Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 30, 2017
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)
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Delaware | 56-2405642 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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1001 North Central Avenue, Suite 800 Phoenix, Arizona 85004 |
(Address of principal executive offices, including zip code) |
602-256-6263
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last year)
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | ¨ | Accelerated filer | ý |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Emerging Growth Company | ¨
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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 ý
As of February 2, 2018, 9,036,705 shares of Registrant's Common Stock, $.01 par value, were outstanding.
CAVCO INDUSTRIES, INC.
FORM 10-Q
December 30, 2017
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 138,974 |
| | $ | 132,542 |
|
Restricted cash, current | 9,993 |
| | 11,573 |
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Accounts receivable, net | 41,501 |
| | 31,221 |
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Short-term investments | 14,502 |
| | 11,289 |
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Current portion of consumer loans receivable, net | 32,186 |
| | 31,115 |
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Current portion of commercial loans receivable, net | 6,823 |
| | 7,932 |
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Inventories | 105,872 |
| | 93,855 |
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Prepaid expenses and other current assets | 34,112 |
| | 28,033 |
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Deferred income taxes, current | — |
| | 9,204 |
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Total current assets | 383,963 |
| | 356,764 |
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Restricted cash | 728 |
| | 724 |
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Investments | 34,631 |
| | 30,256 |
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Consumer loans receivable, net | 62,806 |
| | 64,686 |
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Commercial loans receivable, net | 20,031 |
| | 17,901 |
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Property, plant and equipment, net | 58,969 |
| | 56,964 |
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Goodwill and other intangibles, net | 83,025 |
| | 80,021 |
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Total assets | $ | 644,153 |
| | $ | 607,316 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 19,835 |
| | $ | 24,010 |
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Accrued liabilities | 123,661 |
| | 109,789 |
|
Current portion of securitized financings and other | 5,761 |
| | 6,417 |
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Total current liabilities | 149,257 |
| | 140,216 |
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Securitized financings and other | 51,530 |
| | 51,574 |
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Deferred income taxes | 7,794 |
| | 21,118 |
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| | | |
Stockholders' equity: | | | |
Preferred stock, $.01 par value; 1,000,000 shares authorized; No shares issued or outstanding | — |
| | — |
|
Common stock, $.01 par value; 40,000,000 shares authorized; Outstanding 9,035,294 and 8,994,968 shares, respectively | 90 |
| | 90 |
|
Additional paid-in capital | 245,605 |
| | 244,791 |
|
Retained earnings | 187,572 |
| | 148,141 |
|
Accumulated other comprehensive income | 2,305 |
| | 1,386 |
|
Total stockholders' equity | 435,572 |
| | 394,408 |
|
Total liabilities and stockholders' equity | $ | 644,153 |
| | $ | 607,316 |
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See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Net revenue | $ | 221,383 |
| | $ | 202,310 |
| | $ | 628,706 |
| | $ | 575,799 |
|
Cost of sales | 171,527 |
| | 158,766 |
| | 502,330 |
| | 459,896 |
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Gross profit | 49,856 |
| | 43,544 |
| | 126,376 |
| | 115,903 |
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Selling, general and administrative expenses | 26,045 |
| | 26,003 |
| | 78,503 |
| | 76,119 |
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Income from operations | 23,811 |
| | 17,541 |
| | 47,873 |
| | 39,784 |
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Interest expense | (1,236 | ) | | (1,091 | ) | | (3,305 | ) | | (3,384 | ) |
Other income, net | 1,094 |
| | 829 |
| | 3,251 |
| | 2,407 |
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Income before income taxes | 23,669 |
| | 17,279 |
| | 47,819 |
| | 38,807 |
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Income tax expense | (2,242 | ) | | (4,996 | ) | | (8,457 | ) | | (11,740 | ) |
Net income | $ | 21,427 |
| | $ | 12,283 |
| | $ | 39,362 |
| | $ | 27,067 |
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| | | | | | | |
Comprehensive income: | | | | | | | |
Net income | $ | 21,427 |
| | $ | 12,283 |
| | $ | 39,362 |
| | $ | 27,067 |
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Unrealized gain on available-for-sale securities, net of tax | 315 |
| | 253 |
| | 919 |
| | 1,077 |
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Comprehensive income | $ | 21,742 |
| | $ | 12,536 |
| | $ | 40,281 |
| | $ | 28,144 |
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| | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 2.37 |
| | $ | 1.37 |
| | $ | 4.36 |
| | $ | 3.02 |
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Diluted | $ | 2.33 |
| | $ | 1.35 |
| | $ | 4.28 |
| | $ | 2.98 |
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Weighted average shares outstanding: | | | | | | | |
Basic | 9,030,100 |
| | 8,992,456 |
| | 9,019,311 |
| | 8,970,008 |
|
Diluted | 9,214,898 |
| | 9,102,562 |
| | 9,186,042 |
| | 9,096,442 |
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See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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| | | | | | | |
| Nine Months Ended |
| December 30,
2017 | | December 31,
2016 |
OPERATING ACTIVITIES | | | |
Net income | $ | 39,362 |
| | $ | 27,067 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 2,975 |
| | 2,762 |
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Provision for credit losses | 484 |
| | 441 |
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Deferred income taxes | (4,617 | ) | | (1,001 | ) |
Stock-based compensation expense | 1,918 |
| | 1,743 |
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Non-cash interest income, net | (693 | ) | | (926 | ) |
Incremental tax benefits from option exercises | — |
| | (2,349 | ) |
Gain on sale of property, plant and equipment, net | (55 | ) | | (256 | ) |
Gain on sale of loans and investments, net | (7,335 | ) | | (5,832 | ) |
Changes in operating assets and liabilities: | | | |
Restricted cash | 1,143 |
| | 905 |
|
Accounts receivable | (8,914 | ) | | (6,627 | ) |
Consumer loans receivable originated | (96,766 | ) | | (86,838 | ) |
Proceeds from sales of consumer loans | 91,157 |
| | 77,260 |
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Principal payments on consumer loans receivable | 10,615 |
| | 8,786 |
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Inventories | (10,090 | ) | | 8,169 |
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Prepaid expenses and other current assets | (3,191 | ) | | 29 |
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Commercial loans receivable | (964 | ) | | 2,134 |
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Accounts payable and accrued liabilities | 355 |
| | 3,332 |
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Net cash provided by operating activities | 15,384 |
| | 28,799 |
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INVESTING ACTIVITIES | | | |
Purchases of property, plant and equipment | (3,025 | ) | | (4,343 | ) |
Payments for Lexington Homes, net | (1,638 | ) | | — |
|
Proceeds from sale of property, plant and equipment | 436 |
| | 296 |
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Purchases of investments | (9,736 | ) | | (7,625 | ) |
Proceeds from sale of investments | 7,401 |
| | 8,011 |
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Net cash used in investing activities | (6,562 | ) | | (3,661 | ) |
FINANCING ACTIVITIES | | | |
Payments from exercise of stock options | (1,104 | ) | | (1,483 | ) |
Incremental tax benefits from exercise of stock options | — |
| | 2,349 |
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Proceeds from secured financings and other | 5,103 |
| | 2,269 |
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Payments on securitized financings | (6,389 | ) | | (6,294 | ) |
Net cash used in financing activities | (2,390 | ) | | (3,159 | ) |
Net increase in cash and cash equivalents | 6,432 |
| | 21,979 |
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Cash and cash equivalents at beginning of the period | 132,542 |
| | 97,766 |
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Cash and cash equivalents at end of the period | $ | 138,974 |
| | $ | 119,745 |
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Supplemental disclosures of cash flow information: | | | |
Cash paid during the year for income taxes | $ | 12,195 |
| | $ | 11,595 |
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Cash paid during the year for interest | $ | 2,221 |
| | $ | 2,605 |
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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, the "Company" or "Cavco"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("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 statements include all of the normal recurring adjustments necessary to fairly state the Company's Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform to current period classification. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC; there were no disclosable subsequent events. 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's Annual Report on Form 10-K for the year ended April 1, 2017, filed with the SEC on June 13, 2017.
