<PAGE>   1
   
                                  FORM 10-K/A
    

                       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, 1996

                                       OR

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

Commission file number 1-8824


                              CLAYTON HOMES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
Tennessee                                           62-0794407
--------------------------------------------        ---------------------------------------
State or other jurisdiction of incorporation        (I.R.S. Employer Identification Number)
or organization

623 Market Street
Knoxville, Tennessee                                37902
--------------------------------------------        ---------------------------------------
(Address of principal executive offices)                       (Zip Code)
</TABLE>


<TABLE>
<S>                                                    <C>
Registrant's telephone number, including area code: 615-970-7200
Securities registered pursuant to Section 12(b) of the Act:

Title of each class                                    Name of each exchange on which registered
------------------------------------------------------------------------------------------------
COMMON STOCK, $.10 PAR VALUE PER SHARE                            NEW YORK STOCK EXCHANGE
</TABLE>



     Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                             Yes  X   No
                                                 ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to
this Form 10-K.  [ ]

Aggregate market value of the voting stock held by non-affiliates of the
registrant on August 16, 1996, was approximately $1,343,529,615  (69,343,464
shares at closing price on the NYSE of $19.375).  For this purpose  all shares
beneficially held by executive officers and the Board of Directors of the
Registrant are shares owned by "affiliates," a status which each of the
officers and directors individually disclaims.

Shares of common stock, $.10 par value, outstanding on August 16, 1996, were
95,122,078.


   
    

<PAGE>   2

   

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Knoxville,
State of Tennessee, on September 25, 1996

                                   CLAYTON HOMES, INC.         
                                                               
                                   By: s/Joseph H. Stegmayer   
                                   -------------------------   
                                   Joseph H. Stegmayer         
                                   President and               
                                   Chief Operating Officer     

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.


<TABLE>
<S>                          <C>                  <C>
s/James L. Clayton           September 25, 1996   Chairman of the Board and
----------------------                            Chief Executive Officer                          
James L. Clayton                                  (Principal Executive Officer)                    
                                                                                                   


s/Joseph H. Stegmayer        September 25, 1996   President, Chief Operating
----------------------                            Officer, Treasurer and   
Joseph H. Stegmayer                               Director                 
                                                                           

s/John J. Kalec              September 25, 1996   Vice President and Chief Financial
----------------------                            Officer (Principal Financial        
John J. Kalec                                     Officer)                     
                                                                               


s/B. Joe Clayton             September 25, 1996   Director
----------------------
B. Joe Clayton


s/James D. Cockman           September 25, 1996   Director
----------------------
James D. Cockman


s/Wallace C. Doud            September 25, 1996   Director
----------------------
Wallace C. Doud


s/Dan W. Evins               September 25, 1996   Director
----------------------
Dan W. Evins


s/Wilma H. Jordan            September 25, 1996   Director
----------------------
Wilma H. Jordan


s/C. Warren Neel             September 25, 1996   Director
----------------------
C. Warren Neel
</TABLE>


    


                                      2
<PAGE>   3



CONSOLIDATED BALANCE SHEETS                 Clayton Homes, Inc. and Subsidiaries




<TABLE>
<CAPTION>
                                                                                                            June 30,
(in thousands)                                                                                        1996             1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>              <C>
ASSETS
   Cash and cash equivalents                                                                        $ 47,400         $ 49,394
   Receivables, principally installment contracts and residual interests, net of reserves  
     for credit losses of $4,787 and $8,329, respectively and unamortized                  
     discount of $4,359 and $9,001, respectively                                                     402,039          343,408
   Inventories                                                                                       124,280           88,455
   Securities held-to-maturity, approximate market value of $19,774 and $20,193                       20,361           20,361
   Restricted cash and investments                                                                    70,403           66,214
   Property, plant and equipment, net                                                                184,271          166,048
   Other assets                                                                                       37,596           27,271
-----------------------------------------------------------------------------------------------------------------------------
Total assets                                                                                        $886,350         $761,151
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
   Accounts payable and accrued liabilities                                                         $ 91,064         $ 63,949
   Long-term debt                                                                                     30,290           48,737
   Deferred income taxes                                                                               5,680            9,382
   Other liabilities                                                                                 109,127           94,896
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                    236,161          216,964
Shareholders equity
   Preferred stock, $.10 par value, authorized 1,000 shares, none issued             
   Common stock, $.10 par value, authorized 200,000 shares, issued 95,091            
     at June 30, 1996 and 94,463 at June 30, 1995                                                      9,509            9,446
   Additional paid-in capital                                                                        174,642          168,280
   Retained earnings                                                                                 466,038          366,461
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders equity                                                                            650,189          544,187
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders equity                                                           $886,350         $761,151
=============================================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.  

