UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberDecember 26, 2020
OR
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☐ | 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 000-08822
CAVCO INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | 56-2405642 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | | |
3636 North Central Ave, Ste 1200 |
| Phoenix | Arizona | 85012 | |
(Address of principal executive offices, including zip code) |
(602) 256-6263
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $0.01 | CVCO | The Nasdaq Stock Market LLC |
| | (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
Emerging Growth Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 23, 2020, 9,188,162January 22, 2021, 9,192,237 shares of the registrant's Common Stock, $.01 par value, were outstanding.
CAVCO INDUSTRIES, INC.
FORM 10-Q
SeptemberDecember 26, 2020
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
ASSETS | ASSETS | (Unaudited) | | | ASSETS | (Unaudited) | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 312,243 | | | $ | 241,826 | | Cash and cash equivalents | $ | 327,487 | | | $ | 241,826 | |
Restricted cash, current | Restricted cash, current | 16,691 | | | 13,446 | | Restricted cash, current | 12,802 | | | 13,446 | |
Accounts receivable, net | Accounts receivable, net | 36,852 | | | 42,800 | | Accounts receivable, net | 40,932 | | | 42,800 | |
Short-term investments | Short-term investments | 16,589 | | | 14,582 | | Short-term investments | 16,966 | | | 14,582 | |
Current portion of consumer loans receivable, net | Current portion of consumer loans receivable, net | 39,023 | | | 32,376 | | Current portion of consumer loans receivable, net | 42,091 | | | 32,376 | |
Current portion of commercial loans receivable, net | Current portion of commercial loans receivable, net | 13,261 | | | 14,657 | | Current portion of commercial loans receivable, net | 15,649 | | | 14,657 | |
Current portion of commercial loans receivable from affiliates, net | Current portion of commercial loans receivable from affiliates, net | 1,700 | | | 766 | | Current portion of commercial loans receivable from affiliates, net | 3,363 | | | 766 | |
Inventories | Inventories | 111,872 | | | 113,535 | | Inventories | 110,624 | | | 113,535 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 49,193 | | | 42,197 | | Prepaid expenses and other current assets | 55,805 | | | 42,197 | |
Total current assets | Total current assets | 597,424 | | | 516,185 | | Total current assets | 625,719 | | | 516,185 | |
Restricted cash | Restricted cash | 335 | | | 335 | | Restricted cash | 335 | | | 335 | |
Investments | Investments | 30,278 | | | 31,557 | | Investments | 35,485 | | | 31,557 | |
Consumer loans receivable, net | Consumer loans receivable, net | 42,817 | | | 49,928 | | Consumer loans receivable, net | 39,501 | | | 49,928 | |
Commercial loans receivable, net | Commercial loans receivable, net | 20,946 | | | 23,685 | | Commercial loans receivable, net | 16,563 | | | 23,685 | |
Commercial loans receivable from affiliates, net | Commercial loans receivable from affiliates, net | 5,571 | | | 7,457 | | Commercial loans receivable from affiliates, net | 4,171 | | | 7,457 | |
Property, plant and equipment, net | Property, plant and equipment, net | 77,836 | | | 77,190 | | Property, plant and equipment, net | 78,493 | | | 77,190 | |
Goodwill | Goodwill | 75,090 | | | 75,090 | | Goodwill | 75,090 | | | 75,090 | |
Other intangibles, net | Other intangibles, net | 14,736 | | | 15,110 | | Other intangibles, net | 14,550 | | | 15,110 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 17,477 | | | 13,894 | | Operating lease right-of-use assets | 16,659 | | | 13,894 | |
Total assets | Total assets | $ | 882,510 | | | $ | 810,431 | | Total assets | $ | 906,566 | | | $ | 810,431 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 32,919 | | | $ | 29,924 | | Accounts payable | $ | 25,176 | | | $ | 29,924 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 173,184 | | | 139,930 | | Accrued expenses and other current liabilities | 186,026 | | | 139,930 | |
Current portion of secured credit facilities and other | Current portion of secured credit facilities and other | 2,118 | | | 2,248 | | Current portion of secured credit facilities and other | 2,140 | | | 2,248 | |
Total current liabilities | Total current liabilities | 208,221 | | | 172,102 | | Total current liabilities | 213,342 | | | 172,102 | |
Operating lease liabilities | Operating lease liabilities | 14,602 | | | 10,743 | | Operating lease liabilities | 13,827 | | | 10,743 | |
Secured credit facilities and other | Secured credit facilities and other | 11,933 | | | 12,705 | | Secured credit facilities and other | 10,847 | | | 12,705 | |
Deferred income taxes | Deferred income taxes | 7,066 | | | 7,295 | | Deferred income taxes | 6,809 | | | 7,295 | |
Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | |
Preferred stock, $0.01 par value; 1,000,000 shares authorized; NaN shares issued or outstanding | Preferred stock, $0.01 par value; 1,000,000 shares authorized; NaN shares issued or outstanding | 0 | | | 0 | | Preferred stock, $0.01 par value; 1,000,000 shares authorized; NaN shares issued or outstanding | 0 | | | 0 | |
Common stock, $0.01 par value; 40,000,000 shares authorized; Outstanding 9,188,162 and 9,173,242 shares, respectively | 92 | | | 92 | | |
Common stock, $0.01 par value; 40,000,000 shares authorized; Outstanding 9,192,237 and 9,173,242 shares, respectively | | Common stock, $0.01 par value; 40,000,000 shares authorized; Outstanding 9,192,237 and 9,173,242 shares, respectively | 92 | | | 92 | |
Additional paid-in capital | Additional paid-in capital | 254,297 | | | 252,260 | | Additional paid-in capital | 255,664 | | | 252,260 | |
Retained earnings | Retained earnings | 386,134 | | | 355,144 | | Retained earnings | 405,835 | | | 355,144 | |
Accumulated other comprehensive income | Accumulated other comprehensive income | 165 | | | 90 | | Accumulated other comprehensive income | 150 | | | 90 | |
Total stockholders' equity | Total stockholders' equity | 640,688 | | | 607,586 | | Total stockholders' equity | 661,741 | | | 607,586 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 882,510 | | | $ | 810,431 | | Total liabilities and stockholders' equity | $ | 906,566 | | | $ | 810,431 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Net revenue | Net revenue | $ | 257,976 | | | $ | 268,675 | | | $ | 512,777 | | | $ | 532,717 | | Net revenue | $ | 288,772 | | | $ | 273,722 | | | $ | 801,549 | | | $ | 806,439 | |
Cost of sales | Cost of sales | 204,435 | | | 210,208 | | | 403,913 | | | 413,952 | | Cost of sales | 229,534 | | | 213,867 | | | 633,447 | | | 627,819 | |
Gross profit | Gross profit | 53,541 | | | 58,467 | | | 108,864 | | | 118,765 | | Gross profit | 59,238 | | | 59,855 | | | 168,102 | | | 178,620 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 35,453 | | | 36,083 | | | 70,776 | | | 71,347 | | Selling, general and administrative expenses | 35,414 | | | 36,844 | | | 106,190 | | | 108,191 | |
Income from operations | Income from operations | 18,088 | | | 22,384 | | | 38,088 | | | 47,418 | | Income from operations | 23,824 | | | 23,011 | | | 61,912 | | | 70,429 | |
Interest expense | Interest expense | (194) | | | (302) | | | (390) | | | (788) | | Interest expense | (177) | | | (490) | | | (567) | | | (1,278) | |
Other income, net | Other income, net | 1,702 | | | 5,173 | | | 3,578 | | | 7,987 | | Other income, net | 2,243 | | | 2,211 | | | 5,821 | | | 10,198 | |
Income before income taxes | Income before income taxes | 19,596 | | | 27,255 | | | 41,276 | | | 54,617 | | Income before income taxes | 25,890 | | | 24,732 | | | 67,166 | | | 79,349 | |
Income tax expense | Income tax expense | (4,547) | | | (6,370) | | | (9,553) | | | (12,450) | | Income tax expense | (6,189) | | | (3,834) | | | (15,742) | | | (16,284) | |
Net income | Net income | $ | 15,049 | | | $ | 20,885 | | | $ | 31,723 | | | $ | 42,167 | | Net income | $ | 19,701 | | | $ | 20,898 | | | $ | 51,424 | | | $ | 63,065 | |
| Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | $ | 15,049 | | | $ | 20,885 | | | $ | 31,723 | | | $ | 42,167 | | Net income | $ | 19,701 | | | $ | 20,898 | | | $ | 51,424 | | | $ | 63,065 | |
Reclassification adjustment for securities sold or matured | Reclassification adjustment for securities sold or matured | 7 | | | 0 | | | 33 | | | 2 | | Reclassification adjustment for securities sold or matured | (13) | | | 15 | | | 20 | | | 17 | |
Applicable income taxes | Applicable income taxes | (2) | | | 0 | | | (7) | | | (1) | | Applicable income taxes | 3 | | | (3) | | | (4) | | | (4) | |
Net change in unrealized position of investments held | Net change in unrealized position of investments held | 3 | | | 29 | | | 62 | | | 140 | | Net change in unrealized position of investments held | (6) | | | (14) | | | 56 | | | 126 | |
Applicable income taxes | Applicable income taxes | (1) | | | (6) | | | (13) | | | (29) | | Applicable income taxes | 1 | | | 3 | | | (12) | | | (26) | |
Comprehensive income | Comprehensive income | $ | 15,056 | | | $ | 20,908 | | | $ | 31,798 | | | $ | 42,279 | | Comprehensive income | $ | 19,686 | | | $ | 20,899 | | | $ | 51,484 | | | $ | 63,178 | |
| Net income per share: | Net income per share: | | Net income per share: | |
Basic | Basic | $ | 1.64 | | | $ | 2.29 | | | $ | 3.46 | | | $ | 4.63 | | Basic | $ | 2.14 | | | $ | 2.29 | | | $ | 5.60 | | | $ | 6.91 | |
Diluted | Diluted | $ | 1.62 | | | $ | 2.25 | | | $ | 3.42 | | | $ | 4.56 | | Diluted | $ | 2.12 | | | $ | 2.25 | | | $ | 5.54 | | | $ | 6.81 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | | | | | |
Basic | Basic | 9,182,945 | | | 9,119,835 | | | 9,178,609 | | | 9,111,260 | | Basic | 9,190,254 | | | 9,138,202 | | | 9,182,491 | | | 9,120,241 | |
Diluted | Diluted | 9,295,409 | | | 9,266,085 | | | 9,280,080 | | | 9,241,834 | | Diluted | 9,295,553 | | | 9,293,941 | | | 9,285,238 | | | 9,259,203 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Six Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | OPERATING ACTIVITIES | | | |
Net income | Net income | $ | 31,723 | | | $ | 42,167 | | Net income | $ | 51,424 | | | $ | 63,065 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 3,182 | | | 2,648 | | Depreciation and amortization | 4,735 | | | 4,208 | |
Provision for credit losses | Provision for credit losses | 223 | | | 30 | | Provision for credit losses | (1,082) | | | 138 | |
Deferred income taxes | Deferred income taxes | (18) | | | 1,011 | | Deferred income taxes | (272) | | | 1,407 | |
Stock-based compensation expense | Stock-based compensation expense | 2,048 | | | 1,448 | | Stock-based compensation expense | 2,935 | | | 2,268 | |
Non-cash interest income, net | Non-cash interest income, net | (2,596) | | | (694) | | Non-cash interest income, net | (2,984) | | | (1,134) | |
Loss (gain) on sale or retirement of property, plant and equipment, net | Loss (gain) on sale or retirement of property, plant and equipment, net | 242 | | | (3,370) | | Loss (gain) on sale or retirement of property, plant and equipment, net | 220 | | | (3,416) | |
Gain on investments and sale of loans, net | Gain on investments and sale of loans, net | (9,597) | | | (7,683) | | Gain on investments and sale of loans, net | (14,964) | | | (11,801) | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | 5,948 | | | (3,300) | | Accounts receivable | 1,868 | | | 2,196 | |
Consumer loans receivable originated | Consumer loans receivable originated | (82,352) | | | (80,259) | | Consumer loans receivable originated | (124,058) | | | (121,637) | |
Proceeds from sales of consumer loans | Proceeds from sales of consumer loans | 80,589 | | | 77,182 | | Proceeds from sales of consumer loans | 122,597 | | | 117,127 | |
Principal payments received on consumer loans receivable | Principal payments received on consumer loans receivable | 6,974 | | | 4,759 | | Principal payments received on consumer loans receivable | 10,720 | | | 7,816 | |
Inventories | Inventories | 1,663 | | | 6,506 | | Inventories | 2,911 | | | 11,567 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 11,536 | | | 322 | | Prepaid expenses and other current assets | 10,913 | | | (676) | |
Commercial loans receivable | Commercial loans receivable | 4,691 | | | (1,409) | | Commercial loans receivable | 6,444 | | | 487 | |
Accounts payable and accrued expenses and other current liabilities | Accounts payable and accrued expenses and other current liabilities | 20,353 | | | 4,235 | | Accounts payable and accrued expenses and other current liabilities | 20,159 | | | (3,295) | |
Net cash provided by operating activities | Net cash provided by operating activities | 74,609 | | | 43,593 | | Net cash provided by operating activities | 91,566 | | | 68,320 | |
INVESTING ACTIVITIES | INVESTING ACTIVITIES | | | | INVESTING ACTIVITIES | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (3,773) | | | (3,944) | | Purchases of property, plant and equipment | (5,816) | | | (6,487) | |
Payments for acquisition, net | Payments for acquisition, net | 0 | | | (15,937) | | Payments for acquisition, net | 0 | | | (15,937) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 77 | | | 64 | | Proceeds from sale of property, plant and equipment | 118 | | | 73 | |
Purchases of investments | Purchases of investments | (4,440) | | | (2,751) | | Purchases of investments | (14,056) | | | (4,648) | |
Proceeds from sale of investments | Proceeds from sale of investments | 8,054 | | | 4,260 | | Proceeds from sale of investments | 14,656 | | | 8,126 | |
Net cash used in investing activities | Net cash used in investing activities | (82) | | | (18,308) | | Net cash used in investing activities | (5,098) | | | (18,873) | |
FINANCING ACTIVITIES | FINANCING ACTIVITIES | | | | FINANCING ACTIVITIES | | | |
Payments for exercise of stock options | (11) | | | (311) | | |
Proceeds from exercise of stock options | | Proceeds from exercise of stock options | 469 | | | 226 | |
Proceeds from secured financings and other | Proceeds from secured financings and other | 64 | | | 75 | | Proceeds from secured financings and other | 64 | | | 76 | |
Payments on securitized financings and other | Payments on securitized financings and other | (918) | | | (19,109) | | Payments on securitized financings and other | (1,984) | | | (19,360) | |
Net cash used in financing activities | Net cash used in financing activities | (865) | | | (19,345) | | Net cash used in financing activities | (1,451) | | | (19,058) | |
Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash | 73,662 | | | 5,940 | | Net increase in cash, cash equivalents and restricted cash | 85,017 | | | 30,389 | |
Cash, cash equivalents and restricted cash at beginning of the fiscal year | Cash, cash equivalents and restricted cash at beginning of the fiscal year | 255,607 | | | 199,869 | | Cash, cash equivalents and restricted cash at beginning of the fiscal year | 255,607 | | | 199,869 | |
Cash, cash equivalents and restricted cash at end of the period | Cash, cash equivalents and restricted cash at end of the period | $ | 329,269 | | | $ | 205,809 | | Cash, cash equivalents and restricted cash at end of the period | $ | 340,624 | | | $ | 230,258 | |
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | Supplemental disclosures of cash flow information: | | | |
Cash paid for income taxes | Cash paid for income taxes | $ | 7,865 | | | $ | 13,073 | | Cash paid for income taxes | $ | 13,111 | | | $ | 15,901 | |
Cash paid for interest | Cash paid for interest | $ | 251 | | | $ | 473 | | Cash paid for interest | $ | 371 | | | $ | 604 | |
Supplemental disclosures of noncash activity: | Supplemental disclosures of noncash activity: | | | | Supplemental disclosures of noncash activity: | | | |
GNMA loans eligible for repurchase | GNMA loans eligible for repurchase | $ | 16,170 | | | $ | 704 | | GNMA loans eligible for repurchase | $ | 21,366 | | | $ | 2,442 | |
Right-of-use assets recognized | Right-of-use assets recognized | $ | 5,617 | | | $ | 13,464 | | Right-of-use assets recognized | $ | 5,692 | | | $ | 14,322 | |
Operating lease obligations incurred | Operating lease obligations incurred | $ | 5,617 | | | $ | 13,489 | | Operating lease obligations incurred | $ | 5,692 | | | $ | 14,347 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that the Company believes are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified to conform to current period classification. The Company hasWe have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC;SEC, and except for the events set forth in Note 22 of the Consolidated Financial Statements Notes ("Notes") of the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020, there were no subsequent events requiring disclosure. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company'sour 2020 Annual Report on Form 10-K for the year ended March 28, 2020 filed with the SEC on May 27, 2020 ("Form 10-K").
