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, 2000
-----------------------
COMMISSION FILE NUMBER 1-8824
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CLAYTON HOMES, INC.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-1671360
---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5000 Clayton Road
Maryville, Tennessee 37804
---------------------------------- ----------------------------------
(Address of principal executive offices) (zip code)
865-380-3000
----------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock $.10 par value, outstanding on December 31, 2000
-137,650,319.
1
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUES
Net sales $204,138 $234,466 $434,046 $500,206
Financial services 61,511 57,570 114,738 111,918
Rental and other income 19,204 17,123 36,876 34,332
----------- ----------- ----------- -----------
Total revenues 284,853 309,159 585,660 646,456
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 136,367 154,559 289,998 333,042
Selling, general and administrative 92,731 94,378 187,092 192,626
Financial services interest 187 271 394 560
Provision for credit losses 10,100 4,400 17,300 8,400
----------- ----------- ----------- -----------
Total expenses 239,385 253,608 494,784 534,628
----------- ----------- ----------- -----------
OPERATING INCOME 45,468 55,551 90,876 111,828
Interest income (expense), net/other (1,903) 280 (1,329) 427
----------- ----------- ----------- -----------
Income before income taxes 43,565 55,831 89,547 112,255
Provision for income taxes 16,100 20,600 33,100 41,500
----------- ----------- ----------- -----------
Net income $27,465 $35,231 $56,447 $70,755
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.20 $ 0.25 $ 0.41 $ 0.50
Diluted 0.20 0.25 0.41 0.50
DIVIDENDS PAID PER COMMON SHARE $0.016 $0.016 $0.032 $0.032
AVERAGE SHARES OUTSTANDING
Basic 137,631 140,005 137,575 140,523
Diluted 138,073 140,342 137,944 140,886
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited) (audited)
December 31, June 30,
2000 2000
----------- -----------
ASSETS
Cash and cash equivalents $ 43,780 $ 43,912
Trade receivables 11,634 21,796
Other receivables, net 524,820 500,942
Residual interests in installment contract receivables 158,376 150,329
Inventories 204,467 222,431
Property, plant and equipment, net 308,983 305,479
Other assets 244,090 261,489
----------- -----------
Total assets $1,496,150 $1,506,378
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 80,542 $ 122,760
Debt obligations 97,629 99,216
Other liabilities 226,815 248,027
----------- -----------
Total liabilities 404,986 470,003
SHAREHOLDERS' EQUITY
Accumulated other comprehensive income (loss) 1,036 (681)
Other shareholders' equity 1,090,128 1,037,056
----------- -----------
Total shareholders' equity 1,091,164 1,036,375
----------- -----------
Total liabilities and shareholders' equity $1,496,150 $1,506,378
=========== ===========
(See accompanying notes to the condensed consolidated financial statements)
2
CLAYTON HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Six Months Ended
December 31,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 56,447 $ 70,755
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,824 9,993
Amortization of installment contract receivables, net of gain on sale 6,360 (2,386)
Provision for credit losses 17,300 8,400
Realized loss on securities available-for-sale 588 349
Deferred income taxes (3,689) (3,707)
Decrease (increase) in other receivables, net (2,691) 44,362
Decrease (increase) in inventories 17,964 (17,916)
Decrease in accounts payable, accrued liabilities, and other (69,213) (122,708)
---------- ----------
Cash provided by (used in) operations 33,890 (12,858)
Origination of installment contract receivables (393,123) (503,747)
Proceeds from sales of originated installment contract receivables 468,213 556,424
Principal collected on originated installment contract receivables 20,104 19,603
---------- ----------
Net cash provided by operating activities 129,084 59,422
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of installment contract receivables (214,021) (158,028)
Proceeds from sales of acquired installment contract receivables 64,594 149,676
Principal collected on acquired installment contract receivables 10,913 9,631
Proceeds from sales of securities available-for-sale 19,427 9,772
Acquisition of property, plant and equipment (14,328) (18,917)
Decrease in restricted cash 9,161 13,091
---------- ----------
Net cash provided by(used in) investing activities (124,254) 5,225
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (4,627) (4,753)
Repayment of long-term debt (1,587) (1,643)
Issuance of stock for incentive plans and other 1,734 1,883
Repurchase of common stock (482) (30,233)
---------- ----------
Net cash used in financing activities (4,962) (34,746)
---------- ----------
Net increase (decrease) in cash and cash equivalents (132) 29,901
Cash and cash equivalents at beginning of period 43,912 2,680
---------- ----------
Cash and cash equivalents at end of period $ 43,780 $ 32,581
========== ==========
(See accompanying notes to the condensed consolidated financial statements)
3
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements of Clayton Homes, Inc.
and its wholly and majority owned subsidiaries (the Company) have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with Generally Accepted Accounting Principles have been omitted. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
to Shareholders for the year ended June 30, 2000.