REPORT OF INDEPENDENT ACCOUNTANTS

        We have audited the accompanying consolidated balance sheets of Clayton
Homes, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders equity, and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. 
        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. 
        In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Clayton Homes, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
        As discussed in Note 1 to the consolidated financial statements, the
Company changed its methods of accounting for securities and income taxes in
1995 and 1994, respectively.



                                                    COOPERS & LYBRAND L.L.P.



Knoxville, Tennessee
August 5, 1996



16

<PAGE>   4

CONSOLIDATED STATEMENTS OF INCOME           Clayton Homes, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                               Year ended June 30,          
(in thousands except per share data)                                                     1996         1995         1994     
==========================================================================================================================
<S>                                                                                    <C>          <C>           <C>
Revenues:                                                                                                                   
  Net sales                                                                            $762,396     $621,351      $510,153  
  Financial services                                                                    115,987      102,108        95,198  
  Other income                                                                           50,358       34,633        22,885  
--------------------------------------------------------------------------------------------------------------------------      
                                                                                        928,741      758,092       628,236  
--------------------------------------------------------------------------------------------------------------------------      
Costs and expenses:                                                                                                         
  Cost of sales                                                                         521,200      431,826       357,698  
  Selling, general and administrative                                                   236,188      188,835       153,698  
  Financial services interest                                                             3,649        5,533         8,196  
--------------------------------------------------------------------------------------------------------------------------
                                                                                        761,037      626,194       519,592  
--------------------------------------------------------------------------------------------------------------------------
Operating income                                                                        167,704      131,898       108,644  
Interest income (expense), net                                                            4,596        3,902          (359) 
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change in 
   method of accounting                                                                 172,300      135,800       108,285  
Provision for income taxes                                                              (65,500)     (48,800)      (39,000)
--------------------------------------------------------------------------------------------------------------------------
Income before change in method of accounting                                            106,800       87,000        69,285
Change in method of accounting for income taxes                                                                      3,000
--------------------------------------------------------------------------------------------------------------------------
Net income                                                                             $106,800     $ 87,000     $  72,285
==========================================================================================================================
Income per common share before change in method of accounting:
   Primary                                                                             $   1.12     $    .92     $     .75
   Fully diluted                                                                       $   1.12     $    .92     $     .74
Cumulative effect of change in method of accounting per common share:
   Primary                                                                             $      -     $      -     $    1.03
   Fully diluted                                                                       $      -     $      -     $     .03
Net income per common share:
   Primary                                                                             $    1.12    $    .92     $     .78
   Fully diluted                                                                       $    1.12    $    .92     $     .77
Average shares outstanding:
Primary                                                                                   95,477      94,903        92,061
  Fully diluted                                                                           95,477      94,903        95,920
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>
                                                                           Total                    Additional
                                                                       Shareholders     Common       Paid-in     Retained
(in thousands)                                                            Equity         Stock       Capital     Earnings
==========================================================================================================================
<S>                                                                      <C>           <C>           <C>         <C>
Balance at June 30, 1993                                                 $348,630      $   8,754     $128,025    $211,851
   Net income                                                              72,285              -            -      72,285
   Conversion of subordinated debt                                         40,265            622       39,643           -
   Purchase of 210 shares of common stock                                  (4,175)           (33)      (4,142)          -
   Issuances related to stock incentive, employee 
     benefit plans and other                                                5,149             70        5,079           -
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994                                                  462,154          9,413      168,605     284,136
   Net income                                                              87,000              -            -      87,000
   Purchase of 317 shares of common stock                                  (5,156)           (40)      (5,116)          -
   Dividends declared ($.048 per share)                                    (4,675)             -            -      (4,675)
   Issuances related to stock incentive, employee 
     benefit plans and other                                                4,864             73        4,791           -
--------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995                                                  544,187          9,446      168,280     366,461
   NET INCOME                                                             106,800              -            -     106,800
   PURCHASE OF 100 SHARES OF COMMON STOCK                                  (1,893)           (13)      (1,880)          -
   DIVIDENDS DECLARED ($.076 PER SHARE)                                    (7,223)             -            -      (7,223) 
   ISSUANCES RELATED TO STOCK INCENTIVE, EMPLOYEE    
     BENEFIT PLANS AND OTHER                                                8,318             76        8,242           -
-------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996                                                 $650,189         $9,509     $174,642    $466,038
=========================================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements. 
                                                                              17