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying Notes.Notes to the Consolidated Financial Statements ("Notes"). The uncertainty created by the novel coronavirus COVID-19 ("COVID-19") havehas made such estimates more difficult and subjective. Due to that and other uncertainties, actual results could differ from those estimates. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31st. The Company's current fiscal year will end on April 3, 2021.2021 and will include 53 weeks.
The Company operatesWe operate principally in 2 segments: (1) factory-built housing, which includes wholesale and retail systems-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. The Company designsWe design and buildsbuild a wide variety of affordable manufactured homes, modular homes and park model RVs through 20 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through the Company'sour 40 Company-owned retail stores. OurThe financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Co. ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("GNMA") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.
Recently Issued or Adopted Accounting Standards.
On March 29, 2020, the Companywe adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments and requires a forward-looking impairment model based on expected losses rather than incurred losses. The CompanyWe adopted the standard by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings. The comparative information has not been restated and continues to be reported under the accounting standard in effect for the applicable prior periods. The cumulative effect of the changes made to our consolidated balance sheet at March 29, 2020 for the adoption of ASU 2016-13 was $733,000, net of taxes. The application of ASU 2016-13 increased our allowance for loan losses by $435,000 for commercial loans receivable and $528,000 for non-acquired consumer loans receivable. It had an insignificant impact to our allowance for credit losses for Accounts receivable, net.
The Company adopted ASU 2016-13 was adopted using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). The CompanyWe determined that $1.7 million of the existing purchase discount for acquired consumer loans was related to credit factors and was reclassified to the allowance for loan loss upon adoption. The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accreted into interest income over the life of the loans.
For a description of other significant accounting policies we used by the Company in the preparation of itsour Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K.
2. Revenue from Contracts with Customers
The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Factory-built housing | | | | | | | |
U.S. Housing and Urban Development code homes | $ | 197,723 | | | $ | 207,556 | | | $ | 387,169 | | | $ | 410,035 | |
Modular homes | 20,483 | | | 19,412 | | | 41,266 | | | 38,819 | |
Park model RVs | 9,027 | | | 11,751 | | | 22,749 | | | 24,612 | |
Other (1) | 13,734 | | | 13,971 | | | 27,873 | | | 27,992 | |
Net revenue from factory-built housing | 240,967 | | | 252,690 | | | 479,057 | | | 501,458 | |
Financial services | | | | | | | |
Insurance agency commissions received from third-party insurance companies | 777 | | | 274 | | | 1,547 | | | 1,429 | |
Other (2) | 16,232 | | | 15,711 | | | 32,173 | | | 29,830 | |
Net revenue from financial services | 17,009 | | | 15,985 | | | 33,720 | | | 31,259 | |
Total Net revenue | $ | 257,976 | | | $ | 268,675 | | | $ | 512,777 | | | $ | 532,717 | |
(1) Other factory-built housing revenue includes revenue from ancillary products and services including used homes, freight and other services.
(2) Other financial services revenue includes consumer finance and insurance revenue that is not within the scope of ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"). | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Factory-built housing | | | | | | | |
U.S. Housing and Urban Development code homes | $ | 222,684 | | | $ | 208,966 | | | $ | 609,853 | | | $ | 619,001 | |
Modular homes | 26,059 | | | 24,508 | | | 67,325 | | | 63,327 | |
Park model RVs | 8,296 | | | 10,219 | | | 31,045 | | | 34,831 | |
Other | 13,783 | | | 13,413 | | | 41,656 | | | 41,405 | |
Net revenue from factory-built housing | 270,822 | | | 257,106 | | | 749,879 | | | 758,564 | |
Financial services | | | | | | | |
Insurance agency commissions received from third-party insurance companies | 840 | | | 783 | | | 2,387 | | | 2,212 | |
Other | 17,110 | | | 15,833 | | | 49,283 | | | 45,663 | |
Net revenue from financial services | 17,950 | | | 16,616 | | | 51,670 | | | 47,875 | |
Total Net revenue | $ | 288,772 | | | $ | 273,722 | | | $ | 801,549 | | | $ | 806,439 | |
3. Restricted Cash
Restricted cash consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Cash related to CountryPlace customer payments to be remitted to third parties | Cash related to CountryPlace customer payments to be remitted to third parties | $ | 15,818 | | | $ | 12,740 | | Cash related to CountryPlace customer payments to be remitted to third parties | $ | 11,889 | | | $ | 12,740 | |
Other restricted cash | Other restricted cash | 1,208 | | | 1,041 | | Other restricted cash | 1,248 | | | 1,041 | |
| | $ | 17,026 | | | $ | 13,781 | | | $ | 13,137 | | | $ | 13,781 | |
Corresponding amounts for customer payments to be remitted to third parties are recorded in Accounts payable.
The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the Consolidated Balance Sheets to the combined amounts shown on the Consolidated Statements of Cash Flows (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | September 28, 2019 | | March 30, 2019 | | December 26, 2020 | | March 28, 2020 | | December 28, 2019 | | March 30, 2019 |
Cash and cash equivalents | Cash and cash equivalents | $ | 312,243 | | | $ | 241,826 | | | $ | 190,478 | | | $ | 187,370 | | Cash and cash equivalents | $ | 327,487 | | | $ | 241,826 | | | $ | 216,882 | | | $ | 187,370 | |
Restricted cash, current | Restricted cash, current | 16,691 | | | 13,446 | | | 14,981 | | | 12,148 | | Restricted cash, current | 12,802 | | | 13,446 | | | 13,026 | | | 12,148 | |
Restricted cash | Restricted cash | 335 | | | 335 | | | 350 | | | 351 | | Restricted cash | 335 | | | 335 | | | 350 | | | 351 | |
Cash, cash equivalents and restricted cash per statement of cash flows | Cash, cash equivalents and restricted cash per statement of cash flows | $ | 329,269 | | | $ | 255,607 | | | $ | 205,809 | | | $ | 199,869 | | Cash, cash equivalents and restricted cash per statement of cash flows | $ | 340,624 | | | $ | 255,607 | | | $ | 230,258 | | | $ | 199,869 | |
4. Investments
Investments consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Available-for-sale debt securities | Available-for-sale debt securities | $ | 12,676 | | | $ | 14,774 | | Available-for-sale debt securities | $ | 16,673 | | | $ | 14,774 | |
Marketable equity securities | Marketable equity securities | 12,791 | | | 9,829 | | Marketable equity securities | 13,987 | | | 9,829 | |
Non-marketable equity investments | Non-marketable equity investments | 21,400 | | | 21,536 | | Non-marketable equity investments | 21,791 | | | 21,536 | |
| | 46,867 | | | 46,139 | | | 52,451 | | | 46,139 | |
Less current portion | Less current portion | (16,589) | | | (14,582) | | Less current portion | (16,966) | | | (14,582) | |
| | $ | 30,278 | | | $ | 31,557 | | | $ | 35,485 | | | $ | 31,557 | |
The Company's investmentsInvestments in marketable equity securities consist of investments in the common stock of industrial and other companies.
As of SeptemberDecember 26, 2020 and March 28, 2020, non-marketable equity investments included contributions of $15.0 million to equity-method investments in community-based initiatives that buy and sell the Company'sour homes and provide home-only financing to residents of certain manufactured home communities. Other non-marketable equity investments included investments in other distribution operations.
The following tables summarize the Company'sour available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment category (in thousands):
| | | September 26, 2020 | | December 26, 2020 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 3,605 | | | $ | 55 | | | $ | (19) | | | $ | 3,641 | | Residential mortgage-backed securities | $ | 5,209 | | | $ | 45 | | | $ | (17) | | | $ | 5,237 | |
State and political subdivision debt securities | State and political subdivision debt securities | 4,116 | | | 162 | | | 0 | | | 4,278 | | State and political subdivision debt securities | 6,156 | | | 151 | | | (1) | | | 6,306 | |
Corporate debt securities | Corporate debt securities | 4,746 | | | 15 | | | (4) | | | 4,757 | | Corporate debt securities | 5,117 | | | 15 | | | (2) | | | 5,130 | |
| | $ | 12,467 | | | $ | 232 | | | $ | (23) | | | $ | 12,676 | | | $ | 16,482 | | | $ | 211 | | | $ | (20) | | | $ | 16,673 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2020 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Residential mortgage-backed securities | $ | 5,400 | | | $ | 69 | | | $ | (26) | | | $ | 5,443 | |
State and political subdivision debt securities | 4,239 | | | 134 | | | (3) | | | 4,370 | |
Corporate debt securities | 5,021 | | | 5 | | | (65) | | | 4,961 | |
| | | | | | | |
| $ | 14,660 | | | $ | 208 | | | $ | (94) | | | $ | 14,774 | |
The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position (in thousands):
| | | September 26, 2020 | | December 26, 2020 |
| | Less than 12 Months | | 12 Months or Longer | | Total | | Less than 12 Months | | 12 Months or Longer | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 462 | | | $ | (8) | | | $ | 567 | | | $ | (11) | | | $ | 1,029 | | | $ | (19) | | Residential mortgage-backed securities | $ | 342 | | | $ | (9) | | | $ | 460 | | | $ | (8) | | | $ | 802 | | | $ | (17) | |
State and political subdivision debt securities | State and political subdivision debt securities | 250 | | | 0 | | | 0 | | | 0 | | | 250 | | | 0 | | State and political subdivision debt securities | 321 | | | (1) | | | 0 | | | 0 | | | 321 | | | (1) | |
Corporate debt securities | Corporate debt securities | 1,117 | | | (4) | | | 0 | | | 0 | | | 1,117 | | | (4) | | Corporate debt securities | 805 | | | (2) | | | 0 | | | 0 | | | 805 | | | (2) | |
| | $ | 1,829 | | | $ | (12) | | | $ | 567 | | | $ | (11) | | | $ | 2,396 | | | $ | (23) | | | $ | 1,468 | | | $ | (12) | | | $ | 460 | | | $ | (8) | | | $ | 1,928 | | | $ | (20) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2020 |
| Less than 12 Months | | 12 Months or Longer | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Residential mortgage-backed securities | $ | 133 | | | $ | 0 | | | $ | 1,779 | | | $ | (26) | | | $ | 1,912 | | | $ | (26) | |
State and political subdivision debt securities | 601 | | | (2) | | | 101 | | | (1) | | | 702 | | | (3) | |
Corporate debt securities | 3,747 | | | (65) | | | 0 | | | 0 | | | 3,747 | | | (65) | |
| $ | 4,481 | | | $ | (67) | | | $ | 1,880 | | | $ | (27) | | | $ | 6,361 | | | $ | (94) | |
The Company isWe are not aware of any changes to the securities or issuers that would indicate the losses above are indicative of credit impairment as of SeptemberDecember 26, 2020. Further, the Company doeswe do not intend to sell the investments, and it is more likely than not that the Companywe will not be required to sell the investments, before recovery of their amortized cost.
The amortized cost and fair value of the Company'sour investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands). Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.
| | | September 26, 2020 | | December 26, 2020 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in less than one year | Due in less than one year | $ | 3,506 | | | $ | 3,515 | | Due in less than one year | $ | 601 | | | $ | 603 | |
Due after one year through five years | Due after one year through five years | 3,013 | | | 3,040 | | Due after one year through five years | 8,335 | | | 8,375 | |
Due after five years through ten years | Due after five years through ten years | 1,028 | | | 1,109 | | Due after five years through ten years | 1,025 | | | 1,097 | |
Due after ten years | Due after ten years | 1,315 | | | 1,371 | | Due after ten years | 1,312 | | | 1,361 | |
Mortgage-backed securities | Mortgage-backed securities | 3,605 | | | 3,641 | | Mortgage-backed securities | 5,209 | | | 5,237 | |
| | $ | 12,467 | | | $ | 12,676 | | | $ | 16,482 | | | $ | 16,673 | |
The Company recognizesWe recognize investment gains and losses on available-for-sale debt securities when it sellswe sell or otherwise disposesdispose of securities using the specific identification method. For the three and sixnine months ended SeptemberDecember 26, 2020, there were 0 gross gains realized on the sale of available-for-sale debt securities and gross losses realized were $5,000.1,000 and $6,000, respectively. There were 0 gross gains or losses realized on the sale of available-for-sale debt securities during the three and sixnine months ended SeptemberDecember 28, 2019.
The Company recognizesWe recognize unrealized gains and losses on marketable equity securities from changes in market prices during the period as a component of earnings in the Consolidated Statements of Comprehensive Income. Net investment gains and losses on marketable equity securities were as follows (in thousands):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Marketable equity securities: | Marketable equity securities: | | | | | | | | Marketable equity securities: | | | | | | | |
Net gains on securities held | Net gains on securities held | $ | 1,278 | | | $ | 350 | | | $ | 3,275 | | | $ | 1,302 | | Net gains on securities held | $ | 1,857 | | | $ | 764 | | | $ | 5,132 | | | $ | 2,066 | |
Net (losses) gains on securities sold | (27) | | | (1) | | | 6 | | | (2) | | |
Net gains on securities sold | | Net gains on securities sold | 151 | | | 13 | | | 157 | | | 11 | |
| | $ | 1,251 | | | $ | 349 | | | $ | 3,281 | | | $ | 1,300 | | | $ | 2,008 | | | $ | 777 | | | $ | 5,289 | | | $ | 2,077 | |
5. Inventories
Inventories consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Raw materials | Raw materials | $ | 41,907 | | | $ | 35,691 | | Raw materials | $ | 45,821 | | | $ | 35,691 | |
Work in process | Work in process | 15,723 | | | 13,953 | | Work in process | 16,223 | | | 13,953 | |
Finished goods | Finished goods | 54,242 | | | 63,891 | | Finished goods | 48,580 | | | 63,891 | |
| | $ | 111,872 | | | $ | 113,535 | | | $ | 110,624 | | | $ | 113,535 | |
6. Consumer Loans Receivable
The following table summarizes consumer loans receivable (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Loans held for investment (at Acquisition Date, defined below) | Loans held for investment (at Acquisition Date, defined below) | $ | 35,692 | | | $ | 37,779 | | Loans held for investment (at Acquisition Date, defined below) | $ | 33,726 | | | $ | 37,779 | |
Loans held for investment (originated after Acquisition Date) | Loans held for investment (originated after Acquisition Date) | 19,299 | | | 20,140 | | Loans held for investment (originated after Acquisition Date) | 17,873 | | | 20,140 | |
Loans held for sale | Loans held for sale | 18,986 | | | 14,671 | | Loans held for sale | 22,014 | | | 14,671 | |
Construction advances | Construction advances | 14,063 | | | 13,400 | | Construction advances | 13,923 | | | 13,400 | |
| | 88,040 | | | 85,990 | | | 87,536 | | | 85,990 | |
Deferred financing fees and other, net | Deferred financing fees and other, net | (2,290) | | | (1,919) | | Deferred financing fees and other, net | (2,525) | | | (1,919) | |
Allowance for loan losses | Allowance for loan losses | (3,910) | | | (1,767) | | Allowance for loan losses | (3,419) | | | (1,767) | |
| | 81,840 | | | 82,304 | | | 81,592 | | | 82,304 | |
Less current portion | Less current portion | (39,023) | | | (32,376) | | Less current portion | (42,091) | | | (32,376) | |
| | $ | 42,817 | | | $ | 49,928 | | | $ | 39,501 | | | $ | 49,928 | |
The Company acquired consumer loans receivable as part of itsthe acquisition of Palm Harbor Homes, Inc. in April 2011 ("Acquisition Date"). The allowance for loan losses reflects the Company'sour judgment of the probable loss exposure on its loans held for investment portfolio.investment. On March 29, 2020 the Companywe adopted ASU 2016-13 using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under ASC 310-30. The CompanyWe determined that $1.7 million of the existing purchase discount for such consumer loans was related to credit factors and was reclassified to the allowance for loan losslosses upon adoption. The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accreted into interest income over the life of the loans.