The information furnished reflects all adjustments which are necessary for a
fair presentation of the Company's financial position as of December 31, 2000,
and the results of its operations and its cash flows for the six month periods
ended December 31, 2000, and 1999. All such adjustments are of a normal
recurring nature.
In the first quarter of 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, which was subsequently amended by SFAS No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. Such adoption did not
have a material impact on the Company's reported results of operations,
financial position or cash flows.
The Company also adopted the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and
Handling Revenues and Costs, in the first quarter of 2001. Such adoption did
not have a material impact on the Company's reported results of operations,
financial position or cash flows.
2. The results of operations for the six months ended December 31, 2000 are
not necessarily indicative of the results to be expected for the respective full
year.
3. Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentation.
4. The Company has $75 million of 6.25% Senior Notes due December 30, 2003,
which are primarily to facilitate the purchase, origination and warehousing of
loan portfolios. The Senior Notes are guaranteed by all significant
subsidiaries of the Company and are governed by various financial covenants
which require maintenance of certain financial ratios.
Subsequent to December 31, 2000, the Company cancelled its committed one-year
$300 million commercial paper conduit facility used to facilitate the sale of
manufactured housing contracts. The facility was not utilized as of December
31, 2000. The Company is currently considering a replacement facility for a
lower amount.
5. Reconciling items in excess of bank balances have been reclassified to
"Accounts payable and accrued liabilities" in the accompanying balance sheets.
4
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. The following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for the respective periods:
Three Months Ended Six Months Ended
December 31, December 31,
(in thousands except per share data) 2000 1999 2000 1999
---------- ---------- ---------- ----------
Net income $27,465 $35,231 $56,447 $70,755
Average shares outstanding
Basic 137,631 140,005 137,575 140,523
Add: common stock equivalents (1) 442 337 369 363
----------- ---------- ---------- ----------
Diluted 138,073 140,342 137,944 140,886
Net income per common share
Basic $ 0.20 $ 0.25 $ 0.41 $ 0.50
Diluted $ 0.20 $ 0.25 $ 0.41 $ 0.50
(1) Common stock equivalents are principally stock options.
7. The reserves for credit losses and contingent liabilities at December 31,
2000, and June 30, 2000, were $33,860,000 and $35,725,000, respectively.
8. In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. It summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. An amendment was
issued in June 2000, which delays the implementation until no later than the
fourth quarter of fiscal years beginning after December 15, 1999. The Company
believes that its practices already comply with the provisions of SAB No. 101,
and its adoption is not expected to have a material impact on the Company's
reported results of operations, financial position or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for fiscal years
ending after December 15, 2000. Such adoption is not expected to have a
material impact on the Company's reported results of operations, financial
position or cash flows.
In October 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued a new accounting requirement for the recognition of other
than temporary impairments on purchased and retained beneficial interests
resulting from securitization transactions. This requirement is summarized in
EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased
and Retained Beneficial Interests in Securitized Financial Assets.
5
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Under previously existing accounting requirements, declines in fair value of
such beneficial interests were recognized as other than temporary impairment
when the present value of the underlying cash flows discounted at a risk-free
rate using current assumptions were less than the carrying value of such assets.
Pursuant to EITF Issue No. 99-20, declines in fair value are to be considered
other than temporary when: (i) the carrying value of the beneficial interests
exceeds the fair value of such beneficial interests using current assumptions,
and (ii) the timing and/or extent of cash flows expected to be received on the
beneficial interests has adversely changed - as defined - from the previous
valuation date.
Initial adoption of this new accounting guidance will be required for the
Company's fourth quarter of fiscal 2001 and is to be reflected as a cumulative
effect of an accounting change at the time of adoption. The Company
is currently evaluating the timing of adoption of this new accounting
requirement and its potential impact on the accounting for the Company's
residual, regular and other interests retained at the time of its securitization
transactions.