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. 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 31 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 31. The Company's current fiscal year will end on March 31, 2018.
The Company operates principally in two 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 designs and builds a wide variety of affordable manufactured homes, modular homes and park model RVs in 20 factories located throughout the United States, which are sold to a network of independent retailers, through the Company's 41 Company-owned retail stores and to community owners and developers. Our financial services group is comprised of a mortgage subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Co. ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer, and a Government National Mortgage Association ("GNMA" or "Ginnie Mae") mortgage-backed securities issuer which offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance to owners of manufactured homes.
On April 3, 2017, the Company acquired Lexington Homes, Inc. ("Lexington"), which produces manufactured homes distributed in the Southeastern United States. This operation, with one manufactured housing production facility in Lexington, Mississippi, provides for further operating capacity, increased home production capabilities and further distribution into certain markets. The acquisition was accounted for as a business combination and the results of operations have been included since the date of acquisition. Our purchase price allocation is preliminary and subject to revision as more detailed analyses are completed and additional information about fair value of assets and liabilities becomes available, including additional information relating to tax matters and finalization of our valuation of identified intangible assets. Pro forma results of operations for the acquisition have not been presented because the effects of the business combination were not material to our consolidated results of operations.
Recent Accounting Pronouncements. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 became effective in the current fiscal year. Therefore, we now present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating these items into current and noncurrent amounts. The prior period was not retrospectively adjusted. In addition, in March 2016, the FASB issued ASU 2016-09, Compensation- Stock Compensation (Topic 718) ("ASU 2016-09"), which also became effective in the current fiscal year. As a result of this required implementation, excess tax benefits are recorded on exercises of stock options as a reduction of income tax expense in the consolidated statement of comprehensive income, whereas they were previously recognized in equity.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of the new revenue standard. Accordingly, the updated standard is effective for us beginning with the first quarter of the Company's fiscal year 2019. Our implementation approach has included performing a detailed study of the various types of agreements that we have with our customers and assessing conformity of our current accounting practices with the new standard. We are making progress in determining the impact of this guidance; however, we are still evaluating the full effects ASU 2014-09 will have on the Company's Consolidated Financial Statements and disclosures. We expect to adopt this guidance using the modified retrospective transition method.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 will be effective beginning with the first quarter of the Company's fiscal year 2019. Upon adoption, we will be required to reclassify the gain (loss) related to our equity investment securities classified as available-for-sale from accumulated other comprehensive income ("AOCI") to retained earnings as a cumulative-effect adjustment and begin recording future changes in fair value through earnings. As of December 30, 2017, we had a gain of $2.3 million recorded in AOCI for our available-for-sale equity investments. The impact on the Company's Consolidated Financial Statements at adoption will depend on the net unrealized gains (losses) recorded in AOCI for these equity investments as of the date of adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 will be effective beginning with the first quarter of the Company's fiscal year 2020, with early adoption permitted. The amendments require the recognition of leased assets and the related liabilities on the balance sheet for most leases, and recognition of expenses in the income statement in a manner similar to current accounting treatment. In addition, disclosures of key information about leasing arrangements will be required. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the effect this ASU will have on the Company's Consolidated Financial Statements and disclosures.
In June 2016, the FASB issued 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 to base measurement on expected losses through a forward-looking model rather than a model based on incurred losses. The guidance also requires increased disclosures. ASU 2016-01 will be effective beginning with the first quarter of the Company's fiscal year 2021. The Company is currently evaluating the effect ASU 2016-13 will have on the Company's Consolidated Financial Statements and disclosures.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force ("ASU 2016-18"), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be effective beginning with the first quarter of the Company's fiscal year 2019. The adoption of ASU 2016-18 will only change the presentation of the Consolidated Statement of Cash Flows and is not expected to have a material impact on the consolidated financial statements.
In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08"), which requires the premium on callable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security. ASU 2017-08 will be effective beginning with the first quarter of the Company's fiscal year 2020. The Company is currently evaluating the effect ASU 2017-08 will have on the Company's Consolidated Financial Statements and disclosures.
From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's Consolidated Financial Statements upon adoption.
For a description of other significant accounting policies used by the Company in the preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements in the Form 10-K.
2. Restricted Cash
Restricted cash consists of the following (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Cash related to CountryPlace customer payments to be remitted to third parties | $ | 8,399 |
| | $ | 9,998 |
|
Cash related to CountryPlace customer payments on securitized loans to be remitted to bondholders | 958 |
| | 1,391 |
|
Cash related to workers' compensation insurance held in trust | 355 |
| | 354 |
|
Other restricted cash | 1,009 |
| | 554 |
|
| $ | 10,721 |
| | $ | 12,297 |
|
Corresponding amounts are recorded in accounts payable and accrued liabilities for customer payments, deposits and other restricted cash.
3. Investments
Investments consist of the following (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Available-for-sale investment securities | $ | 30,487 |
| | $ | 24,162 |
|
Non-marketable equity investments | 18,646 |
| | 17,383 |
|
| $ | 49,133 |
| | $ | 41,545 |
|
The following tables summarize the Company's available-for-sale investment securities, gross unrealized gains and losses and fair value, aggregated by investment category (in thousands):
|
| | | | | | | | | | | | | | | |
| December 30, 2017 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury and government debt securities | $ | 300 |
| | $ | — |
| | $ | (4 | ) | | $ | 296 |
|
Residential mortgage-backed securities | 7,510 |
| | 1 |
| | (104 | ) | | 7,407 |
|
State and political subdivision debt securities | 6,924 |
| | 142 |
| | (142 | ) | | 6,924 |
|
Corporate debt securities | 1,658 |
| | 2 |
| | (23 | ) | | 1,637 |
|
Marketable equity securities | 7,627 |
| | 3,947 |
| | (113 | ) | | 11,461 |
|
Certificates of deposit | 2,762 |
| | — |
| | — |
| | 2,762 |
|
| $ | 26,781 |
| | $ | 4,092 |
| | $ | (386 | ) | | $ | 30,487 |
|
|
| | | | | | | | | | | | | | | |
| April 1, 2017 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasury and government debt securities | $ | 650 |
| | $ | — |
| | $ | (1 | ) | | $ | 649 |
|
Residential mortgage-backed securities | 5,646 |
| | 3 |
| | (90 | ) | | 5,559 |
|
State and political subdivision debt securities | 7,195 |
| | 145 |
| | (117 | ) | | 7,223 |
|
Corporate debt securities | 1,698 |
| | 4 |
| | (23 | ) | | 1,679 |
|
Marketable equity securities | 5,752 |
| | 2,430 |
| | (130 | ) | | 8,052 |
|
Certificates of deposit | 1,000 |
| | — |
| | — |
| | 1,000 |
|
| $ | 21,941 |
| | $ | 2,582 |
| | $ | (361 | ) | | $ | 24,162 |
|
The following tables show the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2017 |
| Less than 12 Months | | 12 Months or Longer | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Treasury and government debt securities | $ | 296 |
| | $ | (4 | ) | | $ | — |
| | $ | — |
| | $ | 296 |
| | $ | (4 | ) |
Residential mortgage-backed securities | 3,308 |
| | (32 | ) | | 3,860 |
| | (72 | ) | | 7,168 |
| | (104 | ) |
State and political subdivision debt securities | 2,649 |
| | (22 | ) | | 2,309 |
| | (120 | ) | | 4,958 |
| | (142 | ) |
Corporate debt securities | 1,012 |
| | (8 | ) | | 372 |
| | (15 | ) | | 1,384 |
| | (23 | ) |
Marketable equity securities | 1,032 |
| | (91 | ) | | 104 |
| | (22 | ) | | 1,136 |
| | (113 | ) |
| $ | 8,297 |
| | $ | (157 | ) | | $ | 6,645 |
| | $ | (229 | ) | | $ | 14,942 |
| | $ | (386 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| April 1, 2017 |
| Less than 12 Months | | 12 Months or Longer | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. Treasury and government debt securities | $ | 349 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | 349 |
| | $ | (1 | ) |
Residential mortgage-backed securities | 3,449 |
| | (38 | ) | | 1,962 |
| | (52 | ) | | 5,411 |
| | (90 | ) |
State and political subdivision debt securities | 1,948 |
| | (36 | ) | | 2,084 |
| | (81 | ) | | 4,032 |
| | (117 | ) |
Corporate debt securities | 1,424 |
| | (23 | ) | | — |
| | — |
| | 1,424 |
| | (23 | ) |
Marketable equity securities | 1,393 |
| | (90 | ) | | 157 |
| | (40 | ) | | 1,550 |
| | (130 | ) |
| $ | 8,563 |
| | $ | (188 | ) | | $ | 4,203 |
| | $ | (173 | ) | | $ | 12,766 |
| | $ | (361 | ) |
Based on the Company's ability and intent to hold the investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider any investments to be other-than-temporarily impaired at December 30, 2017.