The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Allowance for loan losses at beginning of period | Allowance for loan losses at beginning of period | $ | 4,012 | | | $ | 421 | | | $ | 1,767 | | | $ | 415 | | Allowance for loan losses at beginning of period | $ | 3,910 | | | $ | 415 | | | $ | 1,767 | | | $ | 415 | |
Impact of adoption of ASU 2016-13 | Impact of adoption of ASU 2016-13 | 0 | | | 0 | | | 2,276 | | | 0 | | Impact of adoption of ASU 2016-13 | 0 | | | 0 | | | 2,276 | | | 0 | |
Change in estimated loan losses, net | Change in estimated loan losses, net | (94) | | | (6) | | | 67 | | | 0 | | Change in estimated loan losses, net | (491) | | | 16 | | | (424) | | | 16 | |
Charge-offs | Charge-offs | (8) | | | 0 | | | (200) | | | 0 | | Charge-offs | 0 | | | 0 | | | (200) | | | 0 | |
Recoveries | Recoveries | 0 | | | 0 | | | 0 | | | 0 | | Recoveries | 0 | | | 0 | | | 0 | | | 0 | |
Allowance for loan losses at end of period | Allowance for loan losses at end of period | $ | 3,910 | | | $ | 415 | | | $ | 3,910 | | | $ | 415 | | Allowance for loan losses at end of period | $ | 3,419 | | | $ | 431 | | | $ | 3,419 | | | $ | 431 | |
The consumer loans held for investment had the following characteristics:
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Weighted average contractual interest rate | Weighted average contractual interest rate | 8.4 | % | | 8.4 | % | Weighted average contractual interest rate | 8.4 | % | | 8.4 | % |
Weighted average effective interest rate | Weighted average effective interest rate | 9.6 | % | | 9.3 | % | Weighted average effective interest rate | 9.5 | % | | 9.3 | % |
Weighted average months to maturity | Weighted average months to maturity | 163 | | 164 | Weighted average months to maturity | 159 | | 164 |
The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Current | Current | $ | 84,852 | | | $ | 83,861 | | Current | $ | 84,200 | | | $ | 83,861 | |
31-to-60 days | 1,200 | | | 547 | | |
61-to-90 days | 26 | | | 307 | | |
31 to 60 days | | 31 to 60 days | 834 | | | 547 | |
61 to 90 days | | 61 to 90 days | 178 | | | 307 | |
91+ days | 91+ days | 1,962 | | | 1,275 | | 91+ days | 2,324 | | | 1,275 | |
| | $ | 88,040 | | | $ | 85,990 | | | $ | 87,536 | | | $ | 85,990 | |
The following tablestable disaggregates CountryPlace's gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):
| | | September 26, 2020 | | | December 26, 2020 | |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | March 28, 2020 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | March 28, 2020 |
Prime- FICO score 680 and greater | Prime- FICO score 680 and greater | $ | 14,707 | | | $ | 8,496 | | | $ | 2,315 | | | $ | 1,523 | | | $ | 1,848 | | | $ | 25,991 | | | $ | 54,880 | | | $ | 55,513 | | Prime- FICO score 680 and greater | $ | 21,087 | | | $ | 4,191 | | | $ | 1,832 | | | $ | 996 | | | $ | 1,761 | | | $ | 24,582 | | | $ | 54,449 | | | $ | 55,513 | |
Near Prime- FICO score 620-679 | Near Prime- FICO score 620-679 | 8,684 | | | 6,216 | | | 1,864 | | | 1,146 | | | 779 | | | 11,496 | | | 30,185 | | | 27,767 | | Near Prime- FICO score 620-679 | 11,502 | | | 4,074 | | | 1,809 | | | 1,141 | | | 614 | | | 10,875 | | | 30,015 | | | 27,767 | |
Sub-Prime- FICO score less than 620 | Sub-Prime- FICO score less than 620 | 100 | | | 89 | | | 0 | | | 0 | | | 86 | | | 1,991 | | | 2,266 | | | 2,142 | | Sub-Prime- FICO score less than 620 | 426 | | | 54 | | | 0 | | | 0 | | | 85 | | | 1,786 | | | 2,351 | | | 2,142 | |
No FICO score | No FICO score | 152 | | | 0 | | | 29 | | | 0 | | | 0 | | | 528 | | | 709 | | | 568 | | No FICO score | 151 | | | 0 | | | 28 | | | 0 | | | 0 | | | 542 | | | 721 | | | 568 | |
| | $ | 23,643 | | | $ | 14,801 | | | $ | 4,208 | | | $ | 2,669 | | | $ | 2,713 | | | $ | 40,006 | | | $ | 88,040 | | | $ | 85,990 | | | $ | 33,166 | | | $ | 8,319 | | | $ | 3,669 | | | $ | 2,137 | | | $ | 2,460 | | | $ | 37,785 | | | $ | 87,536 | | | $ | 85,990 | |
Loan contracts secured by geographically concentrated collateral could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed. As of SeptemberDecember 26, 2020, 35%37% of the outstanding principal balance of consumer loans receivable portfolio was concentrated in Texas and 19%20% was concentrated in Florida. As of March 28, 2020, 36% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 16% was concentrated in Florida. Other than Texas and Florida, no state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of SeptemberDecember 26, 2020 or March 28, 2020.
Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home less the costs to sell. At repossession, the fair value of the collateral is determined based on the historical recovery rates of previously charged-off loans; the loan is charged off and the loss is recorded to the allowance for loan losses. Repossessed homes totaled approximately $931,000$162,000 and $1.5 million as of SeptemberDecember 26, 2020 and March 28, 2020, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $240,000$606,000 and $560,000 as of SeptemberDecember 26, 2020 and March 28, 2020, respectively.
7. Commercial Loans Receivable
The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of the Company'sour independent distributors, communitiescommunity owners and developers; and (ii) amounts loaned by the Companyus under participation financing programs.
Under the terms of the direct programs, the Company provideswe provide funds for financed home purchases by independent distributors, communitiescommunity owners and developers. The notes are secured by the homes as collateral and, in some instances, other security. Other terms of direct arrangements vary, depending on the needs of the borrower and the opportunity for the Company.
Under the terms of the participation programs, the Company provideswe provide loans to independent floor plan lenders representing a significant portion of the funds that such financiers then lend to distributors to finance their inventory purchases. The participation commercial loans receivables are unsecured general obligations of the independent floor plan lenders.
Commercial loans receivable, net consisted of the following, by class of financing notes receivable (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Direct loans receivable | Direct loans receivable | $ | 42,336 | | | $ | 47,058 | | Direct loans receivable | $ | 40,653 | | | $ | 47,058 | |
Participation loans receivable | Participation loans receivable | 175 | | | 144 | | Participation loans receivable | 105 | | | 144 | |
Allowance for loan losses | Allowance for loan losses | (789) | | | (393) | | Allowance for loan losses | (765) | | | (393) | |
Deferred financing fees, net | Deferred financing fees, net | (244) | | | (244) | | Deferred financing fees, net | (247) | | | (244) | |
| | 41,478 | | | 46,565 | | | 39,746 | | | 46,565 | |
Less current portion of commercial loans receivable (including from affiliates), net | Less current portion of commercial loans receivable (including from affiliates), net | (14,961) | | | (15,423) | | Less current portion of commercial loans receivable (including from affiliates), net | (19,012) | | | (15,423) | |
| | $ | 26,517 | | | $ | 31,142 | | | $ | 20,734 | | | $ | 31,142 | |
The commercial loans receivable balance had the following characteristics:
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Weighted average contractual interest rate | Weighted average contractual interest rate | 6.1 | % | | 5.7 | % | Weighted average contractual interest rate | 6.1 | % | | 5.7 | % |
Weighted average months to maturity | Weighted average months to maturity | 11 | | 10 | Weighted average months to maturity | 11 | | 10 |
The risk of loss is spread over numerous borrowers. Borrower activity is monitored on a regular basis and contractual arrangements are in place to provide adequate loss mitigation in the event of a default. The Company has historicallyHistorically, we have been able to sell repossessed homes, thereby mitigating loss exposure. If a default occurs and collateral is lost, the Company iswe are exposed to loss of the full value of the home loan. The Company evaluatesWe evaluate the potential for loss from itsthe commercial loan programs based on the borrower's risk rating, overall financial stability, historical experience and estimates of other economic factors. The Company hasWe have included considerations related to the COVID-19 pandemic when assessing itsour risk of loan loss and setting reserve amounts for itsthe commercial finance portfolio as of SeptemberDecember 26, 2020.
The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Balance at beginning of period | Balance at beginning of period | $ | 828 | | | $ | 191 | | | $ | 393 | | | $ | 180 | | Balance at beginning of period | $ | 789 | | | $ | 163 | | | $ | 393 | | | $ | 180 | |
Impact of adoption of ASU 2016-13 | Impact of adoption of ASU 2016-13 | 0 | | | 0 | | | 435 | | | 0 | | Impact of adoption of ASU 2016-13 | 0 | | | 0 | | | 435 | | | 0 | |
Change in estimated loan losses, net | Change in estimated loan losses, net | (39) | | | (28) | | | (39) | | | (17) | | Change in estimated loan losses, net | (24) | | | (1) | | | (63) | | | (18) | |
Loans charged off, net of recoveries | Loans charged off, net of recoveries | 0 | | | 0 | | | 0 | | | 0 | | Loans charged off, net of recoveries | 0 | | | 0 | | | 0 | | | 0 | |
Balance at end of period | Balance at end of period | $ | 789 | | | $ | 163 | | | $ | 789 | | | $ | 163 | | Balance at end of period | $ | 765 | | | $ | 162 | | | $ | 765 | | | $ | 162 | |
The following table disaggregates the Company'sour commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):
| | | September 26, 2020 | | | | December 26, 2020 | | |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Total | | March 28, 2020 | | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Total | | March 28, 2020 | |
Risk profile based on payment activity: | Risk profile based on payment activity: | | Risk profile based on payment activity: | |
Performing | Performing | | $ | 18,860 | | | $ | 14,076 | | | $ | 5,699 | | | $ | 2,238 | | | $ | 1,570 | | | $ | 42,443 | | | $ | 47,016 | | | Performing | | $ | 22,708 | | | $ | 10,394 | | | $ | 3,954 | | | $ | 2,180 | | | $ | 1,522 | | | $ | 40,758 | | | $ | 47,016 | | |
Watch list | Watch list | | 0 | | | 0 | | | 68 | | | 0 | | | 0 | | | 68 | | | 186 | | | Watch list | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 186 | | |
Nonperforming | Nonperforming | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Nonperforming | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
| | $ | 18,860 | | | $ | 14,076 | | | $ | 5,767 | | | $ | 2,238 | | | $ | 1,570 | | | $ | 42,511 | | | $ | 47,202 | | | | $ | 22,708 | | | $ | 10,394 | | | $ | 3,954 | | | $ | 2,180 | | | $ | 1,522 | | | $ | 40,758 | | | $ | 47,202 | | |
At SeptemberDecember 26, 2020, there were 0 commercial loans 90 days or more past due that were still accruing interest and the Company waswe were not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.
As of SeptemberDecember 26, 2020, 10.5%10.0% of the Company'sour outstanding commercial loans receivable principal balance was concentrated in Arizona and 10.0% was concentrated in California.Arizona. As of March 28, 2020, 11.0% of the Company's outstanding commercial loans receivable principal balance was concentrated in California. No other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of SeptemberDecember 26, 2020 or March 28, 2020.
The CompanyWe had concentrations with one independent third-party and its affiliates that equaled 17.9%16.8% and 21.0% of the net commercial loans receivablesreceivable principal balance outstanding, all of which was secured, as of SeptemberDecember 26, 2020 and March 28, 2020, respectively. The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan loss.losses.
8. Property, Plant and Equipment, net
Property, plant and equipment, net, consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Property, plant and equipment, at cost: | Property, plant and equipment, at cost: | | | | Property, plant and equipment, at cost: | | | |
Land | Land | $ | 26,804 | | | $ | 26,827 | | Land | $ | 26,862 | | | $ | 26,827 | |
Buildings and improvements | Buildings and improvements | 53,743 | | | 52,011 | | Buildings and improvements | 54,710 | | | 52,011 | |
Machinery and equipment | Machinery and equipment | 32,286 | | | 30,984 | | Machinery and equipment | 33,163 | | | 30,984 | |
| | 112,833 | | | 109,822 | | | 114,735 | | | 109,822 | |
Accumulated depreciation | Accumulated depreciation | (34,997) | | | (32,632) | | Accumulated depreciation | (36,242) | | | (32,632) | |
| | $ | 77,836 | | | $ | 77,190 | | | $ | 78,493 | | | $ | 77,190 | |
Depreciation expense was $1.4 million and $1.3 million for each of the three monthsmonth periods ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, respectively.2019. Depreciation expense for the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019 was $2.8$4.2 million and $2.4$3.8 million, respectively.
Included in the amounts above are certain assets under finance leases. See Note 9 of the Notes to the Consolidated Financial Statements included in the Form 10-K for additional information.
9. Leases
The Company leasesWe lease certain production and retail locations, office space and equipment. During the period ended SeptemberDecember 26, 2020, the Companywe executed various lease renewals, including a five-year extension at one of our active manufacturing facilities, which increased the right of use asset and lease liability.