6
CLAYTON HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. The Company operates primarily in four business segments: Retail,
Manufacturing, Financial Services and Communities. The following table
summarizes information with respect to the Company's business segments for the
three month and six month periods ended December 31, 2000 and 1999:
Three Months Ended Six Months Ended
December 31, December 31,
(in thousands) 2000 1999 2000 1999
------------ ---------- ---------- ----------
REVENUES
Retail $ 159,063 $ 175,272 $ 332,308 $ 368,266
Manufacturing 117,273 153,205 248,907 312,455
Financial Services 50,930 47,714 93,742 92,657
Communities 19,954 20,458 42,554 41,969
Intersegment sales (62,367) (87,490) (131,851) (168,891)
------------ ---------- ---------- ----------
Total revenues $ 284,853 $ 309,159 $ 585,660 $ 646,456
INCOME FROM OPERATIONS
Retail $ 4,349 $ 12,498 $ 12,516 $ 27,907
Manufacturing 8,244 17,062 19,551 32,433
Financial Services 29,655 28,072 53,538 53,266
Communities 2,836 3,711 6,290 6,979
Eliminations/Other 384 (5,792) (1,019) (8,757)
------------ ---------- ---------- ----------
Total income from operations $ 45,468 $ 55,551 $ 90,876 $ 111,828
CAPITAL EXPENDITURES
Retail $ 1,423 $ 3,304 $ 3,591 $ 6,313
Manufacturing 1,055 4,274 2,381 7,592
Financial Services 53 277 146 382
Communities 1,937 1,256 8,331 4,199
Eliminations/Other 235 380 (121) 431
------------ ---------- ---------- ----------
Total capital expenditures $ 4,703 $ 9,491 $ 14,328 $ 18,917
December 31, June 30,
2000 2000
------------ ----------
IDENTIFIABLE ASSETS
Retail $ 260,987 $ 287,705
Manufacturing 90,977 100,112
Financial Services 897,293 902,913
Communities 192,745 185,784
Eliminations/Other 54,148 29,864
-------------- ----------
Total identifiable assets $1,496,150 $1,506,378
7
PART I -- FINANCIAL INFORMATION (Unaudited)
ITEM 1. Financial Statements.
----------------------
See pages 2 through 7.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------
Results of Operations.
------------------
SIX MONTHS ENDED DECEMBER 31, 2000:
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, independent retailers and communities, the average
sales per location, and the average price per home sold in each category.
First Six Months
Fiscal Year 2001 vs 2000
-------------------------
Retail
Dollar sales -10.9%
Number of retail centers + 1.9%
Dollar sales per retail center -12.6%
Price of home - 1.3%
Wholesale
Dollar sales -19.8%
Number of independent retailers + 4.0%
Dollar sales per independent retailer -22.9%
Price of home + 5.8%
Communities
Dollar sales - 5.4%
Number of communities + 1.3%
Dollar sales per community - 6.6%
Price of home - 1.7%
Total revenues for the six months ended December 31, 2000, decreased 9% to $586
million, which consisted of a 13% decrease in manufactured housing sales to $434
million, a 3% increase in financial services income to $115 million and a 7 %
increase in rental and other income to $37 million.
Current conditions in the manufactured housing industry are highly competitive
at both the retail and wholesale levels. Presently, the industry is faced with
over-capacity in manufacturing and too many retail centers. This competitive
environment, as well as higher interest rates and general credit tightening, has
contributed to decreased industry and Company sales. Thus, the Company expects
operating results for the third quarter to be below the second quarter's
results.
The Retail group experienced a reduction of net sales of 11% to $301 million as
the average home price decreased 1% and the number of Company-owned sales
centers increased 2%. Reflecting the competitive industry environment, as well
as increased repossessed home sales and higher interest rates,
8
the average number of homes sold per sales center declined 11%. In addition,
net sales of the Manufacturing group to independent retailers decreased 20% to
$116 million, and the number of homes sold decreased 24% to 4,772. The
Communities group net sales decreased 5% to $18 million as 4% less homes were
sold, and the average home selling price decreased 2%.
Within the revenues for the Financial Services segment, interest and loan
servicing revenues increased $8 million, and insurance related revenues rose $3
million. Rental and other income increased 7% as Communities rental income rose
8%.
Loans sold through asset-backed securities totaled $533 million, compared to
$623 million during the same period last year. Financial services interest
expense decreased $.2 million to $.4 million. Debt collateralized by
installment contract receivables dropped 30% to an average of $7 million, and
the weighted average interest rate increased to 10.58% from 10.50%.
Gross profit margins decreased to 33.2% from 33.4%. The decrease was
attributable to more competitive pricing in the market. Selling, general and
administrative expenses, as a percent of revenues, increased to 31.9% from 29.8%
in the prior year period. This increase was primarily due to a decline in
overall sales volume in addition to growth of Company-owned sales centers with a
decrease in sales, and reduced capacity utilization in manufacturing.
Additional set up costs associated with the shift in mix toward larger homes was
also a factor. The increase in the provision for credit losses was primarily
due to the additional number of contracts in repossession from the same period
last year.
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.
