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, 2002
OR
[ ] 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)
Delaware 62-1671360
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
5000 Clayton Road
Maryville, Tennessee 37804
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 865-380-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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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. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 15, 2002, was approximately $1,282,194,323 (98,177,207
shares at closing price on the NYSE of $13.06).
Shares of common stock, $.10 par value (the "Common Stock"), outstanding on
August 15, 2002, were 136,129,338.
Exhibit index appears on pages 14-15.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Affected Documents from which portions are incorporated by reference
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Part II (except for Item 5) The Company's Annual Report to Stockholders for fiscal year ended
June 30,2002 (the "Annual Report"), which is filed as Exhibit 13 herewith
Part III Proxy Statement relating to the Company's Annual Meeting
of Stockholders on October 30, 2002 (the "Proxy Statement")
1
CLAYTON HOMES, INC.
FORWARD LOOKING STATEMENTS
Certain statements in this annual report are "forward looking" as defined in the
Private Securities Litigation Reform Law. These statements involve certain risks
and uncertainties that may cause actual results to differ materially from
expectations as of the date of this report. These risks fall generally within
three broad categories consisting of industry factors, management expertise, and
government policy and economic conditions. Industry factors include such matters
as potential periodic inventory adjustments by both captive and independent
retailers, availability of wholesale and retail financing, general or seasonal
weather conditions affecting sales and revenues, catastrophic events impacting
insurance costs, cost of labor and/or raw materials and industry consolidation
trends creating fewer, but stronger, competitors capable of sustaining
competitive pricing pressures.
Management expertise and experience affects its overall ability to anticipate
and meet consumer preferences, maintain successful marketing programs, continue
quality manufacturing output, keep a strong cost management oversight, and
achieve stable results from its securitization activities.
Lastly, management has little control over government policy and economic
conditions such as prevailing interest rates, capital market liquidity,
government monetary policy, stable regulation of manufacturing standards,
consumer confidence, favorable trade policies, and general prevailing economic
and employment conditions.
PART I
ITEM 1. BUSINESS.
GENERAL
Clayton Homes, Inc. and its subsidiaries (collectively, the "Company") produce,
sell, finance and insure primarily low to medium-priced manufactured homes. The
Company's 20 manufacturing plants produce homes which are marketed in 33 states
through 970 retailers, of which 287 are Company-owned sales centers and 82 are
Company-owned community sales offices. The balance (601) of the Company's
retailers are comprised of independent retailers, located in 32 states.
Installment financing and insurance products are offered to its home buyers and
those buying from selected independent retailers. Such financing is provided
through its wholly-owned finance subsidiary, Vanderbilt Mortgage and Finance,
Inc. ("VMF"). The Company acts as agent, earns commissions and reinsures risks
on physical damage, family protection, and home buyer protection insurance
policies issued by a non-related insurance company (ceding company) in
connection with its home sales. The Company also develops, owns, and manages
manufactured housing communities.
The Company is a Delaware corporation whose predecessor was incorporated in 1968
in Tennessee. Its principal executive offices are located near Knoxville,
Tennessee.
The following table indicates the percentage of revenue derived from sales by
Company-owned retail centers, sales to independent retailers and financial
services operations and other income for each of the last three fiscal years.
YEAR ENDED JUNE 30,
2002 2001 2000
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Sales by Company-owned retail centers
and communities 55% 54% 55%
Sales to independent retailers 18% 19% 22%
Financial services and other 27% 27% 23%
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Total 100% 100% 100%
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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,
owner-occupied residences sited and attached to utilities.
2
The Company manufactures a variety of single and multi-section homes in a wide
price range. Retail prices range from $10,000 to $90,000 with sizes from 500 to
2,400 square feet.
The Company markets homes under the names of Clayton and Norris. Included
standard features are central heating, range, refrigerator, and
color-coordinated window, wall and floor treatments. Optional features include
central air conditioning, wood-burning fireplaces, hardwood floors, whirlpool
tubs, entertainment systems, microwaves, dishwashers, washers and dryers,
skylights and furniture.