The present value of minimum payments for future fiscal years under non-cancelable leases as of SeptemberDecember 26, 2020 was as follows (in thousands):
| | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total |
Remainder of 2021 | Remainder of 2021 | $ | 2,116 | | | $ | 37 | | | $ | 2,153 | | Remainder of 2021 | $ | 1,051 | | | $ | 19 | | | $ | 1,070 | |
2022 | 2022 | 4,154 | | | 73 | | | 4,227 | | 2022 | 4,182 | | | 73 | | | 4,255 | |
2023 | 2023 | 3,827 | | | 73 | | | 3,900 | | 2023 | 3,854 | | | 73 | | | 3,927 | |
2024 | 2024 | 3,487 | | | 73 | | | 3,560 | | 2024 | 3,503 | | | 73 | | | 3,576 | |
2025 | 2025 | 2,706 | | | 73 | | | 2,779 | | 2025 | 2,706 | | | 73 | | | 2,779 | |
2026 | 2026 | 2,799 | | | 49 | | | 2,848 | | 2026 | 2,799 | | | 49 | | | 2,848 | |
Thereafter | Thereafter | 2,206 | | | 0 | | | 2,206 | | Thereafter | 2,206 | | | 0 | | | 2,206 | |
| | 21,295 | | | 378 | | | 21,673 | | | 20,301 | | | 360 | | | 20,661 | |
Less amount representing interest | Less amount representing interest | (2,612) | | | (45) | | | (2,657) | | Less amount representing interest | (2,392) | | | (41) | | | (2,433) | |
| | 18,683 | | | 333 | | | 19,016 | | | 17,909 | | | 319 | | | 18,228 | |
Less current portion | Less current portion | (4,081) | | | (72) | | | (4,153) | | Less current portion | (4,082) | | | (71) | | | (4,153) | |
| | $ | 14,602 | | | $ | 261 | | | $ | 14,863 | | | $ | 13,827 | | | $ | 248 | | | $ | 14,075 | |
10. Goodwill and Other Intangibles
Goodwill and other intangibles, net, consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived: | Indefinite-lived: | | | | | | | | | | | | Indefinite-lived: | | | | | | | | | | | |
Goodwill | Goodwill | $ | 75,090 | | | $ | — | | | $ | 75,090 | | | $ | 75,090 | | | $ | — | | | $ | 75,090 | | Goodwill | $ | 75,090 | | | $ | — | | | $ | 75,090 | | | $ | 75,090 | | | $ | — | | | $ | 75,090 | |
Trademarks and trade names | Trademarks and trade names | 8,900 | | | — | | | 8,900 | | | 8,900 | | | — | | | 8,900 | | Trademarks and trade names | 8,900 | | | — | | | 8,900 | | | 8,900 | | | — | | | 8,900 | |
State insurance licenses | State insurance licenses | 1,100 | | | — | | | 1,100 | | | 1,100 | | | — | | | 1,100 | | State insurance licenses | 1,100 | | | — | | | 1,100 | | | 1,100 | | | — | | | 1,100 | |
| | 85,090 | | | — | | | 85,090 | | | 85,090 | | | — | | | 85,090 | | | 85,090 | | | — | | | 85,090 | | | 85,090 | | | — | | | 85,090 | |
Finite-lived: | Finite-lived: | | Finite-lived: | |
Customer relationships | Customer relationships | 11,300 | | | (6,780) | | | 4,520 | | | 11,300 | | | (6,463) | | | 4,837 | | Customer relationships | 11,300 | | | (6,938) | | | 4,362 | | | 11,300 | | | (6,463) | | | 4,837 | |
Other | Other | 1,424 | | | (1,208) | | | 216 | | | 1,424 | | | (1,151) | | | 273 | | Other | 1,424 | | | (1,236) | | | 188 | | | 1,424 | | | (1,151) | | | 273 | |
| | $ | 97,814 | | | $ | (7,988) | | | $ | 89,826 | | | $ | 97,814 | | | $ | (7,614) | | | $ | 90,200 | | | $ | 97,814 | | | $ | (8,174) | | | $ | 89,640 | | | $ | 97,814 | | | $ | (7,614) | | | $ | 90,200 | |
Amortization expense recognized on intangible assets was $187,000$186,000 and $151,000$188,000 for the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, respectively. Amortization expense recognized on intangible assets was $374,000$560,000 and $231,000$419,000 for the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, respectively.
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Customer deposits | Customer deposits | $ | 30,153 | | | $ | 22,055 | | Customer deposits | $ | 34,373 | | | $ | 22,055 | |
Salaries, wages and benefits | Salaries, wages and benefits | 29,375 | | | 25,885 | | Salaries, wages and benefits | 32,338 | | | 25,885 | |
Company repurchase options on certain loans sold | Company repurchase options on certain loans sold | 23,854 | | | 7,444 | | Company repurchase options on certain loans sold | 29,104 | | | 7,444 | |
Unearned insurance premiums | Unearned insurance premiums | 21,907 | | | 20,614 | | Unearned insurance premiums | 21,223 | | | 20,614 | |
Estimated warranties | Estimated warranties | 17,805 | | | 18,678 | | Estimated warranties | 17,996 | | | 18,678 | |
Accrued volume rebates | Accrued volume rebates | 11,040 | | | 9,801 | | Accrued volume rebates | 12,063 | | | 9,801 | |
Accrued self-insurance | | Accrued self-insurance | 5,661 | | | 5,112 | |
Insurance loss reserves | Insurance loss reserves | 6,887 | | | 5,582 | | Insurance loss reserves | 5,351 | | | 5,582 | |
Accrued self-insurance | 5,827 | | | 5,112 | | |
Operating lease liabilities | Operating lease liabilities | 4,081 | | | 4,170 | | Operating lease liabilities | 4,082 | | | 4,170 | |
Reserve for repurchase commitments | | Reserve for repurchase commitments | 2,281 | | | 2,679 | |
Accrued taxes | Accrued taxes | 3,247 | | | 1,908 | | Accrued taxes | 2,212 | | | 1,908 | |
Reserve for repurchase commitments | 2,463 | | | 2,679 | | |
Other | Other | 16,545 | | | 16,002 | | Other | 19,342 | | | 16,002 | |
| | $ | 173,184 | | | $ | 139,930 | | | $ | 186,026 | | | $ | 139,930 | |
12. Warranties
Activity in the liability for estimated warranties was as follows (in thousands):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Balance at beginning of period | Balance at beginning of period | $ | 18,538 | | | $ | 17,760 | | | $ | 18,678 | | | $ | 17,069 | | Balance at beginning of period | $ | 17,805 | | | $ | 18,563 | | | $ | 18,678 | | | $ | 17,069 | |
| Purchase accounting additions | Purchase accounting additions | 0 | | | 1,192 | | | 0 | | | 1,192 | | Purchase accounting additions | 0 | | | 0 | | | 0 | | | 1,192 | |
Charged to costs and expenses | Charged to costs and expenses | 6,232 | | | 6,765 | | | 12,579 | | | 14,586 | | Charged to costs and expenses | 7,724 | | | 7,269 | | | 20,303 | | | 21,855 | |
Payments and deductions | Payments and deductions | (6,965) | | | (7,154) | | | (13,452) | | | (14,284) | | Payments and deductions | (7,533) | | | (7,873) | | | (20,985) | | | (22,157) | |
Balance at end of period | Balance at end of period | $ | 17,805 | | | $ | 18,563 | | | $ | 17,805 | | | $ | 18,563 | | Balance at end of period | $ | 17,996 | | | $ | 17,959 | | | $ | 17,996 | | | $ | 17,959 | |
13. Debt and Finance Lease Obligations
Debt and finance lease obligations primarily consist of secured credit facilities at the Company'sour finance subsidiary and lease obligations infor which it is expected that the Companywe will obtain ownership of athe leased assetassets at the end of thetheir lease term. The following table summarizes debt and finance lease obligations (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Secured credit facilities | Secured credit facilities | $ | 9,793 | | | $ | 10,474 | | Secured credit facilities | $ | 8,825 | | | $ | 10,474 | |
Other secured financings | Other secured financings | 3,925 | | | 4,113 | | Other secured financings | 3,843 | | | 4,113 | |
Finance lease liabilities | 333 | | | 366 | | |
Finance lease obligations | | Finance lease obligations | 319 | | | 366 | |
| | 14,051 | | | 14,953 | | | 12,987 | | | 14,953 | |
Less current portion | Less current portion | (2,118) | | | (2,248) | | Less current portion | (2,140) | | | (2,248) | |
| | $ | 11,933 | | | $ | 12,705 | | | $ | 10,847 | | | $ | 12,705 | |
The Company's finance subsidiaryCountryPlace entered into secured credit facilities with independent third-party banks with draw periods from one to fifteen months and maturity dates of ten years after the expiration of the draw periods, which have now expired. The proceeds were used by the Company to originate and hold consumer home-only loans secured by manufactured homes, which are pledged as collateral to the facilities. Upon completion of the draw down periods, the facilities were converted into an amortizing loan based on a 20-year amortization period with a balloon payment due upon maturity. The maximum advance for loans under this program was 80% of the outstanding collateral principal balance, with the Company providing the remaining funds. As of September 26, 2020, theThe outstanding balance of the converted loans was $9.8$8.8 million atas of December 26, 2020 and $10.5 million as of March 28, 2020, with a weighted average interest rate of 4.91%.
See Note 9 of the Notes to the Consolidated Financial Statements included in the Form 10-K for further discussion of the finance lease obligations.
14. Reinsurance
Standard Casualty is primarily a specialty writer of manufactured home physical damage insurance. Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. Standard Casualty remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations. Substantially all of Standard Casualty's assumed reinsurance is with one entity.
The effects of reinsurance on premiums written and earned were as follows (in thousands):
| | | Three Months Ended | | Three Months Ended |
| | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 |
| | Written | | Earned | | Written | | Earned | | Written | | Earned | | Written | | Earned |
Direct premiums | Direct premiums | $ | 4,915 | | | $ | 5,145 | | | $ | 4,179 | | | $ | 4,653 | | Direct premiums | $ | 5,420 | | | $ | 5,429 | | | $ | 4,654 | | | $ | 4,756 | |
Assumed premiums—nonaffiliated | Assumed premiums—nonaffiliated | 7,593 | | | 7,043 | | | 6,760 | | | 6,592 | | Assumed premiums—nonaffiliated | 6,541 | | | 7,195 | | | 5,918 | | | 6,676 | |
Ceded premiums—nonaffiliated | Ceded premiums—nonaffiliated | (2,853) | | | (2,853) | | | (3,029) | | | (3,029) | | Ceded premiums—nonaffiliated | (3,146) | | | (3,146) | | | (3,071) | | | (3,071) | |
| | $ | 9,655 | | | $ | 9,335 | | | $ | 7,910 | | | $ | 8,216 | | | $ | 8,815 | | | $ | 9,478 | | | $ | 7,501 | | | $ | 8,361 | |
| | | Six Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 |
| | Written | | Earned | | Written | | Earned | | Written | | Earned | | Written | | Earned |
Direct premiums | Direct premiums | $ | 10,680 | | | $ | 10,330 | | | $ | 9,212 | | | $ | 9,223 | | Direct premiums | $ | 16,100 | | | $ | 15,759 | | | $ | 13,866 | | | $ | 13,979 | |
Assumed premiums—nonaffiliated | Assumed premiums—nonaffiliated | 15,246 | | | 13,833 | | | 14,273 | | | 13,027 | | Assumed premiums—nonaffiliated | 21,787 | | | 21,028 | | | 20,191 | | | 19,703 | |
Ceded premiums—nonaffiliated | Ceded premiums—nonaffiliated | (6,055) | | | (6,055) | | | (6,016) | | | (6,016) | | Ceded premiums—nonaffiliated | (9,201) | | | (9,201) | | | (9,087) | | | (9,087) | |
|
| $ | 19,871 | | | $ | 18,108 | | | $ | 17,469 | | | $ | 16,234 | |
| $ | 28,686 | | | $ | 27,586 | | | $ | 24,970 | | | $ | 24,595 | |
Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $300,000 per claim, of which Standard Casualty cedes $175,000$150,000 of the risk of loss per reinsurance. Therefore, Standard Casualty's risk of loss is limited to $125,000$150,000 per claim on typical policies, subject to the reinsurers meeting their obligations. After this limit, amounts are recoverable by Standard Casualty through reinsurance for catastrophic losses in excess of $1.5$2 million per occurrence, up to a maximum of $43.5$55 million in the aggregate.
15. Commitments and Contingencies
Repurchase Contingencies. The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent distributors of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to distributors in the event of default by the distributor.
The maximum amount for which the Company waswe were liable under such agreements approximated $77.6$70.8 million and $79.3 million at SeptemberDecember 26, 2020 and March 28, 2020, respectively, without a reduction for the resale value of the homes. The Company appliesWe apply ASC 460, Guarantees, and ASC 450-20, Loss Contingencies, to account for its liability forthe repurchase commitments.commitment liability. We The Company had a reserve for repurchase commitments of $2.5$2.3 million and $2.7 million at SeptemberDecember 26, 2020 and March 28, 2020, respectively.
Letter of Credit. To secure certain reinsurance contracts, Standard Casualty maintained an irrevocable letter of credit of $11.0 million to provide assurance that Standard Casualty would fulfill its reinsurance obligations. The letter of credit was released on July 11, 2020.
Construction-Period Mortgages. CountryPlace funds construction-period mortgages through periodic advances during home construction. At the time of initial funding, CountryPlace commits to fully fund the loan contract in accordance with a predetermined schedule. Subsequent advances are contingent upon the performance of contractual obligations by the seller of the home and the borrower. Cumulative advances on construction-period mortgages are carried on the Consolidated Balance Sheets at the amount advanced less a valuation allowance and are included in Consumer loans receivable, net. The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment of CountryPlace to fund future advances.
Loan contracts with off-balance sheet commitments are summarized below (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Construction loan contract amount | Construction loan contract amount | $ | 39,094 | | | $ | 31,136 | | Construction loan contract amount | $ | 41,763 | | | $ | 31,136 | |
Cumulative advances | Cumulative advances | (14,063) | | | (13,400) | | Cumulative advances | (13,923) | | | (13,400) | |
| | $ | 25,031 | | | $ | 17,736 | | | $ | 27,840 | | | $ | 17,736 | |
Representations and Warranties of Mortgages Sold. CountryPlace sells loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers and finances certain loans with long-term credit facilities secured by the respective loans. In connection with these activities, CountryPlace provides to the GSEs and whole-loan purchasers and lenders representations and warranties related to the loans sold or financed. Upon a breach of a representation, CountryPlace may be required to repurchase the loan or to indemnify a party for incurred losses. TheDuring the nine months ended December 26, 2020, the Company maintainsexecuted indemnification agreements to cover 20% of the losses experienced over the next two years related to 5 loans that were impacted by COVID-19. We maintain a reserve for these contingent repurchase and indemnification obligations. This reserve of $1.3 million as of SeptemberDecember 26, 2020 and $1.0 million as of March 28, 2020, included in Accrued expenses and other current liabilities, reflects management's estimate of probable loss. During the six months ended September 26, 2020, noThere were 0 claim requestrequests that resulted in the execution of an indemnification agreement or in the repurchase of a loan.loan during the nine months ended December 26, 2020.
Interest Rate Lock Commitments. In originating loans for sale, CountryPlace issues interest rate lock commitments ("IRLCs") to prospective borrowers. These IRLCs represent an agreement to extend credit to a loan applicant, whereby the interest rate on the loan is set prior to loan closing or sale. These IRLCs bind the CompanyCountryPlace to fund the approved loan at the specified rate regardless of whether interest rates or market prices for similar loans have changed between the commitment date and the closing date.
As of SeptemberDecember 26, 2020, CountryPlace had outstanding IRLCs with a notional amount of $23.2$24.5 million, which are recorded at fair value in accordance with ASC 815, Derivatives and Hedging. During the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the Companywe recognized gains of $57,000 and losses of $19,000 and $2,000,$5,000, respectively, on outstanding IRLCs. During the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the Companywe recognized losses of $144,000$87,000 and $3,000$8,000, respectively, on outstanding IRLCs.
Forward Sales Commitments. CountryPlace manages the risk profiles of a portion of its outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities ("MBS") and whole loan sale commitments. As of SeptemberDecember 26, 2020, CountryPlace had $58.8$68.9 million in outstanding notional forward sales of MBSs and forward sales commitments. Commitments for forward sales of whole loans are typically in an amount proportionate with the amount of IRLCs expected to close in particular time frames, assuming no change in mortgage interest rates, for the respective loan products intended for whole loan sale.
The estimated fair values of forward sales of MBS and whole loan sale commitments are based on quoted market values and are recorded within Prepaid expenses and other current assets in the Consolidated Balance Sheets. During the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the Comwe pany recognized losses of $318,000 and gains of $118,000 and $49,000$79,000, respectively, on forward sales of MBS and whole loan sale commitments, respectively.commitments. During the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the Companywe recognized gains of $1.1 million$816,000 and $84,000$163,000,respectively, on forward sales of MBS and whole loan sale commitments, respectively.commitments.