<PAGE>   5


CONSOLIDATED STATEMENTS OF CASH FLOWS       Clayton Homes, Inc. and Subsidiaries
<TABLE>
<CAPTION>
                                                                                                      Year ended June 30,
(in thousands)                                                                                   1996        1995        1994
===================================================================================================================================
<S>                                                                                            <C>       <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                                   $106,800  $  87,000     $  72,285
    Adjustments to reconcile net income to net cash provided 
    by operating activities: 
      Depreciation and amortization                                                              11,163      8,296         6,679
      Gain on sale of installment contract receivables, net of amortization                     (11,315)   (14,744)      (16,276)
      Gain on sale of property                                                                   (4,828)        --            -- 
      Stock issued for profit-sharing 401(k) contribution                                         3,915      3,281         2,171
      Deferred income taxes                                                                      (3,702)     2,124         2,924
      Cumulative effect of change in method of accounting for income taxes                           --         --        (3,000)  
      Increase in other receivables, net                                                        (16,972)   (22,964)      (13,290)
      Increase in inventories                                                                   (35,825)   (11,138)      (12,590)
      Increase in accounts payable and accrued liabilities                                       27,115      6,906        21,393
      Other                                                                                      (1,482)    (1,390)       28,908
-----------------------------------------------------------------------------------------------------------------------------------
  Cash Provided By Operations                                                                    74,869     57,371        89,204
      Origination of installment contract receivables                                          (476,467)  (345,260)     (292,435)
      Proceeds from sales of originated installment contract receivables                        394,087    369,873       262,346 
      Principal collected on originated installment contract receivables                         35,199     25,003        33,046  
-----------------------------------------------------------------------------------------------------------------------------------
  Net cash provided by operations                                                                27,688    106,987        92,161

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of installment contract receivables                                               (36,105)   (26,074)      (91,882) 
  Proceeds from sales of acquired installment contract receivables                               36,007      7,112        57,588
  Principal collected on acquired installment contract receivables                               16,935     17,760        15,098
  Acquisition of property, plant and equipment, net                                             (40,829)   (44,462)      (35,601)
  Proceeds from sale of property                                                                 21,271         --            --
  Decrease (increase) in restricted cash and investments                                         (4,189)     3,141       (21,149)
-----------------------------------------------------------------------------------------------------------------------------------
  Net cash used in investing activities                                                          (6,910)   (42,523)      (75,946) 

CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends Paid                                                                                 (6,835)    (3,162)           --
  Proceeds from short-term borrowings                                                           208,949    111,394       106,319
  Repayment of short-term borrowings                                                           (208,949)  (136,394)      (83,521)
  Repayment of long-term debt                                                                   (18,447)   (21,943)      (26,368)
  Issuance of stock for incentive plans and other                                                 4,403      1,269         1,784
  Repurchase of common stock                                                                     (1,893)    (5,156)       (4,175)
-----------------------------------------------------------------------------------------------------------------------------------
  Net cash used in financing activities                                                         (22,772)   (53,992)       (5,961)
-----------------------------------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash and cash equivalents                                           (1,994)    10,472        10,254
  Cash and cash equivalents at beginning of year                                                 49,394     38,922        28,668
-----------------------------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents at end of year                                                    $  47,400  $  49,394     $  38,922
===================================================================================================================================
  Supplemental disclosures of cash flow information:                               
    Cash paid during the year for:                                                 
      Interest                                                                                $   4,016  $   5,823     $  10,049 
      Income taxes                                                                            $  63,366  $  54,725     $  22,441
  Supplemental disclosure of non-cash activities: In 1995,                         
      pass-through certificates aggregating $9,500 were received                   
      coincidental with the sale of receivables.                                   
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



18
<PAGE>   6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
Consolidated Financial Statements 
    The consolidated financial statements include the accounts of Clayton Homes,
Inc. (CHI) and its wholly-owned subsidiaries. CHIand its subsidiaries are
collectively referred to as the Company. Clayton Homes, Inc. is a
vertically-integrated manufactured housing company headquartered in Knoxville,
Tennessee. Employing more than 5,400 people and operating in 28 states, the
Company builds, sells, finances and insures manufactured homes, as well as owns
and operates residential manufactured housing communities. Significant
intercompany accounts and transactions have been eliminated in the financial
statements. See Note 11 for information related to the Companys business
segments.

Income Recognition 
    Sales to independent retailers of homes produced by CHI are recognized as
revenue upon shipment. Retail sales are recognized when cash payment is
received or, in the case of credit sales, which represent the majority of
retail sales, when a down payment is received and the customer enters into an
installment sales contract. Most of these installment sales contracts, which
are  normally payable over 36 to 180 months, are financed by Vanderbilt
Mortgage and Finance, Inc. (VMF), the Companys mortgage banking subsidiary. 
    Premiums from credit life and physical damage insurance policies reinsured
by the insurance subsidiaries which represent single payment contracts with
terms of one to five years, are recognized as income over the terms of the
contracts. Claims and expenses are matched to recognize profits over the life
of the contracts. This matching is accomplished by means of the deferral and
recognition of unearned premiums and the deferral and amortization of policy
acquisition costs.

