------- ----------
Total assets $1,109,255 $1,045,761
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued liabilities $ 86,975 $ 99,498
Long-term debt 21,318 22,806
Other liabilities 159,627 168,931
Shareholders' equity 841,335 754,526
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Total liabilities and shareholders' equity $1,109,255 $1,045,761
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(See accompanying notes to the condensed consolidated financial statements)
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CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Nine Months Ended
March 31,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 91,906 $ 78,577
Adjustments to reconcile net income to net cash
provided (required) by operating activities:
Depreciation and amortization 10,559 9,306
Gain on sale of installment contract receivables, net of amortization (23,788) (11,132)
Provision for credit losses 4,000 3,000
Deferred income taxes (20,740) 4,556
Increase in other receivables, net (37,208) (20,427)
Decrease (increase) in inventories (24,518) 9,304
Decrease in accounts payable, accrued liabilities, and other (15,554) (19,528)
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Cash provided (required) by operations (15,343) 53,656
Origination of installment contract receivables (534,076) (417,999)
Proceeds from sales of originated installment contract receivables 530,343 414,004
Principal collected on originated installment contract receivables 29,221 37,317
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Net cash provided by operating activities 10,145 86,978
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables (213,966) (80,326)
Proceeds from sales of acquired installment contract receivables 177,200 52,889
Principal collected on acquired installment contract receivables 21,004 10,042
Acquisition of property, plant and equipment, net (45,870) (33,022)
Decrease in restricted cash and investments 6,194 10,367
--------- ---------
Net cash used in investing activities (55,438) (40,050)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (7,130) (6,675)
Proceeds from short-term borrowings 160,418 22,141
Repayment of short-term borrowings (160,418) (22,141)
Repayment of long-term debt (1,488) (5,610)
Issuance of stock for incentive plans and other 6,564 3,074
Repurchase of common stock (4,531) (10,417)
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Net cash used in financing activities (6,585) (19,628)
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Net increase (decrease) in cash and cash equivalents (51,878) 27,300
Cash and cash equivalents at beginning of period 89,695 47,400
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Cash and cash equivalents at end of period $ 37,817 $ 74,700
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(See accompanying notes to the condensed consolidated financial statements)
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CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its subsidiaries (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,
1997.
The information furnished reflects all adjustments which are necessary
for a fair presentation of the Company's financial position as of March
31, 1998; the results of its operations and its cash flows for the nine
month periods ended March 31, 1998 and 1997. All such adjustments are
of a normal recurring nature.
2. The results of operations for the nine months ended March 31, 1998 and
1997 are not necessarily indicative of the results to be expected for
the respective full years.
3. Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
4. Effective for the quarter ended December 31, 1997, the Company adopted
FASB Statement of Accounting Standards No. 128, Earnings per Share. The
Statement simplifies the standards for computing earnings per share by
replacing the presentation of primary earnings per share with a
presentation of basic earnings per share. Prior years have been
restated to reflect this change. The following reconciliation details
the numerators and denominators used to calculate basic and diluted
earnings per share for the respective periods:
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands except per share data)
Net income: $ 31,118 $ 26,298 $ 91,906 $ 78,577
======== ======== ======== ========
Average shares outstanding:
Basic 118,887 118,457 118,726 118,726
Add: common stock equivalents 841 757 832 856
-------- -------- -------- --------
Diluted 119,728 119,214 119,558 119,582
======== ======== ======== ========
Earnings per share:
Basic and diluted $ .26 $ .22 $ .77 $ .66
======== ======== ======== ========
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PART I - - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
See pages 2 through 4.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
NINE MONTHS ENDED MARCH 31, 1998:
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 Nine Months
Fiscal Year 1998 vs 1997
------------------------
Retail
Dollar sales + 6.7%
Number of retail centers + 15.3%
Dollar sales per retail center - 7.5%
Price of home + 9.7%
Wholesale
Dollar sales + 13.4%
Number of independent retailers + 8.1%
Dollar sales per independent retailer + 4.9%
Price of home + 6.6%
Communities
Dollar sales - 8.0%
Number of communities + 4.6%
Dollar sales per community - 12.0%
Price of home + 7.1%
Total revenues for the nine months ended March 31, 1998, increased 12% to $782
million. As manufactured housing sales rose 8% to $610 million, financial
services income grew 33% to $132 million and rental and other income increased
14% to $40 million.