MANUFACTURING OPERATIONS
The Company manufactures homes in 20 facilities, ranging in size from 63,000 to
194,000 square feet. See "Item 2. Properties" for a listing by location of the
Company's facilities. 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 to fill 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 35,000 homes per year.
During the fiscal year ended June 30, 2002, the Company produced 20,457 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 these and other items
from 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. The Company is not dependent on any particular
manufacturer or supplier as a source for these principal materials. 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 adversely affected. Construction of the Company's manufactured homes
and the plumbing, heating and electrical systems installed in them must comply
with standards set by the Federal Department of Housing and Urban Development
under the National Manufactured Home Construction and Safety Standards Act of
1974. See "Regulation."
The Company offers one-year limited warranty programs 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 are not those of the Company. Warranty and
service costs during the years ended June 30, 2002, June 30, 2001, and June 30,
2000, amounted to approximately $13,522,000, $14,193,000, and $14,589,000,
respectively.
The backlog of firm orders for homes manufactured by the Company, including
orders from Company-owned retail centers, was approximately $22,000,000 and
$35,000,000 on June 30, 2002, and 2001, respectively. Based on the Company's
production rate, approximately two weeks would be required to fill backlog
orders at June 30, 2002.
SALES OF HOMES MANUFACTURED BY THE COMPANY
The following table sets forth manufacturing sales and other data for the
periods indicated.
YEAR ENDED JUNE 30,
2002 2001 2000
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Number of homes sold to independent retailers 8,240 9,119 12,247
Number of homes shipped to Company-owned retail centers 12,168 10,804 14,101
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Total 20,408 19,923 26,348
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Number of plants operating 20 20 20
Number of independent retailers 601 634 707
Number of Company-owned communities 82 81 76
Number of Company-owned retail centers 287 297 318
3
COMPANY RETAIL OPERATIONS
As of June 30, 2002, the Company sold homes through 287 Company-owned retail
centers in 24 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 sold during the last three fiscal years.
YEAR ENDED JUNE 30,
2002 2001 2000
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Number of Company-owned retail centers 287 297 318
Number of new homes sold (including homes built by the
Company and by other manufacturers) 12,772 12,346 14,022
Average retail price of new homes sold $44,759 $43,643 $43,892
Number of previously-owned homes sold 3,105 3,556 3,910
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 and
acquires on trade previously-owned manufactured homes from individuals and from
other retailers, as well as foreclosed homes from lenders throughout its trade
territory.
Homes sold by Company-owned retail centers are delivered to the homeowners'
sites by trucks either owned by the Company or leased for the particular
delivery. The purchase price of the home may include delivery and setup of the
home at the retail homeowner's site. Electrical, water, and gas connections are
performed by licensed technicians.
INDEPENDENT RETAILERS
In the fiscal year ended June 30, 2002, 40% of homes manufactured by the Company
were sold to its independent retailers, compared to 46% for the year ended June
30, 2001. As of June 30, 2002, the Company supplied its manufactured homes to
601 independent retailers in 32 states. The Company's independent retailer
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 retailers ensure the
Company that its homes are competitive with other manufacturers in terms of
consumer acceptability, product design, quality and price.
The Company's finance subsidiary, VMF, provides financing for retail customers
of select independent retailers with terms and conditions similar to those
provided to Company-owned locations. In addition, VMF also provides inventory
financing for certain Company and non-Company independent retailers.
The Company establishes relationships with its independent retailers through
sales representatives from its manufacturing plants. These representatives
visit independent retailers in assigned areas to solicit orders for the
Company's homes. The area is generally limited to a 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 manufacturing
competition within the area, a home may be competitively shipped shorter or
longer distances. During each of the Company's last three fiscal years, no
single retailer accounted for more than 2% of the Company's consolidated
revenues.