Installment Contract Receivables
    Installment contract receivables originated or purchased by VMF are sold to
investors or pledged as collateral to long-term lenders. VMF retains servicing
in both cases. Profit (loss) on installment contract receivables sold to
investors is recorded at the time of sale and represents the discounted present
value of the excess (deficiency) of principal and interest to be collected 
during the expected normal life of the contracts over: 1) the amount required
to be remitted to investors; 2) the normal service spread of comparable
contracts; and 3) the estimated net credit losses. Profit from installment
contract receivables sold without recourse is increased, in certain cases,
by the reversal of the reserve for credit losses attributable to the
receivables sold.
    Installment contract receivables held for sale of $225,951,000 and
$154,356,000 in 1996 and 1995, respectively, are included in Receivables and
are carried at the lower of aggregate cost or market. Certain of the
installment contract receivables are purchased in bulk at a discount. The
purchase discounts are allocated between unamortized discount and the reserve
for credit losses based on managements assessment of risks existing in the
portfolio. Unamortized discount is amortized into revenue over the life of the
related portfolio after giving consideration to anticipated prepayments.
Adjustments between the reserve for credit losses and unamortized discount are
made to reflect changes in the estimated collectibility of each portfolio
purchased.
    Estimated principal receipts under installment contract receivables for
each of the five fiscal years subsequent to 1996 are as follows:

<TABLE>
        <S>                             <C>
        1997                            $154,270,000
        1998                              18,412,000
        1999                              18,965,000
        2000                              17,395,000
        2001                              17,525,000
</TABLE>

    The estimated principal receipts are based on the scheduled payments and
estimated prepayments of principal of the installment contract receivables.
Estimated principal receipts for the year ending June 30, 1997 include amounts
relating to the sale of $174 million of installment contract receivables in
July, 1996.
    VMF provides servicing for investors in installment contract receivables. 
Total contracts serviced at June 30, 1996 and 1995, including contracts held for
investment, were approximately $1,638 million and $1,434 million, respectively.
    Most of the installment contract receivables are with borrowers in the east,
south and southwest portions of the United States and are collateralized by
manufactured homes.
    Interest income on installment contract receivables is recognized by a
method which approximates the interest method. Service fee income is recognized
as the service is performed.

Investment Securities
    Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFASNo. 115), Accounting for Certain Investments
in Debt and Equity Securities. Investments in certain debt and equity
securities are classified as either Held-to-Maturity (reported at amortized
cost), Trading (reported at fair value with unrealized gains and losses
included in earnings), or Available-for-Sale (reported at fair value with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders equity).
    Premiums and discounts on debt securities are recognized in interest income
on the level interest yield method over the period to maturity.
 
                                                                         19
<PAGE>   7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        Gains and losses on the sale of securities are determined using the 
specific identification method.

Inventories
        New homes and raw materials are valued at the lower of cost, using the 
last-in, first-out (LIFO) method of inventory valuation, or market. 
Previously-owned manufactured homes are valued at estimated wholesale prices, 
which are not in excess of net realizable value. 
 
Property, Plant and Equipment
        Land and improvements, buildings, and furniture and equipment are 
valued at cost. Major renewals and improvements are capitalized while
replacements, maintenance and repairs, which do not improve or extend the life
of the respective assets, are expensed currently. When depreciable assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is included in earnings for the period.
Depreciation is computed primarily by the straight-line method over the
estimated useful lives of the respective assets.

Income Taxes 
        Effective July 1, 1993, the Company adopted Statement of Financial 
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate. The adoption resulted in a
decrease in the deferred tax liability and an increase in income of $3 million
in fiscal 1994.

Reserves for Credit Losses and Contingent Liabilities 
        Reserves for credit losses are established related to installment 
contract receivables. Actual credit losses are charged to the reserves when
incurred. The reserves established for such losses are determined based on the
Companys historical loss experience after adjusting for current economic
conditions. Management, in assessing the loss experience and economic
conditions, adjusts reserves through periodic provisions. The Company also
maintains a reserve for contingent liabilities related to guarantees of
installment contract receivables sold with recourse. Reserves and the applicable
provisions related to guarantees are considered as part of the Manufactured
Housing business segment.
 
Earnings Per Share 
        Primary earnings per share are computed based on the weighted average 
number of shares of common stock outstanding during the periods presented,
adjusted for subsequent common stock splits and include common share equivalents
arising from stock options. Fully diluted earnings per share for 1994 have been
computed assuming conversion of the Companys convertible subordinated debentures
(called in the third quarter of fiscal 1994). 

Cash Equivalents
        For purposes of the statements of cash flows, all unrestricted highly 
liquid debt instruments purchased with an original maturity of three months or
less are considered to be cash equivalents.

Other
        Per share and share data have been retroactively adjusted to reflect 
5-for-4 stock splits in December 1995, December 1994 and December 1993.

Restricted Cash and Investments
        Restricted cash and investments represent reserves required by: 1) 
certain VMF servicing and debt agreements to be maintained until such time as
specified  minimum repayments have been made, 2) trust account cash balances
required by certain VMF servicing agreements, and 3) insurance reserves required
by escrow or trust agreements.