December 31,
2000 1999
---- ----
Total delinquency as a percentage of contracts outstanding:
All contracts 3.62% 3.42%
Contracts originated by VMF 2.93% 2.47%
Contracts acquired from other institutions 7.07% 7.76%
9
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.
Six Months Ended
December 31,
2000 1999
------ ------
Net losses as a percentage of average
loans outstanding (annualized):
All contracts 1.7% 1.5%
Contracts originated by VMF 1.6% 1.3%
Contracts acquired from other institutions 2.0% 3.2%
Number of contracts in repossession:
All contracts 2,726 2,208
Contracts originated by VMF 2,252 1,772
Contracts acquired from other institutions 474 436
Total number of contracts in repossession
as a percentage of total contracts 2.0% 1.7%
The decrease in inventories as of December 31, 2000, from June 30, 2000, is
explained as follows:
($ in millions)
Manufacturing Increase (decrease)
------------- --------------------
Finished goods $ 9.9
Raw materials (6.3)
Retail
------
Decrease in inventory levels at
Company-owned retail centers (23.3)
Communities
-----------
Increase in inventory levels at 76
Communities open at June 30, 2000 1.5
Inventory to stock one new Community 0.2
--------
$(18.0)
--------
On December 31, 2000, the order backlog for the Manufacturing group (consisting
of Company-owned and independent retailer orders) decreased to $9 million, as
compared to $14 million for the same period last year.
10
SECOND QUARTER ENDED DECEMBER 31, 2000:
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, independent retailers and communities, the average
sales per location, and the average price per home sold in each category.
Second Three Months
Fiscal Year 2001 vs 2000
-------------------------
Retail
Dollar sales -10.5%
Number of retail centers 1.3%
Dollar sales per retail center -11.6%
Price of home ----
Wholesale
Dollar sales -19.0%
Number of independent retailers 2.1%
Dollar sales per independent retailer -20.7%
Price of home 9.6%
Communities
Dollar sales -12.2%
Number of communities 1.3%
Dollar sales per community -13.4%
Price of home -2.9%
Total revenues for the three months ended December 31, 2000, decreased 8% to
$285 million, which consisted of a 13% decrease in manufactured housing sales to
$204 million, a 7% increase in financial services income to $62 million and a
12% increase in rental and other income to $19 million.
Current conditions in the manufactured housing industry are highly competitive
at both the retail and wholesale levels. Presently, the industry is faced with
over-capacity in manufacturing and too many retail centers. This competitive
environment, as well as higher interest rates and general credit tightening, has
contributed to decreased industry and Company sales. Thus, the Company expects
operating results for the third quarter to be below the second quarter's
results.
The Retail group experienced a reduction of net sales of 10% to $143 million, as
the average home price remained constant while the number of Company-owned sales
centers increased 1%. Reflecting the competitive industry environment, as well
as increased repossessed home sales and higher interest rates, the average
number of homes sold per sales center declined 12%. In addition, net sales of
the Manufacturing group to independent retailers decreased 19% to $53 million,
and the number of homes sold decreased 26% to 2,127. The Communities group net
sales decreased 12% to $8 million as 10% less homes were sold, while the average
home selling price decreased 3%.
Within the revenues for the Financial Services segment, interest and loan
servicing revenues increased $4 million, and insurance related revenues rose $2
million. Rental and other income increased 12% as Communities rental income
rose 8%.
11
Loans sold through asset-backed securities totaled $268 million, compared to
$267 million during the same period last year. Financial services interest
expense decreased $.1 million to $.2 million. Debt collateralized by
installment contract receivables dropped 31% to an average of $7 million, and
the weighted average interest rate increased to 10.60% from 10.57%.
Gross profit margins decreased to 33.2% from 34.1%. The decrease was
attributable to more competitive pricing in the market. Selling, general and
administrative expenses, as a percent of revenues, increased to 32.6% from 30.5%
in the prior year period. This increase was primarily due to a decline in
overall sales volume in addition to growth of Company-owned sales centers with a
decrease in sales, and reduced capacity utilization in manufacturing.
Additional set up costs associated with the shift in mix toward larger homes was
also a factor. The increase in the provision for credit losses was primarily
due to the additional number of contracts in repossession from the same period
last year.
The following table sets forth write-off experience for the quarters ended
December 31, 2000 and 1999:
Second Quarter Ended
December 31,
2000 1999
----- -----
Net losses as a percentage of average
loans outstanding (annualized):
All contracts 1.8% 1.6%
Contracts originated by VMF 1.7% 1.4%
Contracts acquired from other institutions 2.3% 3.2%
Liquidity and Capital Resources
----------------------------------
Cash was $44 million at December 31, 2000 and June 30, 2000. The Company
anticipates meeting cash requirements with cash flow from operations, revolving
credit lines, a new commercial paper conduit facility, senior notes, and sales
of installment contract and mortgage loan receivables and GNMA certificates.