The Company's independent retailers generally provide their own inventory
financing, allowing the Company to receive payment for homes within two weeks
after the home is constructed. The Company does not require agreements with its
independent retailers, and the relationship between the Company and each of its
independent retailers may be terminated at any time by either party. The
Company believes its relationships with its independent retailers are good, and
has experienced relatively little turnover among independent retailers in the
past several years. The Company generally has little control over the operations
of independent retailers.
4
As is customary in the industry, lenders financing independent retailer
purchases require that the Company execute repurchase agreements which provide
that, in the event of retailer default under the retailer'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 are immediately resold to other
retailers, including Company-owned retail centers, at approximately 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.
FINANCIAL SERVICES
The Company believes that the ability to make financing available to retail
purchasers is a material factor affecting the market acceptance of its product.
The Company facilitates retail sales by offering various finance and insurance
programs. The following table reflects the relative percentages of homes sold
by Company-owned 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,
2002 2001 2000
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VMF 71% 74% 76%
Conventional lenders 5% 2% 3%
Customer arranged or cash 24% 24% 21%
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Total 100% 100% 100%
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VMF also purchases and originates manufactured housing installment contract
receivables (also referred to as manufactured housing contracts) on an
individual basis from independent retailers. Retailers submit home buyer
applications to VMF for approval and, provided that credit reports, employment
verification, and income and debt analysis meet VMF's criteria, a contract
purchase commitment is issued to the selling retailer.
VMF makes bulk purchases of manufactured housing contracts from banks and
commercial lenders. 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 other entities that
purchase and hold 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 retail center and then
forwarded to VMF.
VMF's underwriting guidelines require that each applicant's credit, residence,
employment history and income to debt payment ratios meet predetermined
guidelines. If in the judgment of the VMF credit manager an applicant does not
meet minimum underwriting criteria, there must be other determining criteria in
order for an applicant to be approved. Credit managers confirm that the credit
investigation gives a complete and up-to-date accounting of the applicant's
creditworthiness and are encouraged to obtain second opinions on loans for
relatively large dollar amounts or those which 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 35% of the applicant's gross monthly income.
With respect to those home buyers which are approved, 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 retailer must be consistent with the value of the home as
determined by VMF in light of current market conditions. The value of real
property pledged as additional collateral is estimated by licensed appraisers or
by retail personnel, who are not appraisers but are familiar with the area in
which the property is located. The average down-payment for 2002 was 20% of the
purchase price, while the minimum down-payment for qualified buyers was
generally 5%. The purchase price includes the stated cash sale price of the
manufactured home, sales or other taxes and fees and set-up costs.
5
The balance of the purchase price is financed using various installment sales
contracts or mortgage instruments 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 seven to thirty years at fixed or variable
rates of interest. VMF believes the typical manufactured home purchaser is
primarily sensitive to the amount of the monthly payment and not necessarily to
the underlying interest rate.
The Company offers a bi-weekly payment program which provides for 26 payments
per year, allowing home buyers the convenience of electronically drafting
payments from their checking accounts while reducing the overall term of the
loan. The Company believes that such financing options are attractive to the
customer and improve market acceptance of its homes as well as improve
delinquency and repossession experience.
During the Company's last 13 fiscal years, VMF was the most significant source
of financing for purchasers of homes sold by the Company-owned retail centers.
In fiscal year 2002, VMF originated 23,204 contracts, as compared to 21,720 in
fiscal year 2001. At June 30, 2002, VMF was servicing approximately 162,000
contracts with an aggregate dollar amount of approximately $5.0 billion. VMF
originated or purchased approximately 153,000 of these contracts with an
aggregate dollar amount of approximately $4.8 billion. 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 is as
follows:
CONTRACT ORIGINATIONS
YEAR ENDED JUNE 30,
2002 2001 2000
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Principal balance of contracts originated
(in thousands) $912,508 $815,058 $982,570
Number of contracts originated 23,204 21,720 26,161
Average contract size $ 39,325 $ 37,526 $ 37,559
Average interest rate 10.10% 11.67% 10.85%
The following table indicates the number of loans (in thousands) serviced by VMF
on the dates indicated:
LOANS SERVICED (IN THOUSANDS)
YEAR ENDED JUNE 30,
2002 2001 2000
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Originated and purchased loans serviced 153 138 130
Master servicing contracts 9 10 12
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Total 162 148 142
VMF FUNDING. VMF draws on its short-term credit facilities with the Company to
fund manufactured home loans, while long-term financing is obtained through the
capital markets. In fiscal 2002, VMF completed four public offerings of
asset-backed securities totaling approximately $1.9 billion. In excess of $8.3
billion of securities have been issued and sold since 1991.