As of December 30, 2017 and April 1, 2017, the Company's investments in marketable equity securities consist of investments in common stock of industrial and other companies.
The amortized cost and fair value of the Company's investments in 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 call or prepayment penalties. |
| | | | | | | |
| December 30, 2017 |
| Amortized Cost | | Fair Value |
Due in less than one year | $ | 280 |
| | $ | 279 |
|
Due after one year through five years | 4,223 |
| | 4,157 |
|
Due after five years through ten years | 2,602 |
| | 2,536 |
|
Due after ten years | 9,287 |
| | 9,292 |
|
| $ | 16,392 |
| | $ | 16,264 |
|
Realized gains and losses from the sale of securities are determined using the specific identification method. Gross gains realized on the sales of investment securities for the three and nine months ended December 30, 2017 were approximately $147,000 and $882,000, respectively. Gross losses realized were approximately $41,000 and $163,000 for the three and nine months ended December 30, 2017, respectively. Gross gains realized on the sales of investment securities for the three and nine months ended December 31, 2016 were approximately $386,000 and $1.0 million, respectively. Gross losses realized were approximately $46,000 and $303,000 for the three and nine months ended December 31, 2016, respectively.
4. Inventories
Inventories consist of the following (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Raw materials | $ | 37,934 |
| | $ | 31,506 |
|
Work in process | 11,671 |
| | 11,768 |
|
Finished goods and other | 56,267 |
| | 50,581 |
|
| $ | 105,872 |
| | $ | 93,855 |
|
5. Consumer Loans Receivable
The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were acquired at fair value and subsequently are accounted for in accordance with Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). Consumer loans receivable held for sale are carried at the lower of cost or market and construction advances are carried at the amount advanced less a valuation allowance. The following table summarizes consumer loans receivable (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Loans held for investment (acquired on Palm Harbor Acquisition Date) | $ | 54,013 |
| | $ | 60,513 |
|
Loans held for investment (originated after Palm Harbor Acquisition Date) | 17,956 |
| | 11,108 |
|
Loans held for sale | 12,361 |
| | 18,570 |
|
Construction advances | 12,407 |
| | 6,957 |
|
Consumer loans receivable | 96,737 |
| | 97,148 |
|
Deferred financing fees and other, net | (1,370 | ) | | (1,095 | ) |
Allowance for loan losses | (375 | ) | | (252 | ) |
Consumer loans receivable, net | $ | 94,992 |
| | $ | 95,801 |
|
The allowance for loan losses is developed at the loan level and allocated to specific individual loans or to impaired loans. A range of probable losses is calculated after giving consideration to, among other things, the loan characteristics, and historical loss experience. The Company then makes a determination of the best estimate within the range of loan losses. The allowance for loan losses reflects the Company’s judgment of the probable loss exposure on its loans held for investment portfolio.
As of the date of the Palm Harbor acquisition, management evaluated consumer loans receivable held for investment by CountryPlace to determine whether there was evidence of deterioration of credit quality and if it was probable that CountryPlace would be unable to collect all amounts due according to the loans' contractual terms. The Company also considered expected prepayments and estimated the amount and timing of undiscounted expected principal, interest and other cash flows. The Company determined the excess of the loan pool's scheduled contractual principal and contractual interest payments over all cash flows expected as of the date of the Palm Harbor transaction as an amount that includes interest that cannot be accreted into interest income (the non-accretable difference). The cash flow expected to be collected in excess of the carrying value of the acquired loans includes interest that is accreted into interest income over the remaining life of the loans (referred to as accretable yield). Interest income on consumer loans receivable is recognized as net revenue.
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
| (in thousands) |
Consumer loans receivable held for investment – contractual amount | $ | 125,307 |
| | $ | 142,391 |
|
Purchase discount | | | |
Accretable | (48,268 | ) | | (56,686 | ) |
Non-accretable | (22,922 | ) | | (25,032 | ) |
Less consumer loans receivable reclassified as other assets | (104 | ) | | (160 | ) |
Total acquired consumer loans receivable held for investment, net | $ | 54,013 |
| | $ | 60,513 |
|
The Company continues to estimate cash flows expected to be collected over the life of the acquired loans. As of the balance sheet date, the Company evaluates whether the present value of expected cash flows, determined using the effective interest rate, has decreased from the value at acquisition and, if so, recognizes an allowance for loan loss. The present value of any subsequent increase in the loan pool's actual cash flows expected to be collected is used first to reverse any existing allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the amount of accretable yield recognized on a prospective basis over the loan pool's remaining life. The weighted averages of assumptions used in the calculation of expected cash flows to be collected are as follows:
|
| | | | | |
| December 30,
2017 | | April 1,
2017 |
Prepayment rate | 14.0 | % | | 13.8 | % |
Default rate | 1.2 | % | | 1.1 | % |
Assuming there was a 1% unfavorable variation from the expected level, for each key assumption, the expected cash flows for the life of the portfolio, as of December 30, 2017, would decrease by approximately $1.4 million and $4.0 million for the expected prepayment rate and expected default rate, respectively.