Legal Matters. Since 2018, the Company has been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional Office regarding securities trading in personal and Company accounts directed by the Company's former Chief Executive Officer, Joseph Stegmayer. The Audit Committee of the Board of Directors conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the Audit Committee shared the results of its work with the Company's auditors, listing exchange and the SEC staff. The Company hasWe have also made documents and personnel available to the SEC staff and intendswe intend to continue cooperating with its investigation. The Company hasWe have been exploring the possibility of a settlement with the SEC staff but, at this time, the Company iswe are unable to assess the probability of that outcome or reasonably estimate the amount of a potential loss, if any.
Joseph D. Robles v. Cavco Industries, Inc.("Robles"), was filed in the Superior Court for the State of California, Riverside on June 25, 2019 and Malik Griffin v. Fleetwood Homes, Inc. ("Griffin"), was filed in the Superior Court for the State of California, San Bernardino on September 19, 2019, each seeking recovery on behalf of a putative class of current and former hourly employees for certain alleged wage-and-hour violations including, among other things: (i) alleged failure to comply with certain wage statement formatting requirements; (ii) alleged failure to compensate employees for straight-time and overtime hours worked; and (iii) alleged failure to provide employees with all requisite work breaks. All parties have agreedOn November 24, 2020, Robles dismissed his separate action in the Riverside County Superior Court and Griffin filed an amended complaint adding Robles as a named plaintiff to jointly mediate both cases. Thethe action in the San Bernardino County Superior Court. A joint mediation is currently scheduled foroccurred on January 27, 2021.2021 where the Parties failed to reach a settlement or resolution to the matter
The Company is party to certain other lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company'sour consolidated financial position, liquidity or results of operations after taking into account any existing reserves included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company'sour consolidated financial position, liquidity or results of operations in any future reporting periods.
16. Stockholders' Equity
The following table represents changes in stockholders' equity for each quarterly period during the sixnine months ended SeptemberDecember 26, 2020 (dollars in thousands):
| | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Total | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Total |
| | Common Stock | | | Common Stock | |
| | Shares | | Amount | | | Shares | | Amount | |
Balance, March 28, 2020 | Balance, March 28, 2020 | 9,173,242 | | | $ | 92 | | | $ | 252,260 | | | $ | 355,144 | | | $ | 90 | | | $ | 607,586 | | Balance, March 28, 2020 | 9,173,242 | | | $ | 92 | | | $ | 252,260 | | | $ | 355,144 | | | $ | 90 | | | $ | 607,586 | |
Cumulative effect of implementing ASU 2016-13, net | Cumulative effect of implementing ASU 2016-13, net | — | | | 0 | | | 0 | | | (733) | | | 0 | | | (733) | | Cumulative effect of implementing ASU 2016-13, net | — | | | 0 | | | 0 | | | (733) | | | 0 | | | (733) | |
Net income | Net income | — | | | 0 | | | 0 | | | 16,674 | | | 0 | | | 16,674 | | Net income | — | | | 0 | | | 0 | | | 16,674 | | | 0 | | | 16,674 | |
Issuance of common stock under stock incentive plans | Issuance of common stock under stock incentive plans | 3,822 | | | 0 | | | (533) | | | 0 | | | 0 | | | (533) | | Issuance of common stock under stock incentive plans | 3,822 | | | 0 | | | (533) | | | 0 | | | 0 | | | (533) | |
Stock-based compensation | Stock-based compensation | — | | | 0 | | | 945 | | | 0 | | | 0 | | | 945 | | Stock-based compensation | — | | | 0 | | | 945 | | | 0 | | | 0 | | | 945 | |
Other comprehensive income, net | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 68 | | | 68 | | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 68 | | | 68 | |
Balance, June 27, 2020 | Balance, June 27, 2020 | 9,177,064 | | | $ | 92 | | | $ | 252,672 | | | $ | 371,085 | | | $ | 158 | | | $ | 624,007 | | Balance, June 27, 2020 | 9,177,064 | | | $ | 92 | | | $ | 252,672 | | | $ | 371,085 | | | $ | 158 | | | $ | 624,007 | |
Net income | Net income | — | | | 0 | | | 0 | | | 15,049 | | | 0 | | | 15,049 | | Net income | — | | | 0 | | | 0 | | | 15,049 | | | 0 | | | 15,049 | |
Issuance of common stock under stock incentive plans | Issuance of common stock under stock incentive plans | 11,098 | | | 0 | | | 522 | | | 0 | | | 0 | | | 522 | | Issuance of common stock under stock incentive plans | 11,098 | | | 0 | | | 522 | | | 0 | | | 0 | | | 522 | |
Stock-based compensation | Stock-based compensation | — | | | 0 | | | 1,103 | | | 0 | | | 0 | | | 1,103 | | Stock-based compensation | — | | | 0 | | | 1,103 | | | 0 | | | 0 | | | 1,103 | |
Other comprehensive income, net | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 7 | | | 7 | | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 7 | | | 7 | |
Balance, September 26, 2020 | Balance, September 26, 2020 | 9,188,162 | | | $ | 92 | | | $ | 254,297 | | | $ | 386,134 | | | $ | 165 | | | $ | 640,688 | | Balance, September 26, 2020 | 9,188,162 | | | $ | 92 | | | $ | 254,297 | | | $ | 386,134 | | | $ | 165 | | | $ | 640,688 | |
Net income | | Net income | — | | | 0 | | | 0 | | | 19,701 | | | 0 | | | 19,701 | |
Issuance of common stock under stock incentive plans | | Issuance of common stock under stock incentive plans | 4,075 | | | 0 | | | 480 | | | 0 | | | 0 | | | 480 | |
Stock-based compensation | | Stock-based compensation | — | | | 0 | | | 887 | | | 0 | | | 0 | | | 887 | |
Other comprehensive loss, net | | Other comprehensive loss, net | — | | | 0 | | | 0 | | | 0 | | | (15) | | | (15) | |
Balance, December 26, 2020 | | Balance, December 26, 2020 | 9,192,237 | | | $ | 92 | | | $ | 255,664 | | | $ | 405,835 | | | $ | 150 | | | $ | 661,741 | |
| |
The following table represents changes in stockholders' equity for each quarterly period during the sixnine months ended SeptemberDecember 28, 2019 (dollars in thousands):
| | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total |
| | Common Stock | | | Common Stock | |
| | Shares | | Amount | | | Shares | | Amount | |
Balance, March 30, 2019 | Balance, March 30, 2019 | 9,098,320 | | | $ | 91 | | | $ | 249,447 | | | $ | 280,078 | | | $ | (28) | | | $ | 529,588 | | Balance, March 30, 2019 | 9,098,320 | | | $ | 91 | | | $ | 249,447 | | | $ | 280,078 | | | $ | (28) | | | $ | 529,588 | |
Net income | Net income | — | | | 0 | | | 0 | | | 21,282 | | | 0 | | | 21,282 | | Net income | — | | | 0 | | | 0 | | | 21,282 | | | 0 | | | 21,282 | |
Issuance of common stock under stock incentive plans | Issuance of common stock under stock incentive plans | 13,304 | | | 0 | | | (1,252) | | | 0 | | | 0 | | | (1,252) | | Issuance of common stock under stock incentive plans | 13,304 | | | 0 | | | (1,252) | | | 0 | | | 0 | | | (1,252) | |
Stock-based compensation | Stock-based compensation | — | | | 0 | | | 630 | | | 0 | | | 0 | | | 630 | | Stock-based compensation | — | | | 0 | | | 630 | | | 0 | | | 0 | | | 630 | |
Other comprehensive income, net | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 89 | | | 89 | | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 89 | | | 89 | |
Balance, June 29, 2019 | Balance, June 29, 2019 | 9,111,624 | | | $ | 91 | | | $ | 248,825 | | | $ | 301,360 | | | $ | 61 | | | $ | 550,337 | | Balance, June 29, 2019 | 9,111,624 | | | $ | 91 | | | $ | 248,825 | | | $ | 301,360 | | | $ | 61 | | | $ | 550,337 | |
Net income | Net income | — | | | 0 | | | 0 | | | 20,885 | | | 0 | | | 20,885 | | Net income | — | | | 0 | | | 0 | | | 20,885 | | | 0 | | | 20,885 | |
Issuance of common stock under stock incentive plans | Issuance of common stock under stock incentive plans | 15,842 | | | 0 | | | 941 | | | 0 | | | 0 | | | 941 | | Issuance of common stock under stock incentive plans | 15,842 | | | 0 | | | 941 | | | 0 | | | 0 | | | 941 | |
Stock-based compensation | Stock-based compensation | — | | | 0 | | | 818 | | | 0 | | | 0 | | | 818 | | Stock-based compensation | — | | | 0 | | | 818 | | | 0 | | | 0 | | | 818 | |
Other comprehensive loss, net | Other comprehensive loss, net | — | | | 0 | | | 0 | | | 0 | | | 23 | | | 23 | | Other comprehensive loss, net | — | | | 0 | | | 0 | | | 0 | | | 23 | | | 23 | |
Balance, September 28, 2019 | Balance, September 28, 2019 | 9,127,466 | | | $ | 91 | | | $ | 250,584 | | | $ | 322,245 | | | $ | 84 | | | $ | 573,004 | | Balance, September 28, 2019 | 9,127,466 | | | $ | 91 | | | $ | 250,584 | | | $ | 322,245 | | | $ | 84 | | | $ | 573,004 | |
Net income | | Net income | — | | | 0 | | | 0 | | | 20,898 | | | 0 | | | 20,898 | |
Issuance of common stock under stock incentive plans | | Issuance of common stock under stock incentive plans | 13,725 | | | 0 | | | 537 | | | 0 | | | 0 | | | 537 | |
Stock-based compensation | | Stock-based compensation | — | | | 0 | | | 820 | | | 0 | | | 0 | | | 820 | |
Other comprehensive income, net | | Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 1 | | | 1 | |
Balance, December 28, 2019 | | Balance, December 28, 2019 | 9,141,191 | | | $ | 91 | | | $ | 251,941 | | | $ | 343,143 | | | $ | 85 | | | $ | 595,260 | |
|
17. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Net income | Net income | $ | 15,049 | | | $ | 20,885 | | | $ | 31,723 | | | $ | 42,167 | | Net income | $ | 19,701 | | | $ | 20,898 | | | $ | 51,424 | | | $ | 63,065 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | | | | | |
Basic | Basic | 9,182,945 | | | 9,119,835 | | | 9,178,609 | | | 9,111,260 | | Basic | 9,190,254 | | | 9,138,202 | | | 9,182,491 | | | 9,120,241 | |
Effect of dilutive securities | Effect of dilutive securities | 112,464 | | | 146,250 | | | 101,471 | | | 130,574 | | Effect of dilutive securities | 105,299 | | | 155,739 | | | 102,747 | | | 138,962 | |
Diluted | Diluted | 9,295,409 | | | 9,266,085 | | | 9,280,080 | | | 9,241,834 | | Diluted | 9,295,553 | | | 9,293,941 | | | 9,285,238 | | | 9,259,203 | |
Net income per share: | Net income per share: | | | | | | | | Net income per share: | | | | | | | |
Basic | Basic | $ | 1.64 | | | $ | 2.29 | | | $ | 3.46 | | | $ | 4.63 | | Basic | $ | 2.14 | | | $ | 2.29 | | | $ | 5.60 | | | $ | 6.91 | |
Diluted | Diluted | $ | 1.62 | | | $ | 2.25 | | | $ | 3.42 | | | $ | 4.56 | | Diluted | $ | 2.12 | | | $ | 2.25 | | | $ | 5.54 | | | $ | 6.81 | |
Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019 were 20,58226,601 and 22,536,14,482, respectively. Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019 were 30,18226,357 and 42,401,29,971, respectively. In addition, 14,405 and 11,450outstanding restricted share awards were excluded from the calculation of diluted earnings per share for the three and six months ended September 26, 2020 and September 28, 2019, respectively, because the underlying performance criteria had not yet been met.met were 14,405 for the three and nine months ended December 26, 2020, and 7,305 for the three and nine months ended December 28, 2019.
18. Fair Value Measurements
The book value and estimated fair value of the Company'sour financial instruments were as follows (in thousands):
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
| | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value |
Available-for-sale debt securities | Available-for-sale debt securities | $ | 12,676 | | | $ | 12,676 | | | $ | 14,774 | | | $ | 14,774 | | Available-for-sale debt securities | $ | 16,673 | | | $ | 16,673 | | | $ | 14,774 | | | $ | 14,774 | |
Marketable equity securities | Marketable equity securities | 12,791 | | | 12,791 | | | 9,829 | | | 9,829 | | Marketable equity securities | 13,987 | | | 13,987 | | | 9,829 | | | 9,829 | |
Non-marketable equity investments | Non-marketable equity investments | 21,400 | | | 21,400 | | | 21,536 | | | 21,536 | | Non-marketable equity investments | 21,791 | | | 21,791 | | | 21,536 | | | 21,536 | |
Consumer loans receivable | Consumer loans receivable | 81,840 | | | 98,045 | | | 82,304 | | | 97,395 | | Consumer loans receivable | 81,592 | | | 96,313 | | | 82,304 | | | 97,395 | |
Interest rate lock commitment derivatives | Interest rate lock commitment derivatives | 21 | | | 21 | | | 164 | | | 164 | | Interest rate lock commitment derivatives | 77 | | | 77 | | | 164 | | | 164 | |
Forward loan sale commitment derivatives | Forward loan sale commitment derivatives | 123 | | | 123 | | | (1,011) | | | (1,011) | | Forward loan sale commitment derivatives | (195) | | | (195) | | | (1,011) | | | (1,011) | |
Commercial loans receivable | Commercial loans receivable | 41,478 | | | 41,144 | | | 46,565 | | | 46,819 | | Commercial loans receivable | 39,746 | | | 38,300 | | | 46,565 | | | 46,819 | |
Securitized financings and other | (14,051) | | | (13,638) | | | (14,953) | | | (15,592) | | |
Secured financings and other | | Secured financings and other | (12,987) | | | (12,493) | | | (14,953) | | | (15,592) | |
|
See Note 19, Fair Value Measurements and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies in the Form 10-K for more information on the methodologies the Company useswe use in determining fair value.
Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| | | September 26, 2020 | | December 26, 2020 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Residential mortgage-backed securities (1) | Residential mortgage-backed securities (1) | $ | 3,641 | | | $ | 0 | | | $ | 3,641 | | | $ | 0 | | Residential mortgage-backed securities (1) | $ | 5,237 | | | $ | 0 | | | $ | 5,237 | | | $ | 0 | |
State and political subdivision debt securities (1) | State and political subdivision debt securities (1) | 4,278 | | | 0 | | | 4,278 | | | 0 | | State and political subdivision debt securities (1) | 6,306 | | | 0 | | | 6,306 | | | 0 | |
Corporate debt securities (1) | Corporate debt securities (1) | 4,757 | | | 0 | | | 4,757 | | | 0 | | Corporate debt securities (1) | 5,130 | | | 0 | | | 5,130 | | | 0 | |
Marketable equity securities (2) | Marketable equity securities (2) | 12,791 | | | 12,791 | | | 0 | | | 0 | | Marketable equity securities (2) | 13,987 | | | 13,987 | | | 0 | | | 0 | |
Interest rate lock commitment derivatives (3) | Interest rate lock commitment derivatives (3) | 21 | | | 0 | | | 0 | | | 21 | | Interest rate lock commitment derivatives (3) | 77 | | | 0 | | | 0 | | | 77 | |
Forward loan sale commitment derivatives (3) | Forward loan sale commitment derivatives (3) | 123 | | | 0 | | | 0 | | | 123 | | Forward loan sale commitment derivatives (3) | (195) | | | 0 | | | 0 | | | (195) | |
Mortgage servicing rights (4) | Mortgage servicing rights (4) | 1,058 | | | 0 | | | 0 | | | 1,058 | | Mortgage servicing rights (4) | 831 | | | 0 | | | 0 | | | 831 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Residential mortgage-backed securities (1) | $ | 5,443 | | | $ | 0 | | | $ | 5,443 | | | $ | 0 | |
State and political subdivision debt securities (1) | 4,370 | | | 0 | | | 4,370 | | | 0 | |
Corporate debt securities (1) | 4,961 | | | 0 | | | 4,961 | | | 0 | |
Marketable equity securities (2) | 9,829 | | | 9,829 | | | 0 | | | 0 | |
Interest rate lock commitment derivatives (3) | 164 | | | 0 | | | 0 | | | 164 | |
Forward loan sale commitment derivatives (3) | (1,011) | | | 0 | | | 0 | | | (1,011) | |
Mortgage servicing rights (4) | 1,225 | | | 0 | | | 0 | | | 1,225 | |
(1)Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income at each measurement date.