VMF's capital market activity, the primary source of permanent funding for its
lending activities, is in the form of asset-backed securities issued through its
special purpose entity. These securities, which are sold in public markets, are
collateralized by manufactured housing receivables which are either originated
or acquired by VMF. Certain of these receivables are originated and subserviced
by other entities. With respect to the securitized pools that contain
receivables originated or acquired by other entities, VMF is servicer for all
loans in the pools, with a subservicing arrangement on some loans originated or
acquired from other entities.
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 $3,000,000 to collateralize the issuance by VMF
of securities
6
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, 2002, VMF originated installment
sales contracts eligible for financing under the GNMA program having aggregate
principal balances of $15,466,000. As of June 30, 2002, VMF was servicing 212
GNMA pools totaling $68 million in principal balances. Use of FHA 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 and corporate existence. The Company is
contingently liable as guarantor on installment contract receivables sold with
recourse. At June 30, 2002, and 2001, the outstanding principal balances of
these receivables totaled approximately $68 million and $84 million,
respectively. There were no receivables sold with recourse in 2002, 2001 and
2000.
ACQUIRED CONTRACTS AND SERVICING ARRANGEMENTS. Certain acquired contracts are
originated by banks or commercial lenders, and acquired indirectly or directly
by VMF. The acquired contracts are purchased on the basis of underwriting
criteria that may be different from and may not be as strict as VMF's
underwriting criteria.
In fiscal year 1998, VMF became the servicer of 10,013 manufactured housing
installment sales contracts with approximate principal balances of $267 million.
VMF acts solely as servicer with respect to these contracts and, thus, has no
ownership interest nor contingent liability related to these portfolios. At June
30, 2002, VMF was servicing approximately 9,000 of these installment sales
contracts with an approximate principal balance of $158 million. In addition, in
2002, VMF acquired 22,996 contracts with an aggregate principal balance of
approximately $900 million. VMF has contracted with an affiliate finance company
to sub-service approximately $450 million of these receivables.
DELINQUENCY AND REPOSSESSION EXPERIENCE. VMF performs recordkeeping and
collection activities on all loans that it originates or purchases through
portfolio acquisitions. 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, generally
the Company does not repossess the home until payments are three months
delinquent, unless the borrower does not have 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. An
account is considered delinquent if any payment is past-due 30 days or more.
DELINQUENCY PERCENTAGE AT JUNE 30,
2002 2001 2000
---- ---- ----
Total delinquencies as percentage of
contracts outstanding
All contracts 2.84% 2.59% 2.19%
Contracts originated by VMF 2.29 2.12 1.67
Contracts acquired from other institutions 4.96 4.89 4.88
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:
7
YEAR ENDED JUNE 30,
2002 2001 2000
---- ---- ----
Net losses as percentage of average
loans outstanding
All contracts 2.2% 1.8% 1.4%
Contracts originated by VMF 2.1% 1.7% 1.2%
Contracts acquired from other institutions 2.5% 2.5% 2.8%
Number of contracts in repossession
All contracts 2,790 2,652 2,231
Contracts originated by VMF 2,061 2,191 1,774
Contracts acquired from other institutions 729 461 457
Total number of contracts in repossession as
percentage of total contracts 1.83% 1.93% 1.72%
The Company currently, at its option, pays the unpaid balance of an installment
sales contract for which it is liable upon repossession of the home. The
Company believes that as long as it is able to sell repossessed homes promptly
at satisfactory prices, the costs associated with remarketing these homes can be
mitigated. There can be no assurance, however, that the Company's future
results with respect to the payoff and resale of repossessed homes will be
consistent with its past experience. See Note 7 to the Consolidated Financial
Statements in the Annual Report.