The changes in accretable yield on acquired consumer loans receivable held for investment were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Balance at the beginning of the period | $ | 51,180 |
| | $ | 62,209 |
| | $ | 56,686 |
| | $ | 69,053 |
|
Accretion | (2,068 | ) | | (2,399 | ) | | (6,441 | ) | | (7,363 | ) |
Reclassifications to non-accretable discount | (844 | ) | | (872 | ) | | (1,977 | ) | | (2,752 | ) |
Balance at the end of the period | $ | 48,268 |
| | $ | 58,938 |
| | $ | 48,268 |
| | $ | 58,938 |
|
The consumer loans held for investment have the following characteristics:
|
| | | | | |
| December 30,
2017 | | April 1,
2017 |
Weighted average contractual interest rate | 8.67 | % | | 8.87 | % |
Weighted average effective interest rate | 9.51 | % | | 9.35 | % |
Weighted average months to maturity | 166 |
| | 165 |
|
The Company's consumer loans receivable balance consists of fixed-rate, fixed-term and fully-amortizing single-family home loans. These loans are either secured by a manufactured home, excluding the land upon which the home is located (chattel personal property loans), or by a combination of the home and the land upon which the home is located (real property mortgage loans). The real property mortgage loans are primarily for manufactured homes. Combined land and home loans are further disaggregated by the type of loan documentation: those conforming to the requirements of Government-Sponsored Enterprises ("GSEs"), and those that are non-conforming. In most instances, CountryPlace's loans are secured by a first-lien position and are provided for the consumer purchase of a home. Unsecuritized consumer loans held for investment include chattel personal property loans originated under the Company's chattel lending programs. Accordingly, CountryPlace classifies its loans receivable as follows: chattel loans, conforming mortgages, non-conforming mortgages and other loans.
In measuring credit quality within each segment and class, CountryPlace uses commercially available credit scores (such as FICO®). At the time of each loan's origination, CountryPlace obtains credit scores from each of the three primary credit bureaus, if available. To evaluate credit quality of individual loans, CountryPlace uses the mid-point of the available credit scores or, if only two scores are available, the Company uses the lower of the two. CountryPlace does not update credit bureau scores after the time of origination.
The following table disaggregates CountryPlace's gross consumer loans receivable for each class by portfolio segment and credit quality indicator as of the time of origination (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2017 |
| Consumer Loans Held for Investment | | | | | | |
| Securitized 2005 | | Securitized 2007 | | Unsecuritized | | Construction Advances | | Consumer Loans Held For Sale | | Total |
Asset Class | | | | | | | | | | | |
Credit Quality Indicator (FICO® score) | | | | | | | | |
Chattel loans | | | | | | | | | | | |
0-619 | $ | 502 |
| | $ | 366 |
| | $ | 352 |
| | $ | — |
| | $ | — |
| | $ | 1,220 |
|
620-719 | 10,548 |
| | 7,312 |
| | 7,652 |
| | — |
| | 383 |
| | 25,895 |
|
720+ | 11,104 |
| | 6,792 |
| | 9,286 |
| | — |
| | 1,743 |
| | 28,925 |
|
Other | 50 |
| | — |
| | 368 |
| | — |
| | — |
| | 418 |
|
Subtotal | 22,204 |
| | 14,470 |
| | 17,658 |
| | — |
| | 2,126 |
| | 56,458 |
|
Conforming mortgages | | | | | | | | | | |
0-619 | — |
| | — |
| | 158 |
| | 41 |
| | — |
| | 199 |
|
620-719 | — |
| | — |
| | 1,891 |
| | 6,396 |
| | 7,192 |
| | 15,479 |
|
720+ | — |
| | — |
| | 327 |
| | 5,970 |
| | 2,927 |
| | 9,224 |
|
Other | — |
| | — |
| | — |
| | — |
| | 116 |
| | 116 |
|
Subtotal | — |
| | — |
| | 2,376 |
| | 12,407 |
| | 10,235 |
| | 25,018 |
|
Non-conforming mortgages | | | | | | | | | | |
0-619 | 83 |
| | 413 |
| | 1,066 |
| | — |
| | — |
| | 1,562 |
|
620-719 | 1,180 |
| | 4,608 |
| | 3,178 |
| | — |
| | — |
| | 8,966 |
|
720+ | 1,475 |
| | 2,562 |
| | 399 |
| | — |
| | — |
| | 4,436 |
|
Other | — |
| | — |
| | 286 |
| | — |
| | — |
| | 286 |
|
Subtotal | 2,738 |
| | 7,583 |
| | 4,929 |
| | — |
| | — |
| | 15,250 |
|
Other loans | | | | | | | | | | |
Subtotal | — |
| | — |
| | 11 |
| | — |
| | — |
| | 11 |
|
| $ | 24,942 |
| | $ | 22,053 |
| | $ | 24,974 |
| | $ | 12,407 |
| | $ | 12,361 |
| | $ | 96,737 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| April 1, 2017 |
| Consumer Loans Held for Investment | | | | | | |
| Securitized 2005 | | Securitized 2007 | | Unsecuritized | | Construction Advances | | Consumer Loans Held For Sale | | Total |
Asset Class | | | | | | | | | | | |
Credit Quality Indicator (FICO® score) | | | | | | | | |
Chattel loans | | | | | | | | | | | |
0-619 | $ | 705 |
| | $ | 411 |
| | $ | 393 |
| | $ | — |
| | $ | — |
| | $ | 1,509 |
|
620-719 | 11,681 |
| | 8,072 |
| | 5,406 |
| | — |
| | 697 |
| | 25,856 |
|
720+ | 12,748 |
| | 7,800 |
| | 5,081 |
| | — |
| | 3,097 |
| | 28,726 |
|
Other | 51 |
| | — |
| | 433 |
| | — |
| | — |
| | 484 |
|
Subtotal | 25,185 |
| | 16,283 |
| | 11,313 |
| | — |
| | 3,794 |
| | 56,575 |
|
Conforming mortgages | | | | | | | | | | |
0-619 | — |
| | — |
| | 161 |
| | 261 |
| | 99 |
| | 521 |
|
620-719 | — |
| | — |
| | 1,792 |
| | 4,231 |
| | 10,553 |
| | 16,576 |
|
720+ | — |
| | — |
| | 247 |
| | 2,465 |
| | 4,124 |
| | 6,836 |
|
Subtotal | — |
| | — |
| | 2,200 |
| | 6,957 |
| | 14,776 |
| | 23,933 |
|
Non-conforming mortgages | | | | | | | | | | |
0-619 | 86 |
| | 435 |
| | 1,327 |
| | — |
| | — |
| | 1,848 |
|
620-719 | 1,242 |
| | 4,947 |
| | 3,372 |
| | — |
| | — |
| | 9,561 |
|
720+ | 1,527 |
| | 2,909 |
| | 484 |
| | — |
| | — |
| | 4,920 |
|
Other | — |
| | — |
| | 299 |
| | — |
| | — |
| | 299 |
|
Subtotal | 2,855 |
| | 8,291 |
| | 5,482 |
| | — |
| | — |
| | 16,628 |
|
Other loans | | | | | | | | | | | |
Subtotal | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
| $ | 28,040 |
| | $ | 24,574 |
| | $ | 19,007 |
| | $ | 6,957 |
| | $ | 18,570 |
| | $ | 97,148 |
|
Loan contracts secured by collateral that is geographically concentrated could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed. Forty-three percent of the outstanding principal balance of consumer loans receivable portfolio is concentrated in Texas and 10% is concentrated in Florida. Other than Texas and Florida, no other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of December 30, 2017.
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 computed based on the historical recovery rates of previously charged-off loans; the loan is charged off and the loss is charged to the allowance for loan losses. On a monthly basis, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled approximately $1.5 million and $1.2 million as of December 30, 2017 and April 1, 2017, respectively, and are included in prepaid and other assets in the consolidated balance sheet. Foreclosure or similar proceedings in progress totaled approximately $1.2 million and $694,000 as of December 30, 2017 and April 1, 2017, respectively.
6. Commercial Loans Receivable and Allowance for Loan Loss
The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of our independent retailers, communities and developers; and (ii) amounts loaned by the Company under participation financing programs.