The Company's debt to capital ratio was 8% at December 31, 2000. The Company had
long-term debt outstanding of $98 million and $99 million at December 31, 2000
and June 30, 2000, respectively. Short-term debt available consists of $115
million committed and $67 million uncommitted lines of credit. These lines of
credit do not require collateral and are priced on LIBOR rates. The committed
credit lines are guaranteed by all significant subsidiaries of the Company and
are governed by various financial covenants which require maintenance of certain
financial ratios.
The Company has $75 million of 6.25% Senior Notes due December 30, 2003, which
are primarily to facilitate the purchase, origination and warehousing of loan
portfolios. The Senior Notes are guaranteed by all significant subsidiaries of
the Company and are governed by various financial covenants which require
maintenance of certain financial ratios.
Subsequent to December 31, 2000, the Company cancelled its committed one-year
$300 million commercial paper conduit facility used to facilitate the sale of
manufactured housing contracts. The facility was not utilized as of December
31, 2000. The Company is currently considering a replacement facility for a
lower amount. The Company owns its own inventory; therefore no floorplanning
arrangements are necessary.
12
New Accounting Pronouncements
-------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
It summarizes the SEC's views in applying generally accepted accounting
principles to selected revenue recognition issues. An amendment was issued in
June 2000, which delays the implementation until no later than the fourth
quarter of fiscal years beginning after December 15, 1999. The Company believes
that its practices already comply with the provisions of SAB No. 101, and its
adoption is not expected to have a material impact on the Company's reported
results of operations, financial position or cash flows.
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for fiscal years
ending after December 15, 2000. Such adoption is not expected to have a
material impact on the Company's reported results of operations, financial
position or cash flows.
In October 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued a new accounting requirement for the recognition of other
than temporary impairments on purchased and retained beneficial interests
resulting from securitization transactions. This requirement is summarized in
EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased
and Retained Beneficial Interests in Securitized Financial Assets.
Under previously existing accounting requirements, declines in fair value of
such beneficial interests were recognized as other than temporary impairment
when the present value of the underlying cash flows discounted at a risk-free
rate using current assumptions were less than the carrying value of such assets.
Pursuant to EITF Issue No. 99-20, declines in fair value are to be considered
other than temporary when: (i) the carrying value of the beneficial interests
exceeds the fair value of such beneficial interests using current assumptions,
and (ii) the timing and/or extent of cash flows expected to be received on the
beneficial interests has adversely changed - as defined - from the previous
valuation date.
Initial adoption of this new accounting guidance will be required for the
Company's fourth quarter of fiscal 2001 and is to be reflected as a cumulative
effect of an accounting change at the time of adoption. The Company is
currently evaluating the timing of adoption of this new accounting
requirement and its potential impact on the accounting for the Company's
residual, regular and other interests retained at the time of its
securitization transactions.
Forward Looking Statements
----------------------------
Certain statements in this quarterly report are forward looking as defined in
the Private Securities Litigation Reform Law. These statements involve certain
risks and uncertainties that may cause actual results to differ materially from
expectations as of the date of this report. These risks fall generally within
three broad categories consisting of industry factors, management expertise, and
government policy and economic conditions. Industry factors include such
matters as potential periodic inventory adjustments by both captive and
independent retailers, availability of wholesale and retail financing, general
or seasonal weather conditions affecting sales and revenues, catastrophic events
impacting
13
insurance reserves, cost of labor and/or raw materials and industry
consolidation 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 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, capital market liquidity, government monetary policy, stable
regulation of manufacturing standards, consumer confidence, favorable trade
policies, and general prevailing economic and employment conditions.
14
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) Reports on Form 8-K.
Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. Senior
Subordinate Pass-Through Certificates Series 2000D. Filed
November 15, 2000.
Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc.
Incorporation of financial statements of Clayton Homes, Inc.
into registration statement file no. 333-75405 pertaining to
Senior Subordinate Pass-Through Certificates Series 2000D. Filed
November 29, 2000.
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CLAYTON HOMES, INC.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLAYTON HOMES, INC.
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(Registrant)
Date: February 12, 2001 /s/ Kevin T. Clayton
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Kevin T. Clayton
Chief Executive Officer and President
Date: February 12, 2001 /s/ Amber W. Krupacs
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Amber W. Krupacs
Vice President Finance
Date: February 12, 2001 /s/ Greg A. Hamilton
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Greg A. Hamilton
Vice President and Controller
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