INSURANCE OPERATIONS. The Company acts as agent on physical damage, family
protection, and home buyer protection plan insurance policies written by
unaffiliated insurance companies (ceding companies) for purchasers of its
manufactured homes. During the fiscal year ended June 30, 2002, the Company
acted as the agent on physical damage, family protection, and home buyer
protection policies on approximately 63%, 49%, and 79%, respectively, of Company
retail sales.
Physical damage and home buyer protection plan policies issued through the
Company's agency are reinsured through Vanderbilt Property and Casualty
Insurance Co., LTD ("VPAC"), a wholly-owned subsidiary of the Company. The
family protection insurance policies issued through the Company's agency are
reinsured through Vanderbilt Life and Casualty Insurance Co., LTD, ("VLAC"),
Midland States Life Insurance Company ("MSLC") and Eastern States Life Insurance
Company ("ESLC"), which are majority-owned subsidiaries of the Company.
Effective June 1, 2002, the Company entered into a Catastrophe Reinsurance
Contract that generally provides protection of losses arising from one event in
excess of $10 million. The reinsurers are liable for 100% of the next $10
million of losses.
MANUFACTURED HOUSING COMMUNITIES
The Company owns and operates 82 manufactured home communities in 12 states.
These communities provide attractive living environments to residents leasing
sites for manufactured homes, many of which are built and sold by the Company.
In addition, these communities also lease sites to residents who already own
their homes. Some communities also lease or rent Company-owned manufactured
homes and the sites.
In fiscal 2002 the Communities group developed 111 home sites in one community
and added 150 sites at existing locations, bringing total sites owned to 21,382
at June 30, 2002, a 1% increase from the prior year. See "Item 2. Properties."
Communities' overall revenues were up 3% in 2002. Rental revenues rose 2% and
sales increased 2%. The following table lists the number of community sites
owned and the aggregate occupancy rate at the end of the last three fiscal
years:
JUNE 30,
2002 2001 2000
---- ---- ----
Homes sites owned 21,382 21,121 20,168
Occupancy rate 76% 75% 75%
8
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 specifications.
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 transportation 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.
The Company is also subject to the Federal Fair Debt Collection Practices Act,
which regulates the manner in which the Company collects payments on its
installment sales contracts, and 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. Insurance agency activities are subject to state insurance
laws and regulations as determined by the particular insurance commissioner for
each state in accordance with the McCarran-Ferguson Act. Sales practices are
governed at both the federal and state level through various consumer protection
trade practices and public accommodation laws and regulations.
VPAC and VLAC are subject to insurance and other regulations of the British
Virgin Islands. MSLC and ESLC are subject to insurance and other regulations of
the Turks and Caicos Islands. The Company's operations are subject to a variety
of other statutes and regulations.
COMPETITION
The manufactured housing industry is highly competitive at the manufacturing,
retail and finance 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-
9
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 segments are relatively small, with financing
available to them. The Company is not able to estimate the total number of
competitors in its marketing area.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information with respect to the Company's operating segments is
incorporated herewith by reference to page 22 of the Annual Report.
EMPLOYEES
As of June 30, 2002, the Company employed 6,784 persons. Of these, 1,892 were
employed in retail, 3,673 in manufacturing, 685 in financial services, 441 in
communities and 93 in executive and administrative positions. The Company does
not have any collective bargaining agreements and considers its employee
relations to be good.
ITEM 2. PROPERTIES.