Management Estimates
        The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 2 - INVENTORIES 
        Inventories at June 30, 1996, and 1995 are as follows: 

<TABLE>
<CAPTION>

(in thousands)                   1996           1995
======================================================
<S>                          <C>               <C>
Manufactured homes:
   New                       $  89,699         $65,735
   Previously-owned             18,458          11,259
Raw materials                   16,123          11,461
------------------------------------------------------
                             $ 124,280         $88,455
======================================================
</TABLE>

        If the first-in, first-out (FIFO) method of inventory valuation had 
been used, inventories would have been higher by $17,637,000 and $15,402,000 at
June 30, 1996, and 1995, respectively.
 
NOTE 3 - SECURITIES HELD-TO-MATURITY
        At June 30, 1996 and 1995, manufactured housing contract 
senior/subordinate pass-through certificates have been classified in the
consolidated financial statements according to managements intent. These
securities can be reasonably expected to mature after ten years.



20
<PAGE>   8


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
        Property, plant and equipment at June 30, 1996, and 1995 are as 
follows: 
        
<TABLE>
<CAPTION>
(in thousands)                                      1996       1995     
=====================================================================   
<S>                                              <C>         <C>        
Land and improvements                            $115,647    $108,968   
Buildings                                          88,749      71,292   
Furniture and equipment                            24,445      19,679   
---------------------------------------------------------------------   
                                                  228,841     199,939   
                                                                        
Less: accumulated depreciation                                          
   and amortization                               (44,570)    (33,891)  
---------------------------------------------------------------------   
                                                 $184,271    $166,048   
=====================================================================   
</TABLE>

        Depreciation charged to operations was $11,163,000, $8,296,000, and 
$6,679,000 for each of the years ended June 30, 1996, 1995, and 1994, 
respectively.  
 
NOTE 5 - LONG-TERM DEBT
        Long-term debt at June 30, 1996, and 1995 are summarized as follows:

<TABLE>
<CAPTION>
(in thousands)                                    1996        1995    
===================================================================   
<S>                                            <C>          <C>       
CHI                                                                   
10% note payable due June 1, 1998,                                    
   extinguished in June 1996                        --      $ 4,866   
Other notes payable                            $   153          231   
-------------------------------------------------------------------   
                                                   153        5,097   

VMF
Debt collateralized by installment 
   contract receivables:                                                       
   Demand note payable to Clayton                                              
     Employees Savings Plan at prime,                                          
       extinguished in 1996                                   3,000 
   Maturing in fiscal years through:                                           
     1997 to 2004: weighted average                                             
       rate of 10.07% at June 30, 1996          27,380       33,264    
     1996 to 2005:9.4%REMIC                                                    
       trust senior certificates                 2,855                 
     1997 to 2002: adjustable rates,                                           
       weighted average rate of 10.18% at                                      
       June 30, 1996, weighted average                                         
       maximum rate 13.83% at June 30, 1996      1,091        2,147    
     1998 to 2001: adjustable rates, average                                   
       rate of 7.79% at June 30, 1996,                                         
       no maximum rate                           1,666        2,374         
-------------------------------------------------------------------
                                                30,137       43,640
-------------------------------------------------------------------         
Total                                          $30,290      $48,737
===================================================================
</TABLE>    

        Expected principal payments of long-term debt of VMF for the five 
fiscal years subsequent to 1996 and thereafter are as follows:

                     1997       $6,263,000       
                     1998        7,554,000        
                     1999        4,897,000        
                     2000        6,796,000        
                     2001        3,570,000        
                     Thereafter  1,057,000

        The estimated principal payments on the debt of VMF are based on the 
scheduled payments and estimated prepayments of principal of the installment
contract receivables collateralizing such debt. Certain debt agreements require
fixed payments which approximate the scheduled payments of the underlying
installment contract receivables.
        Certain of the long-term debt have various covenants, which among other
things, require a minimum tangible net worth and the maintenance of certain
financial ratios.

NOTE 6 - RESERVES FOR CREDIT LOSSES AND CONTINGENT LIABILITIES
        An analysis of the reserve for losses on installment contract 
receivables and reserve for contingent liabilities for the years ended June 30,
1996, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>

(in thousands)                          1996      1995      1994
------------------------------------------------------------------
<S>                                   <C>        <C>       <C>  
Balance, beginning of year            $11,895    $14,082   $17,229
  Losses, net of recoveries                                     
    applicable to installment                                   
    contract receivables:                                       
      Purchased                        (2,494)    (1,900)   (2,230)
      Other                               442       (287)     (526)
  Reserves transferred (to) from                                
    unamortized discount  
  Reserves associated with               
    receivables purchased (sold)       (2,077)        --     1,207         
------------------------------------------------------------------
Balance, end of year                 $  7,766    $11,895   $14,082
==================================================================
  Reserves for credit losses         $  4,787    $ 8,329   $ 9,877
  Reserve for contingencies             2,979      3,566     4,205
------------------------------------------------------------------
                                     $  7,766    $11,895   $14,082
==================================================================
</TABLE>

        The reserves for credit losses are netted against receivables and the 
reserve for contingencies is included in other liabilities on the consolidated
balance sheets. The Company is contingently liable as guarantor on installment
contract receivables sold with recourse. The installment contract receivables
and related contingent  liabilities are shown in the table below. 