Net sales of the Retail group rose 7% to $363 million on a 10% rise in the
average home price and a 15% increase in Company-owned sales centers, offsetting
a 16% decrease in the average number of homes sold per sales center.
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Net sales of the Manufacturing group increased 13% to $224 million as the number
of homes sold increased 6% to 10,609. The average wholesale price to independent
retailers increased 7% as a result of a shift in product mix towards
multi-section homes.
Net sales of the Communities group decreased 8% to $23 million as 14% less homes
were sold, while the average home selling price increased 7%.
Financial services revenues increased 33%. Interest and loan servicing revenues
increased $14 million, and insurance related revenues rose $4 million. Rental
and other income increased 14% on a 19% rise in Communities rental income.
Loans sold through asset-backed securities totaled $673 million, compared to
$455 million during the same period last year with improved spreads over the
comparable period.
Financial services interest expense decreased 23% to $2 million. Average debt
collateralized by installment contract receivables dropped 28% to $19 million,
while the weighted average interest rate moved from 10.49% to 10.33%. The terms
of the debt preclude prepayment by the Company.
Gross profit margins decreased to 31.4% from 32.5% which is attributable to a
shift in mix of sales from the Manufacturing group to its independent retailers.
Selling, general and administrative expenses, as a percent of revenues,
increased to 27.2% from 26.9% in the prior year period. The provision for credit
losses increased to 0.7% from 0.5% of sales.
The following table represents delinquent installment sales contracts as a
percentage of the total number of installment sales contracts which the Company
services and either owns or for which it is contingently liable. A contract is
considered delinquent if any payment is more than one month past due.
March 31,
1998 1997
---- ----
Total delinquencies as a percentage of contracts outstanding:
All contracts 1.81% 2.12%
Contracts originated by VMF 1.66% 1.86%
Contracts acquired from other institutions 2.61% 2.79%
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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.
Nine Months Ended
March 31,
1998 1997
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Net losses as a percentage of average loans outstanding (annualized):
All contracts 0.8% 0.2%
Contracts originated by VMF 0.8% 0.0%
Contracts acquired from other institutions 1.4% 3.6%
Number of contracts in repossession:
All contracts 1,507 954
Contracts originated by VMF 1,356 858
Contracts acquired from other institutions 151 96
Total number of contracts in repossession
as a percentage of total contracts 1.5% 1.2%
The increase in inventories as of March 31, 1998, from June 30, 1997, is
explained as follows:
Increase (decrease)
-------------------
Manufacturing
Finished goods $ 6.8
Raw materials (8.2)
Retail
Increase in inventory levels at 245
Company-owned sales centers at
June 30, 1997 11.9
Inventory to stock 23
new Company-owned sales centers 10.3
Communities
Total of all communities 3.7
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$ 24.5
=======
On March 31, 1998, the order backlog for the Manufacturing group (consisting of
Company-owned and independent retailer orders) increased 17% to $43 million, as
compared to $37 million for the prior year.
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THIRD QUARTER ENDED MARCH 31, 1998:
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.