Under the terms of the direct programs, the Company provides funds for the independent retailers, communities and developers' financed home purchases. The notes are secured by the homes as collateral and, in some instances, other security depending on the circumstances. The 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 provides loans to independent floor plan lenders, representing a significant portion of the funds that such financiers then lend to retailers to finance their inventory purchases. The participation commercial loan receivables are unsecured general obligations of the independent floor plan lenders.
Commercial loans receivables, net, consist of the following by class of financing notes receivable (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Direct loans receivable | $ | 25,801 |
| | $ | 24,959 |
|
Participation loans receivable | 1,206 |
| | 1,084 |
|
Allowance for loan loss | (153 | ) | | (210 | ) |
| $ | 26,854 |
| | $ | 25,833 |
|
The commercial loans receivable balance has the following characteristics:
|
| | | | | |
| December 30,
2017 | | April 1,
2017 |
Weighted average contractual interest rate | 6.0 | % | | 5.6 | % |
Weighted average months to maturity | 7 |
| | 6 |
|
The Company evaluates the potential for loss from its participation loan programs based on each independent lender's overall financial stability, as well as historical experience, and has determined that an applicable allowance for loan loss was not needed at either December 30, 2017 or April 1, 2017.
With respect to direct programs with communities and developers, 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. For direct programs with independent retailers, the risk of loss is spread over numerous borrowers. Borrower activity is monitored in conjunction with third-party service providers, where applicable, to estimate the potential for loss on the related notes receivable, considering potential exposures, including repossession costs, remarketing expenses, impairment of value and the risk of collateral loss. The Company has historically been able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the Company determines that it is probable that a borrower will default, a specific reserve is determined and recorded within the estimated allowance for loan loss. The Company recorded an allowance for loan loss of $153,000 and $130,000 at December 30, 2017 and December 31, 2016, respectively.
The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan loss applicable to the direct programs (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Balance at beginning of period | $ | 242 |
| | $ | 126 |
| | $ | 210 |
| | $ | 128 |
|
Provision for inventory finance credit losses | (89 | ) | | 4 |
| | (57 | ) | | 2 |
|
Loans charged off, net of recoveries | — |
| | — |
| | — |
| | — |
|
Balance at end of period | $ | 153 |
| | $ | 130 |
| | $ | 153 |
| | $ | 130 |
|
The following table disaggregates commercial loans receivable and the estimated allowance for loan loss for each class of financing receivable by evaluation methodology (in thousands):
|
| | | | | | | | | | | | | | | |
| Direct Commercial Loans | | Participation Commercial Loans |
| December 30,
2017 | | April 1,
2017 | | December 30,
2017 | | April 1,
2017 |
Inventory finance notes receivable: | | | | | | | |
Collectively evaluated for impairment | $ | 15,253 |
| | $ | 13,688 |
| | $ | — |
| | $ | — |
|
Individually evaluated for impairment | 10,548 |
| | 11,271 |
| | 1,206 |
| | 1,084 |
|
| $ | 25,801 |
| | $ | 24,959 |
| | $ | 1,206 |
| | $ | 1,084 |
|
Allowance for loan loss: | | | | | | | |
Collectively evaluated for impairment | $ | (153 | ) | | $ | (137 | ) | | $ | — |
| | $ | — |
|
Individually evaluated for impairment | — |
| | (73 | ) | | — |
| | — |
|
| $ | (153 | ) | | $ | (210 | ) | | $ | — |
| | $ | — |
|
Loans are subject to regular review and are given management's attention whenever a problem situation appears to be developing. Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments past due 90 days or more. The Company's policy is to place loans on nonaccrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower has the inability or unwillingness to meet payments as they become due. The Company will resume accrual of interest once these factors have been remedied. At December 30, 2017, there are no commercial loans that are 90 days or more past due that are still accruing interest. Payments received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal. At December 30, 2017, the Company was not aware of any potential problem loans that would have a material effect on the commercial receivables balance. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.
The following table disaggregates the Company's inventory finance receivables by class and credit quality indicator (in thousands):
|
| | | | | | | | | | | | | | | |
| Direct Commercial Loans | | Participation Commercial Loans |
| December 30,
2017 | | April 1,
2017 | | December 30,
2017 | | April 1,
2017 |
Risk profile based on payment activity: | | | | | | | |
Performing | $ | 25,801 |
| | $ | 24,886 |
| | $ | 1,206 |
| | $ | 1,084 |
|
Watch list | — |
| | — |
| | — |
| | — |
|
Nonperforming | — |
| | 73 |
| | — |
| | — |
|
| $ | 25,801 |
| | $ | 24,959 |
| | $ | 1,206 |
| | $ | 1,084 |
|
The Company has concentrations of commercial loans receivable related to factory-built homes in excess of 10% located in the following states, measured as a percentage of commercial loans receivables principal balance outstanding:
|
| | | | | |
| December 30,
2017 | | April 1,
2017 |
Arizona | 15.7 | % | | 21.3 | % |
Oregon | 13.8 | % | | 15.7 | % |
Texas | 13.1 | % | | 11.0 | % |
Washington | 10.7 | % | | 6.0 | % |
The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses. The Company did not have concentrations in excess of 10% of the principal balance of the commercial loans receivables in any other states as of December 30, 2017. As of April 1, 2017, the Company also had additional concentrations in excess of 10% of the principal balance of commercial loans receivables, with 11.0% in California and 10.7% in Indiana.
As of December 30, 2017 and April 1, 2017, the Company had concentrations with one independent third-party that equaled 19% and 23% of the principal balance outstanding, respectively, all of which was secured.
7. Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of each asset. Estimated useful lives for significant classes of assets are as follows: (i) buildings and improvements, 10 to 39 years, and (ii) machinery and equipment, 3 to 25 years. Repairs and maintenance charges are expensed as incurred. Property, plant and equipment consist of the following (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Property, plant and equipment, at cost: | | | |
Land | $ | 23,276 |
| | $ | 22,897 |
|
Buildings and improvements | 36,705 |
| | 34,180 |
|
Machinery and equipment | 22,953 |
| | 21,618 |
|
| 82,934 |
| | 78,695 |
|
Accumulated depreciation | (23,965 | ) | | (21,731 | ) |
Property, plant and equipment, net | $ | 58,969 |
| | $ | 56,964 |
|
Included in the amounts above are certain assets under a capital lease. See Note 8 for additional information.
8. Capital Lease
On April 3, 2017, in connection with the purchase of Lexington Homes, the Company recorded capital leases covering the manufacturing facilities and land in Lexington, Mississippi. The following amounts were recorded for the leased assets as of December 30, 2017 (in thousands):
|
| | | |
| December 30,
2017 |
Land | $ | 698 |
|
Buildings and improvements | 1,050 |
|
| 1,748 |
|
Accumulated amortization | (26 | ) |
Leased assets, net | $ | 1,722 |
|
The future minimum payments under the leases as of December 30, 2017 are as follows (in thousands):
|
| | | |
FY 2018 | $ | 34 |
|
FY 2019 | 709 |
|
FY 2020 | 459 |
|
FY 2021 | — |
|
FY 2022 | — |
|
Thereafter | — |
|
Total remaining lease payments | $ | 1,202 |
|
Less: Amount representing interest | (61 | ) |
Present value of future minimum lease payments | $ | 1,141 |
|
9. Goodwill and Other Intangibles
Intangible assets principally consist of goodwill, trademarks and trade names, state insurance licenses, customer relationships, and other, which includes technology, insurance policies and renewal rights and other. Goodwill, trademarks and trade names and state insurance licenses are indefinite-lived intangible assets and are evaluated for impairment annually and whenever events or circumstances indicate that more likely than not impairment has occurred. During the nine months ended December 30, 2017 and December 31, 2016, no impairment expense was recorded. Finite-lived intangibles are amortized over their estimated useful lives on a straight-line basis and are reviewed for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. The value of customer relationships is amortized over 4 to 15 years and other intangibles over 7 to 15 years.