<TABLE>
<CAPTION>

     Total Installment                              Contingent
    Contract Receivables         Contingent         Liabilities
       (in thousands)            Liability %       (in thousands)
====================================================================
       <S>                       <C>                  <C>    
       JUNE 30, 1996

       $   33,000                  30% - 88%          $13,000
           56,000                  11% - 25%           11,000
          203,000                10% and below         20,000
--------------------------------------------------------------------
       $  292,000                                     $44,000
====================================================================
       June 30, 1995
       $   11,000                  87% - 100%         $10,000
           98,000                  11% - 30%           23,000
          159,000               10% and below          16,000
--------------------------------------------------------------------
       $  268,000                                     $49,000
====================================================================
</TABLE>

        Proceeds from receivables sold with recourse amounted to $12 million, 
$7 million and $20 million, during 1996, 1995 and 1994, respectively.
        Approximately 99% of the installment contract receivables both owned
and sold with recourse have fixed rates of interest and approximately 1% are
at variable rates of interest based on either the prime rate, U.S. Treasury
rates or LIBOR. 
        Virtually all of the Companys servicing arrangements are based on
interest spreads with fixed rates or variable rates with ceilings.

                                                                        21
<PAGE>   9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - SHAREHOLDERS EQUITY 
Stock Option Plan 
    In 1983, 1985 and 1991, the Company established Stock Option Plans for a
total of 6,893,463 shares of common stock which provide for granting incentive
stock options or non-qualified options and stock appreciation rights to
officers and key employees of the Company. In addition, non-management members
of the Board of Directors have, with shareholder approval of prices and
provisions for exercise, been granted options to purchase shares of common
stock. The option prices were established at not less than the fair market
value as of the date of grant. Options are exercisable after one or more years
and expire no later than 10 years from the date of grant. 
    Activity and price information regarding the plans follow:

<TABLE>
<CAPTION>

                                                      Stock Option
                                  Shares              Price Range
===================================================================
<S>                             <C>                 <C>    
Balance June 30, 1993           2,933,835           $ 1.05 - $11.57
  Granted                         758,320           $11.78 - $16.16
  Exercised                      (551,975)          $ 1.05 - $11.57           
  Canceled                        (51,750)          $ 1.05 - $16.16           
-------------------------------------------------------------------
Balance June 30, 1994           3,088,430           $ 1.05 - $16.16           
  Granted                         472,616           $11.28 - $12.72           
  Exercised                      (555,206)          $ 1.05 - $11.57           
  Canceled                       (212,592)          $ 1.45 - $16.16           
-------------------------------------------------------------------
Balance June 30, 1995           2,793,248           $ 1.45 - $16.16           
  Granted                         672,298           $13.30 - $21.40           
  Exercised                      (503,076)          $ 1.45 - $12.96           
  Canceled                       (303,180)          $ 2.75 - $21.40           
-------------------------------------------------------------------
Balance June 30, 1996           2,659,290           $ 1.45 - $21.40           
===================================================================
</TABLE>

    Options available for future grant at June 30, 1996 and 1995 were 1,548,430
and 1,690,803, respectively.
    At June 30, 1996, and 1995 options for 1,015,943 and 1,031,438 shares,
respectively, were exercisable.  Options were held by 547 persons at June 30,
1996.
 
NOTE 8 - INCOME TAXES 
    Components of the provision for income tax for each of the three years ended
June 30, 1996, 1995 and 1994 are as follows: 

<TABLE>
<CAPTION>

(in thousands)                       1996        1995        1994
==================================================================
<S>                                <C>         <C>         <C>
Current tax provisions:
  Federal                          $63,274     $41,292     $32,772
  State                              5,928       5,384       3,304
------------------------------------------------------------------
                                    69,202      46,676      36,076
Deferred tax provision/
  (benefit)                         (3,702)      2,124       2,924
------------------------------------------------------------------
                                   $65,500     $48,800     $39,000
==================================================================
</TABLE>

    The sources and tax effect of temporary differences at June 30, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>