Third Three Months
Fiscal Year 1998 vs 1997
------------------------
Retail
Dollar sales +16.1%
Number of retail centers +15.6%
Dollar sales per retail center + 0.4%
Price of home +13.4%
Wholesale
Dollar sales +24.6%
Number of independent retailers + 3.8%
Dollar sales per independent retailer +19.8%
Price of home + 9.2%
Communities
Dollar sales -10.9%
Number of communities + 3.8%
Dollar sales per community -14.2%
Price of home + 3.2%
Total revenues for the three months ended March 31, 1998, increased 18% to $268
million. As manufactured housing sales rose 18% to $209 million, financial
services income grew 20% to $44 million and rental and other income increased
28% to $15 million.
Net sales of the Retail group increased 16% to $127 million on a 13% rise in the
average home price and 16% increase in Company-owned sales centers, offsetting a
11% decrease in the average number of homes sold per sales center.
Net sales of the Manufacturing group increased 25% to $74 million as the number
of homes sold increased 14% to 3,491. The average wholesale price to independent
retailers increased 9% as a result of a shift in product mix towards
multi-section homes.
Net sales of the Communities group decreased 11% to $8 million as 14% less homes
were sold, while the average home selling price increased 3%.
Financial services revenues increased 20%. Interest and loan servicing revenues
increased $7 million, and insurance related revenues rose $2 million. Rental and
other income increased 28% on a 24% rise in Communities rental income and a 33%
increase in other income.
Loans sold through asset-backed securities in the quarter totaled $214 million,
compared to a $193 million offering during the same period last year with
improved spreads over the comparable period.
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Financial services interest expense decreased 29% to $0.4 million. Average debt
collateralized by installment contract receivables dropped 32% to $17 million,
while the weighted average interest rate moved from 9.90% to 10.41%. The terms
of the debt preclude prepayment by the Company.
Gross profit margins decreased to 32.0% from 33.5% with a stronger mix of sales
to independent retailers.
Selling, general and administrative expenses, as a percentage of revenues,
decreased to 27.7% from 28.5% in the prior year period. The provision for credit
losses increased to 1.0% of sales.
The following table presents write-off experience for the quarters ended March
31, 1998 and 1997:
Third Quarter Ended
March 31,
1998 1997
------ ------
Net losses as a percentage of average loans outstanding (annualized):
All contracts 1.0% 0.2%
Contracts originated by VMF 0.9% 0.0%
Contracts acquired from other institutions 2.1% 3.6%
Liquidity and Capital Resources
Cash at March 31, 1998, was $37.8 million as compared to $89.7 million at June
30, 1997. The Company anticipates meeting cash requirements with cash flows from
operations, current cash balances, and the sale of installment contract
receivables and GNMA certificates.
In addition, as of the cutoff date of this filing, the Company through a
controlled subsidiary is in the final stages of entering into a credit agreement
with a banking group to expand its credit capacity through the creation of an
enhanced revolving credit facility. The transaction is expected to decrease
overall cost of capital, increase credit capacity and provide greater ease and
liquidity in the sourcing and access to necessary credit for working capital.
The maximum size of the facility can range to a high of $150,000,000.
Forward Looking Statements
Certain statements in the 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, general or seasonal weather conditions affecting sales and revenues,
catastrophic events impacting insurance reserves, cost of labor and/or raw
materials and industry concentration trends creating fewer, but stronger
competitors capable of sustaining competitive pricing pressures.
Management expertise is affected by management's overall ability to anticipate
and meet consumer preferences, maintain successful marketing programs, continue
quality manufacturing output, keep a
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strong cost management oversight, and project stable gain on sale accounting
assumptions. Lastly, management has the least control over government policy and
economic conditions such as prevailing interest rates, government monetary
policy, stable regulation of manufacturing standards, consumer confidence,
favorable trade policies, and general prevailing economic and employment
conditions.
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) 27. Financial Data Schedule (SEC use only)
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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: May 12, 1998 /s/ Kevin T. Clayton
--------------------------------- --------------------
Kevin T. Clayton
President
Date: May 12, 1998 /s/ John J. Kalec
-------------------------------- -----------------
John J. Kalec
Sr. Vice President, Chief
Financial Officer and
Secretary
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