Goodwill and other intangibles consist of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2017 | | April 1, 2017 |
| Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
Indefinite lived: | | | | | | | | | | | |
Goodwill | $ | 72,833 |
| | $ | — |
| | $ | 72,833 |
| | $ | 69,753 |
| | $ | — |
| | $ | 69,753 |
|
Trademarks and trade names | 7,200 |
| | — |
| | 7,200 |
| | 7,000 |
| | — |
| | 7,000 |
|
State insurance licenses | 1,100 |
| | — |
| | 1,100 |
| | 1,100 |
| | — |
| | 1,100 |
|
Total indefinite-lived intangible assets | 81,133 |
| | — |
| | 81,133 |
| | 77,853 |
| | — |
| | 77,853 |
|
Finite lived: | | | | | | | | | | | |
Customer relationships | 7,100 |
| | (5,703 | ) | | 1,397 |
| | 7,100 |
| | (5,543 | ) | | 1,557 |
|
Other | 1,384 |
| | (889 | ) | | 495 |
| | 1,384 |
| | (773 | ) | | 611 |
|
Total goodwill and other intangible assets | $ | 89,617 |
| | $ | (6,592 | ) | | $ | 83,025 |
| | $ | 86,337 |
| | $ | (6,316 | ) | | $ | 80,021 |
|
The Company recognized amortization expense on intangible assets of $92,000 during the three months ended December 30, 2017 and December 31, 2016, respectively. Amortization expense of $276,000 was recognized during the nine months ended December 30, 2017 and December 31, 2016, respectively.
10. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Customer deposits | $ | 22,492 |
| | $ | 15,986 |
|
Salaries, wages and benefits | 20,314 |
| | 22,029 |
|
Unearned insurance premiums | 16,083 |
| | 17,488 |
|
Estimated warranties | 16,040 |
| | 15,479 |
|
Accrued volume rebates | 9,715 |
| | 5,686 |
|
Company repurchase option on certain loans sold | 6,516 |
| | 5,858 |
|
Insurance loss reserves | 4,956 |
| | 5,239 |
|
Accrued insurance | 4,358 |
| | 4,113 |
|
Deferred margin | 2,906 |
| | 2,906 |
|
Reserve for repurchase commitments | 1,634 |
| | 1,749 |
|
Accrued taxes | 1,174 |
| | 1,682 |
|
Capital lease obligation | 1,141 |
| | — |
|
Other | 16,332 |
| | 11,574 |
|
| $ | 123,661 |
| | $ | 109,789 |
|
11. Warranties
Homes are generally warranted against manufacturing defects for a period of one year commencing at the time of sale to the retail customer. Estimated costs relating to home warranties are recorded at the date of sale. The Company has recorded a liability for estimated future warranty costs relating to homes sold based upon management's assessment of historical experience factors, an estimate of the amount of homes in the distribution channel and current industry trends. Activity in the liability for estimated warranties was as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Balance at beginning of period | $ | 16,470 |
| | $ | 14,046 |
| | $ | 15,479 |
| | $ | 13,371 |
|
Purchase accounting additions | — |
| | — |
| | 838 |
| | — |
|
Charged to costs and expenses | 5,907 |
| | 6,030 |
| | 18,529 |
| | 18,310 |
|
Payments and deductions | (6,337 | ) | | (4,675 | ) | | (18,806 | ) | | (16,280 | ) |
Balance at end of period | $ | 16,040 |
| | $ | 15,401 |
| | $ | 16,040 |
| | $ | 15,401 |
|
12. Debt Obligations
Debt obligations consist of amounts related to loans sold that did not qualify for loan sale accounting treatment. The following table summarizes debt obligations (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Acquired securitized financings (acquired as part of the Palm Harbor transaction) | | | |
Securitized financing 2005-1 | $ | 21,236 |
| | $ | 23,756 |
|
Securitized financing 2007-1 | 23,140 |
| | 25,728 |
|
Other secured financings | 5,007 |
| | 4,987 |
|
Secured Term Loans | 7,908 |
| | 3,520 |
|
Total securitized financings and other, net | $ | 57,291 |
| | $ | 57,991 |
|
The Company acquired CountryPlace's securitized financings during the first quarter of fiscal year 2012 as a part of the Palm Harbor acquisition. Acquired securitized financings were recorded at fair value at the time of acquisition, which resulted in a discount, and subsequently are accounted for in a manner similar to ASC 310-30 to accrete the discount.
The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for securitized consumer loans receivable held for investment to determine the expected cash flows on securitized financings and the contractual payments. The amount of contractual principal and contractual interest payments due on the securitized financings in excess of all cash flows expected as of the date of the Palm Harbor acquisition include interest that cannot be accreted into interest expense (the non-accretable difference). The remaining amount is accreted into interest expense over the remaining life of the obligation (referred to as accretable yield). The following table summarizes acquired securitized financings (in thousands):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Securitized financings – contractual amount | $ | 49,155 |
| | $ | 57,120 |
|
Purchase discount | | | |
Accretable | (4,779 | ) | | (7,636 | ) |
Non-accretable (1) | — |
| | — |
|
Total acquired securitized financings, net | $ | 44,376 |
| | $ | 49,484 |
|
(1) There is no non-accretable difference, as the contractual payments on acquired securitized financing are determined by the cash collections from the underlying loans.
Over the life of the loans, the Company continues to estimate cash flows expected to be paid on securitized financings. The Company evaluates at the balance sheet date whether the present value of its securitized financings, determined using the effective interest rate, has increased or decreased. The present value of any subsequent change in cash flows expected to be paid adjusts the amount of accretable yield recognized on a prospective basis over the securitized financing's remaining life.
The changes in accretable yield on securitized financings were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Balance at the beginning of the period | $ | 5,709 |
| | $ | 9,790 |
| | $ | 7,636 |
| | $ | 12,333 |
|
Accretion | (820 | ) | | (923 | ) | | (2,536 | ) | | (2,829 | ) |
Adjustment to cash flows | (110 | ) | | (111 | ) | | (321 | ) | | (748 | ) |
Balance at the end of the period | $ | 4,779 |
| | $ | 8,756 |
| | $ | 4,779 |
| | $ | 8,756 |
|
On July 12, 2005, prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed its initial securitization (2005-1) for approximately $141.0 million of loans, which was funded by issuing bonds totaling approximately $118.4 million. The bonds were issued in four different classes: Class A-1 totaling $36.3 million with a coupon rate of 4.23%; Class A-2 totaling $27.4 million with a coupon rate of 4.42%; Class A-3 totaling $27.3 million with a coupon rate of 4.80%; and Class A-4 totaling $27.4 million with a coupon rate of 5.20%. The bonds mature at varying dates and at issuance had an expected weighted average maturity of 4.66 years. For accounting purposes, this transaction was structured as a securitized borrowing. As of December 30, 2017, the Class A-1, Class A-2, and Class A-3 bonds have been retired.