(in thousands)                                   1996        1995        
==================================================================
<S>                                            <C>        <C>
Reserves for credit losses and                                           
  contingencies and discounts                  $  4,584   $  8,072       
Insurance reserves                                4,919      3,051       
Unearned premiums                                 3,952      3,176       
------------------------------------------------------------------
  Total deferred tax assets                      13,455     14,299       
------------------------------------------------------------------
Residual interest in installment                                         
  contract receivables                           (8,863)   (17,876)      
Deferred costs                                   (3,123)    (2,679)      
Other                                            (7,149)    (3,126)      
------------------------------------------------------------------
  Total deferred tax liabilities                (19,135)   (23,681)      
------------------------------------------------------------------
  Net deferred tax liability                   $ (5,680)  $ (9,382)      
==================================================================
</TABLE>

    The provision for income taxes reflected in the financial statements differs
from income taxes calculated at the statutory federal income tax rate of 35% in
1996, 1995 and 1994 as follows:

<TABLE>
<CAPTION>

(in thousands)                       1996        1995        1994
==================================================================
<S>                                <C>         <C>         <C>
Income taxes at statutory rate     $60,305     $47,530     $37,900
State income taxes, net of
  federal benefit                    4,150       3,769       2,313
Other, net                           1,045      (2,499)     (1,213)
------------------------------------------------------------------
                                   $65,500     $48,800     $39,000
==================================================================
</TABLE>

NOTE 9 - EMPLOYEE BENEFIT PLANS 
    The Company has a 401(k) profit sharing plan covering all employees who
meet participation requirements. The amount of the Companys contribution is
discretionary as determined by the Board of Directors, up to the maximum
deduction allowed for federal income tax purposes. Contributions accrued were
$4,274,000, $3,461,000, and $2,171,000, for the years ended June 30, 1996,
1995, and 1994, respectively. 

NOTE 10 - COMMITMENTS AND CONTINGENCIES 
Leases
    Certain operating properties are rented under non cancelable operating 
leases which expire at various dates through 2009. Total rental expense under
operating leases was $2,722,000 in 1996, $2,721,000 in 1995, and $2,159,000 in
1994. The following is a schedule of minimum rental commitments under non
cancelable operating leases, primarily for retail centers, in effect at June
30, 1996: 
 
<TABLE>
                       <S>                        <C>
                       1997                       $2,551,000
                       1998                        2,080,000
                       1999                        1,583,000
                       2000                        1,098,000
                       2001                          760,000
                       2002 and thereafter         1,754,000
</TABLE>



22

<PAGE>   10


Repurchase Agreements 
    Institutions financing independent retailer purchases require the Company to
execute repurchase agreements.  As a result of these agreements, the Company is
contingently liable for repurchasing homes in the event of a default by the
dealer to the lending institution. These agreements are customary in the
manufactured housing industry, and the Companys losses in the past have not
been significant. 

Guarantor of Installment Contract Receivables
    Please see discussion of contingencies at Note 6.

Other
    The Company has lines of credit totalling $105 million for working capital
needs of which zero borrowings were outstanding at June 30, 1996. Additionally,
the Company has letter of credit and financial bond needs of which $1,787,000
was outstanding at June 30, 1996.



NOTE 11 - INDUSTRY SEGMENT INFORMATION
    The Company operates in three major business segments: Manufactured Housing,
Financial Services and Communities. The Manufactured Housing segment is engaged
in the production, wholesale and retail sale of manufactured homes. Financial
Services includes retail financing of manufactured homes and reinsuring risk 
on credit life and physical damages insurance policies. Communities is engaged
in marketing and management of manufactured housing communities. Operating
income consists of total revenues less cost of sales, operating expenses and
financial interest expense. The following items have not been included in the
computation of operating income: non-operating income and expenses and income
taxes. Identifiable assets are those assets used in the operation of each
industry segment. Corporate assets primarily consist of short-term investments.
    Information concerning operations by industry segment follows:

<TABLE>
<CAPTION>
                                 Manufactured    Financial          
(in thousands)                     Housing       Services      Communities     Corporate       Total
====================================================================================================== 
<S>                               <C>           <C>             <C>            <C>           <C>
1996 
Revenues                          $ 761,111     $  99,443       $ 68,187       $       -     $ 928,741 
Intersegment income                   7,436           103             94          (7,633) 
Operating income                     89,504        62,600         15,600               -       167,704
Identifiable assets                 197,938       493,622        142,331          52,459       886,350
Depreciation and amortization         6,671             -          4,492               -        11,163
Capital expenditures                 16,483             -         24,346               -        40,829
------------------------------------------------------------------------------------------------------
1995
Revenues                          $ 621,474     $  88,749       $ 47,869       $       -     $ 758,092
Intersegment income                  11,406           274          1,194         (12,874)            -
Operating income                     67,898        54,800          9,200               -       131,898
Idenifiable assets                  176,632       413,072        122,408          49,039       761,151
Depreciation andamortization          5,132             -          3,164               -         8,296 
Capital expenditures                 21,933             -         22,529               -        44,462
------------------------------------------------------------------------------------------------------
1994 
Revenues                          $ 510,329     $  80,741       $ 37,166       $       -     $ 628,236              
Intersegment income                  19,630             -          1,224         (20,854)            - 
Operating income                     48,183        53,620          6,841               -       108,644 
Identifiable assets                 122,101       440,690         99,032          39,325       701,148 
Depreciationand amortization          4,005             -          2,674               -         6,679 
Capital expenditures                 12,777             -         22,824               -        35,601
======================================================================================================
</TABLE>