(2)Unrealized gains or losses on investments are recorded in earnings at each measurement date.
(3)Gains or losses on derivatives are recorded in earnings through Cost of sales.
(4)Changes in the fair value of mortgage servicing rights are recorded in earnings through Net revenue.
NaN transfers between Level 1, Level 2 or Level 3 occurred during the sixnine months ended SeptemberDecember 26, 2020.
Financial instruments for which fair value is disclosed but not required to be recognized in the balance sheet on a recurring basis are summarized below (in thousands):
| | | September 26, 2020 | | December 26, 2020 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Loans held for investment | Loans held for investment | $ | 64,043 | | | $ | 0 | | | $ | 0 | | | $ | 64,043 | | Loans held for investment | $ | 59,167 | | | $ | 0 | | | $ | 0 | | | $ | 59,167 | |
Loans held for sale | Loans held for sale | 19,939 | | | 0 | | | 0 | | | 19,939 | | Loans held for sale | 23,223 | | | 0 | | | 0 | | | 23,223 | |
Construction advances | Construction advances | 14,063 | | | 0 | | | 0 | | | 14,063 | | Construction advances | 13,923 | | | 0 | | | 0 | | | 13,923 | |
Commercial loans receivable | Commercial loans receivable | 41,144 | | | 0 | | | 0 | | | 41,144 | | Commercial loans receivable | 38,300 | | | 0 | | | 0 | | | 38,300 | |
Securitized financings and other | (13,638) | | | 0 | | | (13,638) | | | 0 | | |
Secured financings and other | | Secured financings and other | (12,493) | | | 0 | | | (12,493) | | | 0 | |
Non-marketable equity investments | Non-marketable equity investments | 21,400 | | | 0 | | | 0 | | | 21,400 | | Non-marketable equity investments | 21,791 | | | 0 | | | 0 | | | 21,791 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Loans held for investment | $ | 68,503 | | | $ | 0 | | | $ | 0 | | | $ | 68,503 | |
Loans held for sale | 15,492 | | | 0 | | | 0 | | | 15,492 | |
Construction advances | 13,400 | | | 0 | | | 0 | | | 13,400 | |
Commercial loans receivable | 46,819 | | | 0 | | | 0 | | | 46,819 | |
Securitized financings and other | (15,592) | | | 0 | | | (15,592) | | | 0 | |
Non-marketable equity investments | 21,536 | | | 0 | | | 0 | | | 21,536 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 28, 2020 |
| Total | | Level 1 | | Level 2 | | Level 3 |
Loans held for investment | $ | 68,503 | | | $ | 0 | | | $ | 0 | | | $ | 68,503 | |
Loans held for sale | 15,492 | | | 0 | | | 0 | | | 15,492 | |
Construction advances | 13,400 | | | 0 | | | 0 | | | 13,400 | |
Commercial loans receivable | 46,819 | | | 0 | | | 0 | | | 46,819 | |
Secured financings and other | (15,592) | | | 0 | | | (15,592) | | | 0 | |
Non-marketable equity investments | 21,536 | | | 0 | | | 0 | | | 21,536 | |
NaN impairment charges were recorded during the sixnine months ended SeptemberDecember 26, 2020.
Mortgage Servicing. Mortgage Servicing Rights ("MSRs") are the rights to receive a portion of the interest coupon and fees collected from the mortgagors for performing specified mortgage servicing activities, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow accounts, performing loss mitigation activities on behalf of investors and otherwise administering the loan servicing portfolio. MSRs are initially recorded at fair value. Changes in fair value subsequent to the initial capitalization are recorded in earnings.
| | | September 26, 2020 | | March 28, 2020 | | December 26, 2020 | | March 28, 2020 |
Number of loans serviced with MSRs | Number of loans serviced with MSRs | 4,671 | | | 4,688 | | Number of loans serviced with MSRs | 4,663 | | | 4,688 | |
Weighted average servicing fee (basis points) | Weighted average servicing fee (basis points) | 31.81 | | | 31.12 | | Weighted average servicing fee (basis points) | 31.81 | | | 31.12 | |
Capitalized servicing multiple | Capitalized servicing multiple | 56.49 | % | | 67.19 | % | Capitalized servicing multiple | 44.23 | % | | 67.19 | % |
Capitalized servicing rate (basis points) | Capitalized servicing rate (basis points) | 17.97 | | | 20.91 | | Capitalized servicing rate (basis points) | 14.07 | | | 20.91 | |
Serviced portfolio with MSRs (in thousands) | Serviced portfolio with MSRs (in thousands) | $ | 588,955 | | | $ | 585,777 | | Serviced portfolio with MSRs (in thousands) | $ | 590,433 | | | $ | 585,777 | |
Mortgage servicing rights (in thousands) | $ | 1,058 | | | $ | 1,225 | | |
MSRs (in thousands) | | MSRs (in thousands) | $ | 831 | | | $ | 1,225 | |
19. Related Party Transactions
The Company hasWe have non-marketable equity investments in other distribution operations outside of Company-owned retail locations. In the ordinary course of business, the Company sellswe sell homes and lendslend to certain of these operations through itsour commercial lending programs. For the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the total amount of sales to related parties was $10.3$11.2 million and $10.413.3 million, respectively. For the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, the total amount of sales to related parties was $23.0$34.2 million and $23.837.1 million, respectively. As of SeptemberDecember 26, 2020, receivables from related parties included $2.9$3.9 million of accounts receivable and $7.3$7.5 million of commercial loans outstanding. As of March 28, 2020, receivables from related parties included $1.7 million of accounts receivable and $8.2 million of commercial loans outstanding.
20. Acquisition of Destiny Homes
On August 2, 2019, the Company purchased certain manufactured housing assets and assumed certain liabilities of Destiny Homes, which operates one manufacturing facility located in Moultrie, Georgia and produces and distributes manufactured and modular homes through a network of independent retailers in the Southeastern United States, further expanding the Company'sour reach. The CompanyWe finalized the purchase price allocation and hashave not made any purchase accounting adjustments during fiscal year 2021.
Pro Forma Impact of Acquisition. The following table presents supplemental pro forma information as if the acquisition of Destiny Homes had occurred on March 31, 2019 (in thousands, except per share data):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Net revenue | Net revenue | $ | 257,976 | | | $ | 270,239 | | | $ | 512,777 | | | $ | 543,951 | | Net revenue | $ | 288,772 | | | $ | 273,722 | | | $ | 801,549 | | | $ | 817,674 | |
Net income | Net income | 15,049 | | | 21,165 | | | 31,723 | | | 43,807 | | Net income | 19,701 | | | 20,898 | | | 51,424 | | | 63,868 | |
Diluted net income per share | Diluted net income per share | 1.62 | | | 2.28 | | | 3.42 | | | 4.74 | | Diluted net income per share | 2.12 | | | 2.25 | | | 5.54 | | | 6.90 | |
21. Business Segment Information
The Company operatesWe operate principally in 2 segments: (1) factory-built housing, which includes wholesale and retail systems-built housing operations and (2) financial services, which includes manufactured housing consumer finance and insurance. The following table details Net revenue and Income before income taxes by segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net revenue: | | | | | | | |
Factory-built housing | $ | 240,967 | | | $ | 252,690 | | | $ | 479,057 | | | $ | 501,458 | |
Financial services | 17,009 | | | 15,985 | | | 33,720 | | | 31,259 | |
| $ | 257,976 | | | $ | 268,675 | | | $ | 512,777 | | | $ | 532,717 | |
| | | | | | | |
Income before income taxes: | | | | | | | |
Factory-built housing | $ | 17,452 | | | $ | 22,463 | | | $ | 35,902 | | | $ | 46,776 | |
Financial services | 2,144 | | | 4,792 | | | 5,374 | | | 7,841 | |
| $ | 19,596 | | | $ | 27,255 | | | $ | 41,276 | | | $ | 54,617 | |
22. Subsequent Events
On October 27, 2020, the Company’s Board of Directors approved a $100 million stock repurchase program that may be used to purchase its outstanding common stock. This program replaces a previously standing $10 million authorization, which is now canceled.
The purchases may be made in the open market or one or more privately negotiated transactions in compliance with applicable securities laws and other legal requirements. The actual timing, number and value of shares repurchased under the program will be determined by the Company in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and other strategic capital needs and opportunities. The plan does not obligate Cavco to acquire any particular amount of common stock and may be suspended or discontinued at any time. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 26, 2020 | | December 28, 2019 | | December 26, 2020 | | December 28, 2019 |
Net revenue: | | | | | | | |
Factory-built housing | $ | 270,822 | | | $ | 257,106 | | | $ | 749,879 | | | $ | 758,564 | |
Financial services | 17,950 | | | 16,616 | | | 51,670 | | | 47,875 | |
| $ | 288,772 | | | $ | 273,722 | | | $ | 801,549 | | | $ | 806,439 | |
| | | | | | | |
Income before income taxes: | | | | | | | |
Factory-built housing | $ | 18,752 | | | $ | 19,247 | | | $ | 54,654 | | | $ | 66,023 | |
Financial services | 7,138 | | | 5,485 | | | 12,512 | | | 13,326 | |
| $ | 25,890 | | | $ | 24,732 | | | $ | 67,166 | | | $ | 79,349 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements in this Report on Form 10-Q include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," or "anticipates," or by discussions of strategy, plans or intentions. Forward-looking statements are typically included, for example, in discussions regarding the manufactured housing and site-built housing industries; the Company'sour financial performance and operating results; the expected effect of certain risks and uncertainties on the Company'sour business, financial condition and results of operations; economic conditions and consumer confidence; operational and legal risks; how the Company may be affected by the novel coronavirus COVID-19 ("COVID-19") pandemic; governmental regulations and legal proceedings; the availability of favorable consumer and wholesale manufactured home financing; market interest rates and Company investments and the ultimate outcome of the Company'sour commitments and contingencies. Forward-looking statements contained in this Report on Form 10-Q speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. The Company doesWe do not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
Forward-looking statements involve risks, uncertainties and other factors that may cause the Company'sour actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, many of which are beyond our control. To the extent that the Company'sour assumptions and expectations differ from actual results, the Company'sour ability to meet such forward-looking statements, including the ability to generate positive cash flow from operations, may be significantly hindered. Factors that could affect the Company'sour results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed in Risk Factors in Part I, Item 1A of the Company'sour 2020 Annual Report on Form 10-K ("Form 10-K"), which Risk Factors are incorporated herein..
Introduction
The following should be read in conjunction with Cavco Industries, Inc. and its subsidiaries' (collectively, "we," "us," "our," the "Company" or "Cavco") Consolidated Financial Statements and the related Notes that appear in Item 1 of this Report. References to "Note" or "Notes" pertain to the Notes to the Company'sour Consolidated Financial Statements.
Company Overview
Headquartered in Phoenix, Arizona, the Company designswe design and producesproduce factory-built homeshousing products primarily distributed through a network of independent and Company-owned retailers, planned community operators and residential developers. The Company isWe are one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. The Company isWe are also one of the leading producers of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand. Cavco'sOur finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("Ginnie Mae") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Cavco'sOur insurance subsidiary, Standard Casualty Co., provides property and casualty insurance to owners of manufactured homes.
The Company operatesWe operate 20 homebuilding production lines located in Millersburg and Woodburn, Oregon; Nampa, Idaho; Riverside, California; Phoenix and Goodyear, Arizona; Austin, Fort Worth, Seguin and Waco, Texas; Montevideo, Minnesota; Nappanee, Indiana; Lafayette, Tennessee; Martinsville and Rocky Mount, Virginia; Douglas and Moultrie, Georgia; and Ocala and Plant City, Florida. The majority of the homes produced are sold to, and distributed by, independently owned and controlled retail operations located throughout the United States and Canada. In addition, the Company'sour homes are sold through 40 Company-owned U.S. retail locations.
In April 2020, the Company shut down production and closed its Lexington, Mississippi manufacturing facility, finalizing production in June 2020. However, the Company remainswe remain available to serve wholesale customers previously served by the Lexington facility from itsour other production lines in the southeast. The production facility has been placed on the market for sale.
Company and Industry Outlook
According to data reported by the Manufactured Housing Institute, industry home shipments decreased 1.4%1.3% for the first 811 months of calendar year 2020 compared to the same period in the prior year. The industry offers solutions to the affordable housing crisis.crisis and these shipment numbers have not represented demand; instead, they represent the industry's ability to produce in the current environment. The average price per square foot for a manufactured home is lower than a site-built home. Also, based on the relatively low cost associated with manufactured home ownership, the Company'sour products have traditionally competed with rental housing's monthly payment affordability. With respect to the general rise in demand for rental housing, during fiscal year 2020, the Company realized a larger proportion of orders and interest from developers and community owners for new manufactured homes intended for use as rental homes, alternative dwelling units and seasonal living.
The two largest manufactured housing consumer demographics, young adults and those who are age 55 and older, are both growing. First-time and "move-up" buyers of affordable homes are historically among the largest segments of new manufactured home purchasers. Included in this group are lower-income households that may be limited in their ability to qualify for a new home loan by their particular employment status and down payment capability. Consumer confidence, as an indicator of retirement security, is especially important among manufactured home buyers interested in our products for seasonal or retirement living.
The Company seeksWe seek out niche market opportunities where itsour diverse product lines and custom building capabilities provide a competitive advantage. Our green building initiatives involve the creation of an energy efficient envelope and higher utilization of renewable materials. These homes provide environmentally-friendly maintenance requirements, typically lower utility costs and sustainability.
The Company maintainsWe maintain a conservative cost structure in an effort to build added value into itsour homes and has workedwe work diligently to maintain a solid financial position. TheOur balance sheet strength, including the position in cash and cash equivalents, helps avoid liquidity problems and enable the Companyenables us to act effectively as market opportunities or challenges present themselves.
The Company continuesWe continue to make certain commercial loan programs available to members of the Company's independentour wholesale distribution chain. Under these programs, the Company provides a significant amount of thedirect commercial loan arrangements, we provide funds thatfor financed home purchases by distributors, community owners and developers. In addition, we provide loans to independent financiersfloor plan lenders that then lend to distributors to finance retail inventories of its products. In addition, the Company has entered into direct commercial loan arrangements with distributors, communities and developers under which the Company provides funds for financing homestheir inventory purchases (see Note 7 to the Consolidated Financial Statements). The Company'sOur involvement in commercial loans helps to increase the availability of manufactured home financing to distributors, communitiescommunity owners and developers. Participation in wholesale financing is helpful to these customersdevelopers and provides additional opportunity for product exposure to potential home buyers. TheseWhile these initiatives support the Company'sour ongoing efforts to expand product distribution. However, these initiativesdistribution, they do expose the Companyus to risks associated with the creditworthiness of this customer base and the Company'sour inventory financing partners. The Company hasWe have included considerations related to the COVID-19 pandemic when assessing itsthe risks of loan loss and setting reserve amounts for itsthe commercial finance portfolio.
The lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans results in higher borrowing costs for home-only loans and continues to constrain industry growth. The Company is workingWe work directly with other industry participants to develop secondary market opportunities for manufactured home-only loan portfolios and expand lending availability in the industry. Additionally, the Company continueswe continue to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities. Our mortgage subsidiary also develops and invests in home-only lending programs to grow sales of homes through traditional distribution points. The Company believesWe believe that growing itsour investment and participation in home-only lending may provide additional sales growth opportunities for theour financial services segment, as well as provide a means that could lead to increased home sales for itsour factory-built housing operations.