On March 22, 2007, prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed its second securitization (2007-1) for approximately $116.5 million of loans, which was funded by issuing bonds totaling approximately $101.9 million. The bonds were issued in four classes: Class A-1 totaling $28.9 million with a coupon rate of 5.484%; Class A-2 totaling $23.4 million with a coupon rate of 5.232%; Class A-3 totaling $24.5 million with a coupon rate of 5.593%; and Class A-4 totaling $25.1 million with a coupon rate of 5.846%. The bonds mature at varying dates and at issuance had an expected weighted average maturity of 4.86 years. For accounting purposes, this transaction was also structured as a securitized borrowing. As of December 30, 2017, the Class A-1, Class A-2 and Class A-3 bonds have been retired.
CountryPlace's securitized debt is subject to provisions that require certain levels of overcollateralization. Overcollateralization is equal to CountryPlace's equity in the bonds. Failure to satisfy these provisions could cause cash, which would normally be distributed to CountryPlace, to be used for repayment of the principal of the related Class A bonds until the required overcollateralization level is reached. During periods when the overcollateralization is below the specified level, cash collections from the securitized loans in excess of servicing fees payable to CountryPlace and amounts owed to the Class A bondholders, trustee and surety, are applied to reduce the Class A debt until such time the overcollateralization level reaches the specified level. Therefore, failure to meet the overcollateralization requirement could adversely affect the timing of cash flows received by CountryPlace. However, principal payments of the securitized debt, including accelerated amounts, is payable only from cash collections from the securitized loans and no additional sources of repayment are required or permitted. As of December 30, 2017, the 2005-1 and 2007-1 securitized portfolios were within the required overcollateralization level.
The Company has entered into secured credit facilities with independent third party banks totaling $15.0 million and maturity dates of ten years. The proceeds are used by the Company to originate and hold consumer chattel personal property loans secured by manufactured homes, which are pledged as collateral to the facility. The maximum advance for loans under these programs is 80% of the outstanding collateral principal balance, with the Company providing the remaining funds. One of the facilities has a floating interest rate during a one year warehouse period in which the Company has the option to convert all or a portion of the loan to a fixed rate. During the warehouse period, this facility bears interest at an annual rate of the average one month LIBOR rate plus 3.50%. Upon conversion, converted balances bear interest at the 10 year US Treasury bond rate plus 2.75% with the rate fixed at time of conversion. The other facility has a fixed interest rate of 4.75%. Payments are based on 20 year amortization schedules with balloon payments due upon maturity.
13. 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. The ceded reinsurance agreements provide Standard Casualty with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. 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 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| December 30, 2017 | | December 31, 2016 |
| Written | | Earned | | Written | | Earned |
Direct premiums | $ | 3,796 |
| | $ | 4,120 |
| | $ | 3,735 |
| | $ | 4,008 |
|
Assumed premiums—nonaffiliate | 5,428 |
| | 6,296 |
| | 5,504 |
| | 6,146 |
|
Ceded premiums—nonaffiliate | (2,816 | ) | | (2,816 | ) | | (3,063 | ) | | (3,063 | ) |
Net premiums | $ | 6,408 |
| | $ | 7,600 |
| | $ | 6,176 |
| | $ | 7,091 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended |
| December 30, 2017 | | December 31, 2016 |
| Written | | Earned | | Written | | Earned |
Direct premiums | $ | 11,790 |
| | $ | 12,407 |
| | $ | 11,870 |
| | $ | 11,926 |
|
Assumed premiums—nonaffiliate | 17,898 |
| | 18,889 |
| | 18,603 |
| | 17,719 |
|
Ceded premiums—nonaffiliate | (10,073 | ) | | (10,073 | ) | | (9,360 | ) | | (9,360 | ) |
Net premiums | $ | 19,615 |
| | $ | 21,223 |
| | $ | 21,113 |
| | $ | 20,285 |
|
Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $300,000 per claim, of which Standard cedes $175,000 of the risk of loss per reinsurance. Therefore, Standard Casualty maintains risk of loss limited to $125,000 per claim on typical policies. After this limit, amounts are recoverable by Standard Casualty through reinsurance for catastrophic losses in excess of $1.5 million per occurrence, up to a maximum of $43.5 million in the aggregate.
Purchasing reinsurance contracts protects Standard Casualty from frequency and/or severity of losses incurred on insurance policies issued, such as in the case of a catastrophe that generates a large number of serious claims on multiple policies at the same time.
14. Income Taxes
The Company's deferred tax assets primarily result from financial statement accruals not currently deductible for tax purposes and differences in the acquired basis of certain assets, and its deferred tax liabilities primarily result from tax amortization of goodwill and other intangible assets.
The Company complies with the provisions of ASC 740, Income Taxes ("ASC 740"), which clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The amount of unrecognized tax benefits recorded by the Company is insignificant and the impact on the effective tax rate if all unrecognized tax benefits were recognized would be insignificant. The Company classifies interest and penalties related to unrecognized tax benefits in tax expense.
Income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. In August 2017, the Company received a notice of examination from the Internal Revenue Service ("IRS") for the Company’s federal income tax return for the fiscal year ended April 2, 2016. In general, the Company is no longer subject to examination by the IRS for years before fiscal year 2015 or state and local income tax examinations by tax authorities for years before fiscal year 2013. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to the Company's financial position. The total amount of unrecognized tax benefit related to any particular tax position is not anticipated to change significantly within the next 12 months. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which made broad and complex changes to the U.S. tax code. In connection with lower federal income tax liability related to the Tax Act and revaluation of the net deferred income tax balance, the Company has recorded a net tax benefit of $5.6 million in the third quarter ended December 30, 2017.
15. Commitments and Contingencies
Repurchase Contingencies. The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer. The risk of loss under these agreements is spread over numerous retailers. The price the Company is obligated to pay generally declines over the period of the agreement (generally 18 to 36 months, calculated from the date of sale to the retailer) and the risk of loss is further reduced by the resale value of the repurchased homes. The maximum amount for which the Company was contingently liable under such agreements approximated $45.0 million at December 30, 2017, without reduction for the resale value of the homes. The Company applies ASC 460, Guarantees ("ASC 460"), and ASC 450-20, Loss Contingencies ("ASC 450-20"), to account for its liability for repurchase commitments. Under the provisions of ASC 460, the Company records the greater of the estimated value of the non-contingent obligation or a contingent liability for each repurchase arrangement under the provisions of ASC 450-20. The Company recorded an estimated liability of $1.6 million and $1.7 million at December 30, 2017 and April 1, 2017, respectively, related to the commitments pertaining to these agreements.
Letters of Credit. To secure certain reinsurance contracts, Standard Casualty maintains an irrevocable letter of credit of $7.0 million to provide assurance that Standard Casualty will fulfill its reinsurance obligations. This letter of credit is secured by certain of the Company's investments.
Construction-Period Mortgages. CountryPlace funds construction-period mortgages through periodic advances during the period of 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 in the consolidated balance sheet at the amount advanced less a valuation allowance, which are included in consumer loans receivable. 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):
|
| | | | | | | |
| December 30,
2017 | | April 1,
2017 |
Construction loan contract amount | $ | 26,647 |
| | $ | 18,031 |
|
Cumulative advances | (12,407 | ) | | (6,957 | ) |
Remaining construction contingent commitment | $ | 14,240 |
| | $ | 11,074 |
|
Representations and Warranties of Mortgages Sold. CountryPlace sells loans to 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, whole-loan purchasers and lenders, representations and warranties related to the loans sold or financed. These representations and warranties generally relate to the ownership of the loan, the validity of the lien securing the loan, the loan's compliance with the criteria for inclusion in the sale transactions, including compliance with underwriting standards or loan criteria established by the buyer, and CountryPlace's ability to deliver documentation in compliance with applicable laws. Generally, representations and warranties may be enforced at any time over the life of the loan. Upon a breach of a representation, CountryPlace may be required to repurchase the loan or to indemnify a party for incurred losses. Repurchase demands and claims for indemnification payments are reviewed on a loan-by-loan basis to validate if there has been a breach requiring repurchase. CountryPlace manages the risk of repurchase through underwriting and quality assurance practices and by servicing the mortgage loans to investor standards. CountryPlace maintains a reserve for these contingent repurchase and indemnification obligations. This reserve of $1.0 million and $885,000 as of December 30, 2017 and April 1, 2017, respectively, included in accrued liabilities, reflects management's estimate of probable loss. CountryPlace considers a variety of assumptions, including borrower performance (both actual and estimated future defaults), historical repurchase demands and loan defect rates to estimate the liability for loan repurchases and indemnifications.