The Company's Financial Services operations and executive offices are located
near Knoxville, Tennessee in a wholly-owned, two-story building with 135,000
square feet of space. 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 APPROXIMATE
MANUFACTURING OPERATIONS SQUARE FEET MANUFACTURING OPERATIONS SQUARE FEET
Owned by Company: Owned by Company:
Arizona Tennessee (continued)
El Mirage 123,000 Ardmore 100,000
Georgia Rutledge 87,000
Waycross 100,000 Bean Station #1 114,000
Kentucky Bean Station #2 137,000
Hodgenville 130,000 Andersonville 128,000
North Carolina White Pine 137,000
Henderson 112,000 Texas
Oxford 92,000 Waco #1 148,000
Richfield 194,000 Waco #2 99,000
Tennessee Bonham 117,000
Maynardville 110,000 Sulphur Springs 113,000
Savannah #1 104,000
Savannah #2 109,000 Leased:
Halls, Tennessee 63,000
10
APPROXIMATE APPROXIMATE
COMMUNITIES ACRES COMMUNITIES ACRES
Owned by Company: Owned by Company:
Arizona Tennessee
El Mirage 35 Chattanooga 34
Glendale 14 Knoxville (4) 202
Phoenix 47 LaVergne 76
Florida Louisville 41
Gainesville (2) 132 Millington 29
Jacksonville (5) 330 Morristown 12
Kissimmee 41 Maryville (2) 34
Mulberry (2) 162 Powell (2) 69
Plant City 38 Sevierville 115
Princeton 37 Smyrna 26
Tallahassee 39 Tullahoma 18
Georgia Texas
Douglasville (2) 97 Arlington 39
Rossville 78 Dallas (3) 140
Iowa Denton (3) 201
Carter Lake 41 Fort Worth (4) 154
Michigan Flower Mound 18
Kalamazoo 126 Greenville 40
Missouri Houston (3) 158
Independence 90 Humble 55
North Carolina Little Elm 86
Greensboro 83 Pearland 50
Oklahoma Princeton 69
Edmond 37 San Angelo 90
Enid 20 San Antonio (6) 294
Lawton 38 Schertz 71
Midwest City 25 Wilmer 69
Norman 44 Wylie (2) 209
Oklahoma City (2) 116 Virginia
South Carolina Evington 70
Columbia 97 Blacksburg 38
Florence (2) 97
The Company-owned retail centers are three to four acre sites with a special
manufactured office unit serving as the sales office. The remainder of the
retail center site is devoted to the display of homes. Of the 287 retail
centers, 159 are owned by the Company and 128 occupy leased property. The
Company does not believe that any individual retail sales center property is
material to its overall business.
All of the properties described above are well maintained and suitable for the
purposes for which they are being used. 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 the
ultimate resolution of 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 a vote to shareholders during the last quarter of
the Company's fiscal year ended June 30, 2002.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) The Common Stock is traded on the New York Stock Exchange (the "NYSE").
The following table sets forth, for fiscal years 2002 and 2001, respectively,
the range of high and low closing sale prices as reported by the NYSE.
FISCAL FISCAL
2002 2001
---- ----
QUARTER ENDED High Low High Low
September $16.50 $10.75 $10.00 $ 8.13
December 17.41 12.60 12.88 8.75
March 17.21 14.49 14.50 12.05
June 19.28 15.10 15.82 11.55
(b) As of August 15, 2002, there were 9,185 holders of record (approximately
44,000 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 the business. At its April 2001 meeting, the
Board of Directors changed the Company dividend policy from quarterly payments
to an annual payment. The first annual dividend of 6.4 cents per share was paid
in January 2002. Future dividend policy will depend on the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors in its sole discretion. Additionally, certain of the
Company's financing agreements have various covenants that restrict payments
which may be made for dividends and other stock transactions.
The following portions of the 2002 Annual Report are incorporated herewith by
reference (page number references are to the Annual Report):
ITEM 6. SELECTED FINANCIAL DATA.
Eleven Year Review on page 6.
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 7-11.