COVID-19 Impact and Strategy
In March 2020, the World Health Organization declared COVID-19 a global pandemic. As theour business was considered essential, the Companywe continued to operate substantially all of itsour homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. The Company hasWe have worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve itsour customers. Operational efficiencies declined from adjusting home production processesdue to comply with health guidelines, managing higher and largely unpredictable factory employee absenteeism, limited new-hire availabilityhiring challenges and certain building material supply shortages. Accordingly, the Company'sour total average plant capacity utilization rate was approximately 75% during the third fiscal quarter of 2021, which has improved from approximately 65% during the second fiscal quarter of 2021, ending the quarter at approximately 70%. Thisbut is lower than pre-pandemic levels of more than 80%.
Sales order activity has continued to improveremained exceptionally strong during the secondthird fiscal quarter of 2021 to the point where home sales order rates were nearly 65% higher than the comparable prior year quarter. Increased order volume is the result of a higher number of well-qualified home buyers making purchase decisions, supported by reduced home loan interest rates. Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 134%310% to $472 million at December 26, 2020, compared to $115 million at December 28, 2019 and $321 million at September 26, 2020, compared to $137 million at September 28, 2019 and $157 million at June 27, 2020. The backlog of home orders excludes orders that have been paused or canceled at the request of the customer. Distributors may cancel orders prior to production without penalty. After production of a particular home has commenced, the order becomes non-cancelable and the distributor is obligated to take delivery of the home. Accordingly, until production of a particular home has commenced, we do not consider order backlog to be firm orders.
The financial services segment has also maintained operations since the onset of the COVID-19 pandemic, largely through the implementation of work-from-home solutions. In addition to accepting and processing new applications for home loans and insurance policies, the financial services operations continue to assist customers in need and service existing loans and insurance policies while complying with state and federal regulations regarding loan forbearance, home foreclosures and policy cancellations. Because of these economic conditions, loan loss reserves were increased at the end of fiscal year 2020 and continue to be adjusted as considered appropriate.
Certain loans serviced by CountryPlace for investors expose the Company to cash flow decreases if customers do not make contractual monthly payments of principal and interest in a timely manner. Our primary investor, Ginnie Mae, permits cash obligations on loans in forbearance from COVID-19 to be offset by other incoming cash flows from loans such as loan pre-payments. While monthly collections of principal and interest from borrowers has normally exceeded scheduled principal and interest payments owed to investors, this could be negatively impacted given various state and local emergency orders in light of COVID-19.
It is difficult to predict the future impacts of the COVID-19 pandemic on housing demand, employee availability, supply chain and Company performance and operations. The Company continuesWe continue to focus on developing order volume growth opportunities by working to improve itsour production capabilities and adjusting product offerings. The Company strivesWe strive to balance the production levels and workforce size with the demand for itsour product offerings to maximize efficiencies. The CompanyWe continually reviewsreview wage rates of itsour production employees and hashave established other monetary incentive programs to ensure competitive compensation. The Company isWe are also working to more extensively use on-lineonline recruiting tools, update recruitment brochures and improve the appearance and appeal of itsour manufacturing facilities in order to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates. Maintaining an appropriately sized and well-trained workforce is key to increasing production to meet increased demand. The Company facesWe face a major challenge in overcoming labor-related difficulties in the COVID-19 environment to increase home production.
Results of Operations
Net Revenue.
| | | Three Months Ended | | | Three Months Ended | |
($ in thousands, except homes sold and revenue per home sold) | September 26, 2020 | | September 28, 2019 | | Change | | % Change | |
($ in thousands, except revenue per home sold) | | ($ in thousands, except revenue per home sold) | December 26, 2020 | | December 28, 2019 | | Change |
Net revenue: | Net revenue: | | | | | | | | Net revenue: | | | | | |
Factory-built housing | Factory-built housing | $ | 240,967 | | | $ | 252,690 | | | $ | (11,723) | | | (4.6) | % | Factory-built housing | $ | 270,822 | | | $ | 257,106 | | | $ | 13,716 | | | 5.3 | % |
Financial services | Financial services | 17,009 | | | 15,985 | | | 1,024 | | | 6.4 | % | Financial services | 17,950 | | | 16,616 | | | 1,334 | | | 8.0 | % |
| | $ | 257,976 | | | $ | 268,675 | | | $ | (10,699) | | | (4.0) | % | | $ | 288,772 | | | $ | 273,722 | | | $ | 15,050 | | | 5.5 | % |
| | Total homes sold | Total homes sold | 3,427 | | | 3,781 | | | (354) | | | (9.4) | % | Total homes sold | 3,603 | | | 3,865 | | | (262) | | | (6.8) | % |
| Net factory-built housing revenue per home sold | Net factory-built housing revenue per home sold | $ | 70,314 | | | $ | 66,832 | | | $ | 3,482 | | | 5.2 | % | Net factory-built housing revenue per home sold | $ | 75,166 | | | $ | 66,522 | | | $ | 8,644 | | | 13.0 | % |
| | | Six Months Ended | | | Nine Months Ended | |
($ in thousands, except homes sold and revenue per home sold) | September 26, 2020 | | September 28, 2019 | | Change | | % Change | |
($ in thousands, except revenue per home sold) | | ($ in thousands, except revenue per home sold) | December 26, 2020 | | December 28, 2019 | | Change |
Net revenue: | Net revenue: | | | | | | | | Net revenue: | | | | | |
Factory-built housing | Factory-built housing | $ | 479,057 | | | $ | 501,458 | | | $ | (22,401) | | | (4.5) | % | Factory-built housing | $ | 749,879 | | | $ | 758,564 | | | $ | (8,685) | | | (1.1) | % |
Financial services | Financial services | 33,720 | | | 31,259 | | | 2,461 | | | 7.9 | % | Financial services | 51,670 | | | 47,875 | | | 3,795 | | | 7.9 | % |
| | $ | 512,777 | | | $ | 532,717 | | | $ | (19,940) | | | (3.7) | % | | $ | 801,549 | | | $ | 806,439 | | | $ | (4,890) | | | (0.6) | % |
| | Total homes sold | Total homes sold | 6,776 | | | 7,588 | | | (812) | | | (10.7) | % | Total homes sold | 10,379 | | | 11,453 | | | (1,074) | | | (9.4) | % |
| Net factory-built housing revenue per home sold | Net factory-built housing revenue per home sold | $ | 70,699 | | | $ | 66,086 | | | $ | 4,613 | | | 7.0 | % | Net factory-built housing revenue per home sold | $ | 72,250 | | | $ | 66,233 | | | $ | 6,017 | | | 9.1 | % |
In the factory-built housing segment, the decreaseincrease in Net revenue for the three months ended December 26, 2020 was primarily due to 9% and 11%higher home selling prices resulting from pricing increases implemented because of rising input costs. These gains were partially offset by lower home sales volume during the three and sixthird fiscal quarter, as production inefficiencies from challenges related to the COVID-19 pandemic continue to limit factory delivery volume.
The decrease for the nine months ended SeptemberDecember 26, 2020 respectively. These declines werewas primarily from lower home sales volume related to the production inefficiencies previously discussed, partially offset by higher home selling prices compared to the same periods last year. Note that Destiny Homes was purchased in August 2019 and Lexington Homes was closed in June 2020.
Net factory-built housing revenue per home sold is a volatile metric dependent upon several factors. A primary factor is the price disparity between sales of homes to independent distributors, builders, communitiescommunity owners and developers ("Wholesale") and sales of homes to consumers by Company-owned retail centers ("Retail"). Wholesale sales prices are primarily comprised of the home and the cost to ship the home from a manufacturing facility to the home-site. Retail home prices include these items plus retail markup, as well as items that are largely subject to home buyer discretion, including, but not limited to, installation, utility connections, site improvements, landscaping and additional services. Other factors include fluctuations in product mix, the result of home buyer tastes and preferences as they select home types/models, as well as optional home upgrades when purchasing the home.
As discussed above, changes to the proportion of home sales among the distribution channels between reporting periods impact the overall net revenue per home sold. For the three and sixnine months ended SeptemberDecember 26, 2020, the Companywe sold 2,6642,835 and 5,2618,096 homes Wholesale, respectively, and 763768 and 1,5152,283 homes Retail, respectively. For the three and sixnine months ended SeptemberDecember 28, 2019, the Companywe sold 3,0063,158 and 6,0649,222 homes Wholesale, respectively, and 775707 and 1,5242,231 homes Retail, respectively.
Financial services segment revenue increased primarily due to unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, which were $1.0 million and $2.7 million for the three and nine months ended December 26, 2020, respectively, compared to $0.3 million and $0.6 million in unrealized gains in the comparable prior year periods, respectively. In addition, higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year. Also, the three and six months ended September 26, 2020 include $0.7 million and $1.7 million, respectively, of unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, compared to $0.2 million in unrealized gains in each of the prior year periods.were positive contributors. These overall increases were partially offset by lower interest income earned on the acquired consumer loan portfolios that continue to amortize.
Gross Profit.
| | | Three Months Ended | | | Three Months Ended | |
($ in thousands) | ($ in thousands) | September 26, 2020 | | September 28, 2019 | | $ Change | | % Change | ($ in thousands) | December 26, 2020 | | December 28, 2019 | | Change |
Gross profit: | Gross profit: | | | | | | | | Gross profit: | | | | | |
Factory-built housing | Factory-built housing | $ | 46,155 | | | $ | 48,639 | | | $ | (2,484) | | | (5.1) | % | Factory-built housing | $ | 47,031 | | | $ | 48,793 | | | $ | (1,762) | | | (3.6) | % |
Financial services | Financial services | 7,386 | | | 9,828 | | | (2,442) | | | (24.8) | % | Financial services | 12,207 | | | 11,062 | | | 1,145 | | | 10.4 | % |
| | $ | 53,541 | | | $ | 58,467 | | | $ | (4,926) | | | (8.4) | % | | $ | 59,238 | | | $ | 59,855 | | | $ | (617) | | | (1.0) | % |
| Gross profit as % of Net revenue: | Gross profit as % of Net revenue: | | Gross profit as % of Net revenue: | |
Consolidated | Consolidated | 20.8 | % | | 21.8 | % | | N/A | | (1.0) | % | Consolidated | 20.5 | % | | 21.9 | % | | N/A | | (1.4) | % |
Factory-built housing | Factory-built housing | 19.2 | % | | 19.2 | % | | N/A | | — | % | Factory-built housing | 17.4 | % | | 19.0 | % | | N/A | | (1.6) | % |
Financial services | Financial services | 43.4 | % | | 61.5 | % | | N/A | | (18.1) | % | Financial services | 68.0 | % | | 66.6 | % | | N/A | | 1.4 | % |
| | | Six Months Ended | | | Nine Months Ended | |
($ in thousands) | ($ in thousands) | September 26, 2020 | | September 28, 2019 | | $ Change | | % Change | ($ in thousands) | December 26, 2020 | | December 28, 2019 | | Change |
Gross profit: | Gross profit: | | | | | | | | Gross profit: | | | | | |
Factory-built housing | Factory-built housing | $ | 93,147 | | | $ | 100,774 | | | $ | (7,627) | | | (7.6) | % | Factory-built housing | $ | 140,178 | | | $ | 149,567 | | | $ | (9,389) | | | (6.3) | % |
Financial services | Financial services | 15,717 | | | 17,991 | | | (2,274) | | | (12.6) | % | Financial services | 27,924 | | | 29,053 | | | (1,129) | | | (3.9) | % |
| | $ | 108,864 | | | $ | 118,765 | | | $ | (9,901) | | | (8.3) | % | | $ | 168,102 | | | $ | 178,620 | | | $ | (10,518) | | | (5.9) | % |
| Gross profit as % of Net revenue: | Gross profit as % of Net revenue: | | Gross profit as % of Net revenue: | |
Consolidated | Consolidated | 21.2 | % | | 22.3 | % | | N/A | | (1.1) | % | Consolidated | 21.0 | % | | 22.1 | % | | N/A | | (1.1) | % |
Factory-built housing | Factory-built housing | 19.4 | % | | 20.1 | % | | N/A | | (0.7) | % | Factory-built housing | 18.7 | % | | 19.7 | % | | N/A | | (1.0) | % |
Financial services | Financial services | 46.6 | % | | 57.6 | % | | N/A | | (11.0) | % | Financial services | 54.0 | % | | 60.7 | % | | N/A | | (6.7) | % |
Factory-built housing Gross profit as a percentage of Net revenue decreased for the three month period was flat as compared to the same period last year, and decreased for the sixnine months ended SeptemberDecember 26, 2020 primarily due to higher material costs and lower sales volume andresulting from the production inefficiencies caused by the COVID-19 pandemic.
In the financial services segment, Gross profit as a percentage of Net revenue increased for the three months ended December 26, 2020 due to lower weather-related claims volume and higher unrealized gains on marketable equity securities. However, for the nine months ended December 26, 2020, Gross profit as a percentage of Net revenue decreased as a result of higher weather-related claims volume at our insurance subsidiary and lower interest income earned on the acquired consumer loan portfolios that continue to amortize.
Selling, General and Administrative Expenses.
| | | Three Months Ended | | | Three Months Ended | |
($ in thousands) | ($ in thousands) | September 26, 2020 | | September 28, 2019 | | $ Change | | % Change | ($ in thousands) | December 26, 2020 | | December 28, 2019 | | Change |
Selling, general and administrative expenses: | Selling, general and administrative expenses: | | | | | | | | Selling, general and administrative expenses: | | | | | |
Factory-built housing | Factory-built housing | $ | 30,725 | | | $ | 31,580 | | | $ | (855) | | | (2.7) | % | Factory-built housing | $ | 30,575 | | | $ | 32,017 | | | $ | (1,442) | | | (4.5) | % |
Financial services | Financial services | 4,728 | | | 4,503 | | | 225 | | | 5.0 | % | Financial services | 4,839 | | | 4,827 | | | 12 | | | 0.2 | % |
| | $ | 35,453 | | | $ | 36,083 | | | $ | (630) | | | (1.7) | % | | $ | 35,414 | | | $ | 36,844 | | | $ | (1,430) | | | (3.9) | % |
| Selling, general and administrative expenses as % of Net revenue: | Selling, general and administrative expenses as % of Net revenue: | 13.7 | % | | 13.4 | % | | N/A | | 0.3 | % | Selling, general and administrative expenses as % of Net revenue: | 12.3 | % | | 13.5 | % | | N/A | | (1.2) | % |
| | | Six Months Ended | | | Nine Months Ended | |
($ in thousands) | ($ in thousands) | September 26, 2020 | | September 28, 2019 | | $ Change | | % Change | ($ in thousands) | December 26, 2020 | | December 28, 2019 | | Change |
Selling, general and administrative expenses: | Selling, general and administrative expenses: | | | | | | | | Selling, general and administrative expenses: | | | | | |
Factory-built housing | Factory-built housing | $ | 61,462 | | | $ | 62,331 | | | $ | (869) | | | (1.4) | % | Factory-built housing | $ | 92,037 | | | $ | 94,348 | | | $ | (2,311) | | | (2.4) | % |
Financial services | Financial services | 9,314 | | | 9,016 | | | 298 | | | 3.3 | % | Financial services | 14,153 | | | 13,843 | | | 310 | | | 2.2 | % |
| | $ | 70,776 | | | $ | 71,347 | | | $ | (571) | | | (0.8) | % | | $ | 106,190 | | | $ | 108,191 | | | $ | (2,001) | | | (1.8) | % |
| Selling, general and administrative expenses as % of Net revenue: | Selling, general and administrative expenses as % of Net revenue: | 13.8 | % | | 13.4 | % | | N/A | | 0.4 | % | Selling, general and administrative expenses as % of Net revenue: | 13.2 | % | | 13.4 | % | | N/A | | (0.2) | % |
Selling, general and administrative expenses related to factory-built housing decreased between periods primarily from a reduction in legal expenses and the amortization of the additional director and officer ("D&O") insurance premium, partially offset by increased corporate-related expenses. During the three months ended SeptemberDecember 26, 2020, the Companywe incurred $0.50.7 million in expenses related to the SEC inquiry.inquiry, but However, the Company also received a $0.8$0.4 million insurance recovery of prior expenses, resulting in a net benefitexpense of $0.3 million during the period compared to $0.80.9 million in expense in the secondthird quarter of fiscal year 2020. For the sixnine months ended SeptemberDecember 26, 2020, the Companywe recorded a net benefitexpense of $0.20.1 million for SEC inquiry related expenses compared to $1.62.5 million in expense in the comparable prior year period.