Interest Rate Lock Commitments. In originating loans for sale, CountryPlace issues interest rate lock commitments ("IRLCs") to prospective borrowers and third-party originators. These IRLCs represent an agreement to extend credit to a loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to loan closing or sale. These IRLCs bind CountryPlace 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 such, outstanding IRLCs are subject to interest rate risk and related loan sale price risk during the period from the date of the IRLC through the earlier of the loan sale date or IRLC expiration date. The loan commitments generally range between 30 and 180 days; however, borrowers are not obligated to close the related loans. As a result, CountryPlace is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs unless the commitment is successfully paired with another loan that may mitigate losses from fallout.
As of December 30, 2017, CountryPlace had outstanding IRLCs with a notional amount of $10.5 million and are recorded at fair value in accordance with ASC 815, Derivatives and Hedging ("ASC 815"). ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are recorded in other assets in the consolidated balance sheets. The fair value of IRLCs is based on the value of the underlying mortgage loan adjusted for: (i) estimated cost to complete and originate the loan and (ii) the estimated percentage of IRLCs that will result in closed mortgage loans. The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on mortgage loans held for sale. During the three and nine months ended December 30, 2017, CountryPlace recognized losses of $31,000 and $46,000 on the outstanding IRLCs, respectively. During the three and nine months ended December 31, 2016, CountryPlace recognized losses of $17,000 and $7,000, respectively, on the 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 December 30, 2017, CountryPlace had $38.8 million in outstanding notional forward sales of MBSs and forward sales commitments. Commitments to 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 forward sale commitments are based on quoted market values and are recorded within other current assets in the consolidated balance sheets. During the three and nine months ended December 30, 2017, CountryPlace recognized gains of $384,000 and $312,000, respectively, on forward sales and whole loan sale commitments. CountryPlace recognized gains of $150,000 and $139,000 on forward sales and whole loan sale commitments during the three and nine months ended December 31, 2016, respectively.
Legal Matters. The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. Certain of the claims pending against the Company in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, future events or circumstances currently 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.
16. Stockholders' Equity
The following table represents changes in stockholders' equity for the nine months ended December 30, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Total |
| Common Stock | | | | |
| Shares | | Amount | | | | |
Balance, April 1, 2017 | 8,994,968 |
| | $ | 90 |
| | $ | 244,791 |
| | $ | 148,141 |
| | $ | 1,386 |
| | $ | 394,408 |
|
Cumulative effect of implementing ASU 2016-09 | — |
| | — |
| | — |
| | 69 |
| | — |
| | 69 |
|
Stock option exercises, including incremental tax benefits | 40,326 |
| | — |
| | (1,104 | ) | |
|
| | — |
| | (1,104 | ) |
Share-based compensation | — |
| | — |
| | 1,918 |
| | — |
| | — |
| | 1,918 |
|
Net income | — |
| | — |
| | — |
| | 39,362 |
| | — |
| | 39,362 |
|
Unrealized gain on available-for-sale securities | — |
| | — |
| | — |
| | — |
| | 919 |
| | 919 |
|
Balance, December 30, 2017 | 9,035,294 |
| | $ | 90 |
| | $ | 245,605 |
| | $ | 187,572 |
| | $ | 2,305 |
| | $ | 435,572 |
|
| |
(1) | Other comprehensive income is comprised of unrealized gains and losses on available-for-sale investments. Unrealized gains before tax effect on available-for-sale securities were $1.5 million for the nine months ended December 30, 2017. |
17. Stock-Based Compensation
The Company maintains stock incentive plans whereby stock option grants or awards of restricted stock may be made to certain officers, directors and key employees. As of December 30, 2017, the plans, which are shareholder approved, permit the award of up to 1,650,000 shares of the Company's common stock, of which 339,251 shares were still available for grant. When options are exercised, new shares of the Company's common stock are issued. Stock options may not be granted below 100% of the fair market value of the Company's common stock at the date of grant and generally expire seven years from the date of grant. Stock options and awards of restricted stock typically vest over a one to five year period as determined by the plan administrator (the Compensation Committee of the Board of Directors, which consists of independent directors). The stock incentive plans provide for accelerated vesting of stock options upon a change in control (as defined in the plans).
Stock-based compensation cost charged against income for the three and nine months ended December 30, 2017 was $398,000 and $1.9 million, respectively. The Company recorded stock-based compensation expense of $386,000 and $1.7 million for three and nine months ended December 31, 2016, respectively.
As of December 30, 2017, total unrecognized compensation cost related to stock options was approximately $3.8 million and the related weighted-average period over which the expense is expected to be recognized is approximately 3.17 years.
The following table summarizes the option activity within the Company's stock-based compensation plans for the nine months ended December 30, 2017:
|
| | |
| Number of Shares |
Outstanding at April 1, 2017 | 464,930 |
|
Granted | 42,000 |
|
Exercised | (74,575 | ) |
Canceled or expired | (800 | ) |
Outstanding at December 30, 2017 | 431,555 |
|
Exercisable at December 30, 2017 | 217,071 |
|
18. Earnings Per Share
Basic earnings per common share is computed based on the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed based on the combination of dilutive common share equivalents, comprised of shares issuable under the Company's stock-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money options to purchase shares, which is calculated based on the average share price for each period using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| December 30,
2017 | | December 31,
2016 | | December 30,
2017 | | December 31,
2016 |
Net income | $ | 21,427 |
| | $ | 12,283 |
| | $ | 39,362 |
| | $ | 27,067 |
|
Weighted average shares outstanding: | | | | | | | |
Basic | 9,030,100 |
| | 8,992,456 |
| | 9,019,311 |
| | 8,970,008 |
|
Common stock equivalents—treasury stock method | 184,798 |
| | 110,106 |
| | 166,731 |
| | 126,434 |
|
Diluted | 9,214,898 |
| | 9,102,562 |
| | 9,186,042 |
| | 9,096,442 |
|
Net income per share: | | | | | | | |
Basic | $ | 2.37 |
| | $ | 1.37 |
| | $ | 4.36 |
| | $ | 3.02 |
|
Diluted | $ | 2.33 |
| | $ | 1.35 |
| | $ | 4.28 |
| | $ | 2.98 |
|
Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three and nine months ended December 30, 2017 were 4,941 and 5,549, respectively. There were 18,455 and 9,385 anti-dilutive common stock equivalents excluded for the three and nine months ended December 31, 2016, respectively.
19. Fair Value Measurements
The book value and estimated fair value of the Company's financial instruments are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| December 30, 2017 | | April 1, 2017 |
| Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value |
Available-for-sale securities (1) | $ | 30,487 |
| | $ | 30,487 |
| | $ | 24,162 |
| | $ | 24,162 |
|
Non-marketable equity investments (2) | 18,646 |
|