As required by the Securities and Exchange Commission final release no. 33-8048,
the table provided below represents the equity compensation plan disclosure in
aggregate. For further information, please refer to Note 8 on pages 20-21 in the
2002 Annual Report. All information presented below is reported at June 30,
2002.
NUMBER OF SECURITIES
(A) REMAINING AVAILABLE FOR
PLAN CATEGORY NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
Equity compensation plans approved
by security holders 5,729,954 $11.23 3,317,696
Equity compensation plans
not approved by security holders - - -
Total 5,729,954 $11.23 3,317,696
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market Risk on page 10.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- Quarterly Results (unaudited) on page 11.
- Report of Independent Accountants on page 12.
- Consolidated Balance Sheets on page 12.
- Consolidated Statements of Income on page 13.
- Consolidated Statements of Shareholders' Equity on page 14.
- Consolidated Statements of Cash Flows on page 15.
- Notes to the Consolidated Financial Statements on pages 16-24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable during the Company's fiscal year ended June 30, 2002, and through
the date of this report.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
Kevin T. Clayton 39 Chief Executive Officer, President, and President, Financial Services (a)
David M. Booth 50 Executive Vice President and President, Retail (b)
Richard D. Strachan 61 Executive Vice President and President, Manufacturing (c)
John J. Kalec 52 Executive Vice President and Chief Financial Officer (d)
Allen Morgan 55 Vice President and General Manager, Communities (e)
(a) Mr. Clayton has been President of Financial Services since 1995. Prior to
that time, he served in various management positions with the Company. In
August 1997, he was named President and Chief Operating Officer of the Company.
In July 1999, he was named Chief Executive Officer.
(b) Mr. Booth has been Executive Vice President of the Company since 1997 and
President of Retail since 1995. Prior to that time, he served as Executive Vice
President of Retail and in other management positions with the Company.
(c) Mr. Strachan has been Executive Vice President of the Company and President
of Manufacturing since 1998 and President of Manufacturing since 1997. Prior to
that time, he served as Vice President and General Manager of Manufacturing as
well as other significant management positions with the Company and within the
industry.
(d) Mr. Kalec rejoined the Company in 2001 as Senior Vice President and Chief
Financial Officer. From January 2000 to August 2001, he was Chief Financial
Officer and Executive Vice President of iPIX. From August 1998 to January 2000,
he served as Vice President and Chief Financial Officer of Interactive Pictures.
Prior to that time, he served as Senior Vice President, Chief Financial Officer,
and Secretary of Clayton Homes, Inc. from 1996 to 1998. In 2002, he was named
Executive Vice President and Chief Financial Officer.
(e) Mr. Morgan joined the Company in 1998, as General Manager of the
Communities Group. In September 1999, he was named Vice President of the
Company. From 1992 to 1998 he was Superintendent of Knox County, Tennessee
Schools.
The Company's executive officers serve at the pleasure of the Board of
Directors.
All other required information is incorporated by reference to the Proxy
Statement under the heading ELECTION OF DIRECTORS AND DIRECTOR BIOGRAPHIES.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the Proxy Statement under the heading COMPENSATION
OF MANAGEMENT.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the Proxy Statement under the headings ELECTION OF
DIRECTORS AND DIRECTOR BIOGRAPHIES, SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
and PRINCIPAL STOCKHOLDERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the Proxy Statement under the headings COMPENSATION
COMMITTEE INSIDER PARTICIPATION and INSIDER TRANSACTIONS.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements: (Included in Annual Report filed as Exhibit 13
herewith).
The following Consolidated Financial Statements of Clayton Homes,
Inc. and its subsidiaries included in Part II, Item 8 are
incorporated by reference to the 2002 Annual Report to Shareholders
for the year ended June 30, 2002.
Report of Independent Accountants.
Consolidated Balance Sheets - June 30, 2002, and 2001.
Consolidated Statements of Income - years ended June 30, 2002, 2001
and 2000.
Consolidated Statements of Shareholders' Equity - years ended
June 30, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows - years ended June 30, 2002,
2001 and 2000.