As the amortization of the additional D&O insurance premium has now been completed, the three months ended December 26, 2020 contains no related expense while the prior year period included a $2.1 million charge. For the nine months ended December 26, 2020, additional D&O insurance premium amortization was $4.2 million versus $6.3 million in the prior year period.
In Financial services, Selling, general and administrative expenses related to financial services increased due to increases in salariesfor the three and employee related expenses.nine months ended December 26, 2020 primarily from higher salary and incentive-based compensation expense.
Interest Expense.
Interest expense was $0.2 million and $0.3$0.5 million for the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, respectively. For the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, Interest expense was $0.4$0.6 million and $0.8$1.3 million, respectively. Interest expense consists primarily of debt service on the CountryPlaceCountryPlace's financings of manufactured home-only loans and interest related to finance leases. The decrease is primarily the result of a reduction in securitized bond interest expense, as the Companywe exercised itsour right to repurchase the 2007-1 securitized loan portfolio in August 2019, thereby eliminating the related interest expense. This decrease is partially offset by increases in interest expense from secured credit facilities at CountryPlace.
Other Income, net.
Other income, net was $1.7 million and $5.2 million for the three months ended September 26, 2020 and September 28, 2019, respectively. For the six months ended September 26, 2020 and September 28, 2019, Other income, net was $3.6 million and $8.0 million, respectively.
Other income primarily consists of realized and unrealized gains and losses on corporate marketable equity investments, interest income related to commercial loans receivable balances, interest income earned on cash balances and gains and losses from the sale of property, plant and equipment.
Other income, net declinedwas $2.2 million for each of the three month periods ended December 26, 2020 and December 28, 2019.
For the nine months ended December 26, 2020 and December 28, 2019, Other income, net was $5.8 million and $10.2 million, respectively. The decline was primarily due to a $3.4 million net gain on the sale of idle land that was recorded in the prior year period, as well as a reduction in interest earned in the current periods on cash and commercial loan receivables, given the lower interest rate environment. These declines were partially offset by increases in unrealized gains on corporate marketable equity securities.
Income tax expense.
Income tax expense was $4.5$6.2 million and $6.4$3.8 million for the three months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019, respectively, for an effective income tax rate of 23.2%23.9% and 23.4%15.5%, respectively. Income tax expense for the sixnine months ended SeptemberDecember 26, 2020 and SeptemberDecember 28, 2019 was $9.615.7 million and $12.516.3 million, respectively, for an effective income tax raterates of 23.1% compared to an23.4% and 20.5%, respectively. The lower effective tax rate of 22.8%rates for the same period last year. The higher effective tax rate for the six month period wasprior year periods were primarily due to lower tax benefits from the exercise of stock options, which provided a benefit of $0.7$0.5 million in the nine months ended December 26, 2020 compared to the $0.9$1.3 million in the same period last year.year, and a catch up of tax credits that were enacted as part of the 2020 Appropriations Bill. Certain of these credits were extended as part of the 2021 Consolidated Appropriations Act that was signed into law after quarter end on December 27, 2020. We are currently evaluating the impact this will have in future periods.
Liquidity and Capital Resources
The Company believesWe believe that cash and cash equivalents at SeptemberDecember 26, 2020, together with cash flow from operations, will be sufficient to fund itsour operations and provide for growth for the next 12 months and into the foreseeable future. The Company maintainsWe maintain cash in U.S. Treasury and other money market funds, some of which are in excess of federally insured limits. The Company expectsWe expect to continue to evaluate potential acquisitions of, or strategic investments in, businesses that are complementary to the Company, as well as other expansion opportunities. Such transactions may require the use of cash and have other impacts on the Company'sour liquidity and capital resources. Because of the Company'sour sufficient cash position, the Company haswe have not historically sought external sources of liquidity, with the exception of certain credit facilities for its home-only lending programs. However, depending on the Company'sour operating results and strategic opportunities, itwe may need to seek additional or alternative sources of financing. There can be no assurance that such financing would be available on satisfactory terms, if at all. If this financing were not available, it could be necessary for the Companyus to reevaluate itsour long-term operating plans to make more efficient use of itsour existing capital resources. The exact nature of any changes to the Company's plans that would be considered depends on various factors, such as conditions in the factory-built housing industry and general economic conditions outside of the Company'sour control.
State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, the assets owned by the Company'sour insurance subsidiary are generally not available to satisfy the claims of Cavco or its legal subsidiaries. The Company believesWe believe that stockholders' equity at itsour insurance subsidiary remains sufficient and doeswe do not believe that its ability to pay ordinary dividends to Cavco will be restricted per state regulations.
The following is a summary of the Company's cash flows for the six months ended September 26, 2020 and September 28, 2019, respectively:
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | |
($ in thousands) | September 26, 2020 | | September 28, 2019 | | $ Change |
Cash, cash equivalents and restricted cash at beginning of the fiscal year | $ | 255,607 | | | $ | 199,869 | | | $ | 55,738 | |
Net cash provided by operating activities | 74,609 | | | 43,593 | | | 31,016 | |
Net cash used in investing activities | (82) | | | (18,308) | | | 18,226 | |
Net cash used in financing activities | (865) | | | (19,345) | | | 18,480 | |
Cash, cash equivalents and restricted cash at end of the period | $ | 329,269 | | | $ | 205,809 | | | $ | 123,460 | |
The following is a summary of cash flows for the nine months ended December 26, 2020 and December 28, 2019, respectively:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
(in thousands) | December 26, 2020 | | December 28, 2019 | | $ Change |
Cash, cash equivalents and restricted cash at beginning of the fiscal year | $ | 255,607 | | | $ | 199,869 | | | $ | 55,738 | |
Net cash provided by operating activities | 91,566 | | | 68,320 | | | 23,246 | |
Net cash used in investing activities | (5,098) | | | (18,873) | | | 13,775 | |
Net cash used in financing activities | (1,451) | | | (19,058) | | | 17,607 | |
Cash, cash equivalents and restricted cash at end of the period | $ | 340,624 | | | $ | 230,258 | | | $ | 110,366 | |
Net cash provided by operating activities increased during the sixnine months ended SeptemberDecember 26, 2020 compared to the sixnine months ended SeptemberDecember 28, 2019 primarily due to more customer deposits received as a result of higher order rates, higher collections on accounts receivables and commercial loans receivables and the timing of payments on Accounts payable and Accrued expenses and other current liabilities.
Consumer loan originations increased by $2.1$2.5 million to $82.4$124.1 million for the sixnine months ended SeptemberDecember 26, 2020 from $80.3$121.6 million for the sixnine months ended SeptemberDecember 28, 2019. Proceeds from sales of consumer loans provided $80.6$122.6 million in cash compared to $77.2$117.1 million in the previous year.
Cavco hasWe have entered into commercial loan arrangements with certain distributors of itsour products under which the Company provideswe provide funds for Wholesale purchases. In addition, the Company haswe have entered into direct commercial loan arrangements with distributors, communitiescommunity owners and developers under which the Company provideswe provide funds for financing homes. The Company hasWe have also invested in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities. For additional information regarding our commercial loans receivable, see Note 7 to the Consolidated Financial Statements. Further, the Company haswe have invested in and developed home-only loan pools and lending programs to attract third party financier interest in order to grow sales of new homes through traditional distribution points.
Investing activities consist of buying and selling bondsdebt and marketable equity securities in our Financial Services segment, purchases of property, plant and equipmentand funding strategic growth acquisitions. The Company received $2.1 million more in net proceeds from investments for the six months ended September 26, 2020 compared to the same period last year, and Net cash for investing activities in the prior year was primarily used to fund the acquisition of Destiny Homes.
Financing activities used $18.5$17.6 million less cash during the period compared to the same period last year as the Companywe repurchased the 2007-1 securitized loan portfolio in August 2019.
The Company's finance subsidiaryCountryPlace entered into secured credit facilities with independent third-party banks. The proceeds were used to facilitate the origination of consumer home-only loans to be held for investment, secured by the manufactured homes which were subsequently pledged as collateral to the facilities. Upon completion of the draw down periods, these facilities were converted into an amortizing loan based on a 20-year amortization period with a balloon payment due upon maturity. As of SeptemberDecember 26, 2020, the outstanding balance of the converted loans was $9.8$8.8 million atwith a weighted average interest rate of 4.91%.
Contractual Commitments and Contingencies. There were no material changes to the contractual obligations as set forth in the Company'sour Annual Report on Form 10-K.
Critical Accounting Policies
On March 29, 2020, the Companywe adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. The CompanyWe adopted the standard by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings. Refer to Note 1 to the Consolidated Financial Statements for additional discussion. There have been no other significant changes to the Company'sour critical accounting policies during the sixnine months ended SeptemberDecember 26, 2020, as compared to those disclosed in Part II, Item 7 of the Company'sour Form 10-K, under the heading "Critical Accounting Policies," which provides a discussion of the critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.
Other Matters
Related Party Transactions. See Note 19 to the Consolidated Financial Statements for a discussion of the Company'sour related party transactions.
Off Balance Sheet Arrangements
See Note 15 to the Consolidated Financial Statements for a discussion of the Company'sour off-balance sheet commitments, which discussion is incorporated herein by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its President and Chief Executive Officer and its Principal Financial Officer, of the effectiveness of the Company'sits disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company's President and Chief Executive Officer and its Principal Financial Officer concluded that, as of SeptemberDecember 26, 2020, its disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended SeptemberDecember 26, 2020 which have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding reportable legal proceedings is contained in Part I, Item 3, Legal Proceedings, in the Form 10-K. The following describes legal proceedings, if any, that became reportable during the period ended SeptemberDecember 26, 2020, and, if applicable, amends and restates descriptions of previously reported legal proceedings in which there have been material developments during such quarter.
Since 2018, the Company has been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional OfficesOffice regarding securities trading in personal and Company accounts directed by the Company's former CEO,Chief Executive Officer, Joseph Stegmayer. The Audit Committee of the Board of Directors conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the Audit Committee shared the results of its work with the Company's auditors, listing exchange and with the SEC staff. The Company hasWe have also made documents and personnel available to the SEC staff and intendswe intend to continue cooperating with its investigation. The Company has been exploring the possibility of a settlement with
As previously disclosed in September 2020, the SEC staff in connection with the matter, but at this time, the Company is unable to estimate the amount of a potential loss, if any. The Company is hopeful that an amicable resolution can be reached in the coming months. As noted in the Company’s September 24, 2020 Form 8-K filing, the SEC staff that week issued a Wells Notice to Dan Urness, the Company's Chief Financial Officer and prior Principal Financial Officer and Principal Accounting Officer at the time, in connection with its investigation, noting that it intends to recommend an enforcement action against him. Rather than have this be a distraction to the Company, Mr. Urness has gone on leave to focus on his response to the Wells Notice. Paul Bigbee,Also, as previously disclosed in November 2020, the Company’s Chief Accounting Officer since June 2020, is now serving as its Principal Financial Officer and Principal Accounting Officer.
AsSEC staff issued a result of the ongoing SEC investigation,Wells Notice to the Company incurred $1.1 million in expenses and also received a $1.3 million insurance reimbursement of prior expenses, resulting in a net benefit of $0.2 million for the six months ended September 26, 2020 comparedstating that they intend to $1.6 million in expenses during the six months ended September 28, 2019. The Company expects to continue to incur costs relating to this matter. During the third quarter of fiscal year 2019,recommend an enforcement action against the Company also reviewedin connection with the sufficiencySEC's investigation. We have been exploring the possibility of its insurance coverage and, based ona settlement with the SEC staff in connection with the matter but, at this time, we are unable to assess the probability of that work, Cavco's Boardoutcome or reasonably estimate the amount of Directors made a decision to purchase additional director and officer ("D&O") liability insurance coverage with 22-month terms for a total premium of $15.3 million (which cost was evenly amortized over the terms of the policies). As a result, the Company recorded $4.2 million of additional D&O policy premium expense during each of the potential loss, if anysix months ended September 26, 2020 and September 28, 2019. With the conclusion of the amortization through the second quarter of fiscal year 2021, the additional D&O liability insurance premiums have now been fully amortized. D&O renewal premiums are now in the ordinary course of business..
Joseph D. Robles v. Cavco Industries, Inc.("Robles"), was filed in the Superior Court for the State of California, Riverside on June 25, 2019 and Malik Griffin v. Fleetwood Homes, Inc. ("Griffin"), was filed in the Superior Court for the State of California, San Bernardino on September 19, 2019, each seeking recovery on behalf of a putative class of current and former hourly employees for certain alleged wage-and-hour violations, including, among other things: (i) alleged failure to comply with certain wage statement formatting requirements; (ii) alleged failure to compensate employees for straight-time and overtime hours worked; and (iii) alleged failure to provide employees with all requisite work breaks. All parties have agreedOn November 24, 2020, Robles dismissed his separate action in the Riverside County Superior Court and Griffin filed an amended complaint adding Robles as a named plaintiff to jointly mediate both cases. Thethe action in the San Bernardino County Superior Court. A joint mediation is currently scheduled foroccurred on January 27, 2021.2021 where the Parties failed to reach a settlement or resolution to the matter.
The Company is party to certain other lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations after taking into account any existing reserves included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company's consolidated financial position, liquidity or results of operations in any future reporting periods.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Form 10-K, which could materially affect the Company'sour business, financial condition or future results. The risks described in this Report and in the Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Companyus or that itwe currently deemsdeem to be immaterial also may materially adversely affect the Company'sour business, financial condition and/or operating results.
Item 5. Other Information
The following disclosure is provided pursuant to Item 5.02 (Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers) of Form 8-K:
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On October 26, 2020, Paul Bigbee, 52, the Company’s Chief Accounting Officer, was appointed the Company’s Principal Financial Officer and Principal Accounting Officer.
Prior to joining the Company, Mr. Bigbee was Vice President, Financial Audit (2018 to 2019) for Caesars Entertainment in Las Vegas, Nevada. From 2006 to 2018, he held various positions of increasing responsibility at Starwood Hotels & Resorts in Scottsdale, Arizona, including: Controller, Global Sales & Marketing; Global Internal Audit Leader; Corporate Audit/Timeshare; and Senior Director, Financial Reporting and Development Support.
As previously disclosed on Form 8-K dated September 25, 2020, Dan Urness, the Company’s Chief Financial Officer and Principal Accounting Officer has taken a leave of absence. As of October 26, 2020, Mr. UrnessThere is no longer designated the Company’s Principal Financial Officer and Principal Accounting Officer.other information required to be disclosed under this item which was not previously disclosed.
Item 6. Exhibits
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Exhibit No. | | Exhibit |
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101.INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
All other items required under Part II are omitted because they are not applicable.
(1) Filed herewith.
(2) Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Cavco Industries, Inc. | | | |
Registrant | | | |
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Signature | | Title | Date |
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/s/ William C. Boor | | President and Chief Executive Officer | October 30, 2020January 29, 2021 |
William C. Boor | | (Principal Executive Officer) | |
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/s/ Paul Bigbee | | Chief Accounting Officer | October 30, 2020January 29, 2021 |
Paul Bigbee | | (Principal Financial and Accounting Officer) | |
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