                                                                          23
<PAGE>   11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 - OTHER ASSETS AND LIABILITIES
     At June 30, 1996 and 1995, other assets and liabilities consisted of:


<TABLE>
<CAPTION>

(in thousands)                                          1996       1995
-------------------------------------------------------------------------
<S>                                                  <C>          <C>
Other Assets
 Interest receivable and future servicing rights     $  17,312    $17,373
 Prepaid expenses and other                             20,284      9,898
-------------------------------------------------------------------------
                                                     $  37,596    $27,271
=========================================================================
Other Liabilities
 Investors payable                                   $  40,286    $37,492
 Reserve for contingencies (Note 6)                      2,979      3,566
 Escrow deposits                                        14,495     13,721
 Unearned insurance premiums                            39,628     31,901
 Other                                                  11,739      8,216
-------------------------------------------------------------------------
                                                     $ 109,127    $94,896
=========================================================================
</TABLE>

NOTE 13 - FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
     Statement of Financial Accounting Standards No. 107 (SFAS No. 107), 
Disclosures About Fair Value of Financial Instruments, requires that CHI
disclose the estimated fair values of its financial instruments. The  following
methodologies and assumptions were used  by CHI to estimate its fair value
disclosures for financial instruments. 
     Fair value estimates are made at a specific point in time, based on 
relevant market information and information about the financial instrument. The
estimates do not reflect any premium or discount that could result from
offering for sale in a single transaction CHIs  entire holdings of a particular
financial instrument. The lack of uniform valuation methodologies introduces a
greater degree of subjectivity to these estimated fair  values. Comparability
to financial instruments between  similar companies may not be reasonable
because of varying assumptions concerning the estimates of fair value.

Cash and Cash Equivalents
     The carrying values for cash and cash equivalents, including those 
restricted by agreement, equal the fair value of the assets.

Residual Interests in Installment Contract Receivables
     Residual interests in installment contract receivables are calculated 
using prepayment, default and interest rate assumptions that the Company
believes are appropriate at the time of the sale of the installment contract
receivables. Projected performance is monitored after the sale; the Company
alters the underlying rate at which the future estimated cash flows are
discounted once the sale has been recorded. The fair value primarily revolves
around an appropriate discount rate to be applied to the asset as a whole. 
     The Company used a discount rate and such other assumptions as it believed
to be used for similar instruments. The Company has estimated the fair value of
its residual interests in installment contract receivables to  approximate its
carrying value as of June 30, 1996 and 1995.

Contracts Held For Sale and as Collateral
     Contracts held for sale are generally recent originations or purchased
portfolios which will be sold with  limited or no recourse during the following
year. CHI does not charge fees to originate loans, and, as such, its contracts
have origination rates in excess of rates on the securities into which they
will be pooled. CHI estimates the fair value of the contracts held for sale
using expected future cash flows of the portfolio discounted at the current
origination rate. 
     The carrying values of contracts pledged as collateral to long-term 
lenders are estimated using discounted cash flow analyses and interest rates
being offered for similar contracts. The carrying amount of contracts with a
variable rate of interest is estimated to be at fair value. The carrying value
of accrued interest adjusted for credit risk equals its fair value.

Long-term Debt
     Long-term debt consist primarily of debt collateralized by contracts with
maturities that coincide with the underlying contract maturities. The fair
value of these financial instruments is based on the current rates offered to
CHI for debt of similar maturities using a discounted cash flow calculation.
Loan covenants preclude prepaying VMFs debt.


The carrying amounts and estimated fair values of CHIs financial assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                              June 30, 1996                 June 30, 1995
                                                                        Carrying       Estimated      Carrying       Estimated
(in thousands)                                                            Amount      Fair Value        Amount      Fair Value
==============================================================================================================================
<S>                                                                      <C>            <C>           <C>             <C>
Financial assets:
  Cash and cash equivalents, including restricted investments   
    and securities held-to-maturity                                      $138,164       $138,157      $135,969        $135,801
  Residual interests in installment contract receivables                   85,020         85,020        89,642          89,642
  Contracts held for sale and as collateral, including accrued 
    interest receivable                                                   263,719        264,477       230,075         233,122
Financial liabilities:
    Long-term debt                                                         30,290         34,003        48,737          51,710
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


24