Notes to the Consolidated Financial Statements.
3. Exhibits:
3. (a) Restated charter as amended. (D)
(b) Bylaws. (F)
4. (a) Specimen stock certificates. (F)
(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) Lease Agreement, dated June 29, 1972, as amended, between
Clayton Homes, Inc. and Dean Planters Warehouse, Inc. (A)
(subsequently assigned to CLF, a limited partnership which
includes a related party).
*(b) Clayton Homes, Inc. 1997 Employees Stock Incentive Plan. (E)
*(c) 1996 Outside Directors Equity Plan. (C)
13. Annual Report to Shareholders for year ended June 30, 2002. (B)
21. List of Subsidiaries of the Registrant (filed herewith).
23. Consent of independent accountants (filed herewith).
________________________________________________________________
15
(A) Filed as Exhibits to Registration Statement on Form S-1 (SEC File No.
2-83705) and incorporated by reference thereto.
(B) For the information of the Commission only, except to the extent of
portions specifically incorporated by reference.
(C) Filed with Registration Statement on Form S-8 (SEC File No. 333-83543)
and incorporated by reference thereto.
(D) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 14, 1996, and incorporated by reference thereto.
(E) Filed with the Company's Proxy Statement for the Annual Meeting of
Shareholders held November 12, 1997, and incorporated by reference thereto.
(F) Filed with the Company's Form 10K for the fiscal year ended June 30,
1998, and incorporated by reference thereto.
* Management and Director's Compensation plans.
________________________________________________________________
(b) Reports on Form 8-K:
(i) Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc. Senior
Subordinate Pass-Through Certificates Series 2002-1. Filed with
the Commission on May 31, 2002.
(ii) Clayton Homes, Inc./Vanderbilt Mortgage & Finance, Inc.
incorporation of financial statements of Clayton Homes, Inc. into
Registration Statement on Form S-3 (Commission File No.
333-57532), pertaining to Senior Subordinate Pass-Through
Certificates Series 2002-1. Filed with the Commission on
June 26, 2002.
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 Alcoa,
State of Tennessee, on September 25, 2002.
CLAYTON HOMES, INC.
By: /s/ Kevin T. Clayton
-----------------------
Kevin T. Clayton
Chief Executive Officer, President
and President, Financial Services
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 25, 2002 Chairman of the Board
-------------------------------------
James L. Clayton
/s/ Kevin T. Clayton September 25, 2002 Chief Executive Officer, President
------------------------------------- and President, Financial Services
Kevin T. Clayton (Principal Executive Officer)
/s/ John J. Kalec September 25, 2002 Executive Vice President and
------------------------------------- Chief Financial Officer
John J. Kalec (Principal Financial Officer &
Principal Accounting Officer)
/s/ B. Joe Clayton September 25, 2002 Director
-------------------------------------
B. Joe Clayton
/s/ Dan W. Evins September 25, 2002 Director
-------------------------------------
Dan W. Evins
/s/ Wilma H. Jordan September 25, 2002 Director
-------------------------------------
Wilma H. Jordan
/s/ Thomas N. McAdams September 25, 2002 Director
-------------------------------------
Thomas N. McAdams
/s/ C. Warren Neel September 25, 2002 Director
-------------------------------------
C. Warren Neel
17
CERTIFICATIONS
(a) CEO CERTIFICATION
I, Kevin T. Clayton, certify that:
1. I have reviewed this annual report on Form 10-K of Clayton Homes, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods in this annual report.
Date: September 25, 2002
/s/ Kevin T. Clayton
-----------------------
Kevin T. Clayton
Chief Executive Officer, President
and President, Financial Services
(b) CFO CERTIFICATION
I, John J. Kalec, certify that:
1. I have reviewed this annual report on Form 10-K of Clayton Homes, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods in this annual report.
Date: September 25, 2002
/s/ John J. Kalec
--------------------
John J. Kalec
Executive Vice President and Chief
Financial Officer
18