Notes to Consolidated Financial Statements
September 30, 2012
(Unaudited)
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 Companys 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 of September 30, 2012 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 Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 12, 2012 (the 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. 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 principally in two segments: (1) factory-built housing, which includes manufactured housing, modular housing and retail operations, and (2) financial services, which includes consumer finance and insurance.
Through our Fleetwood Homes, Inc. (Fleetwood) subsidiary, jointly owned by the Company and its investment
partners, Third Avenue Value Fund and an affiliate (collectively, Third Avenue), certain manufactured housing assets and liabilities were acquired on August 17, 2009 (the Fleetwood Acquisition Date). Third Avenue
Management is an investment advisor to Third Avenue Value Fund and is a related party to the Company, as described further in Note 20 to the Consolidated Financial Statements.
Financial information for Fleetwood is included in the Consolidated Financial Statements and
the related Notes in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 810,
Consolidation
(ASC 810). Management has determined that, under GAAP,
although Fleetwood is only fifty-percent owned by the Company, Cavco has a controlling interest and is required to fully consolidate the results of Fleetwood. The primary factors that contributed to this determination were Cavcos management
and board control of Fleetwood wherein members of Cavcos management hold all of the seats on the board of directors of Fleetwood. In addition, as part of a management services agreement among Cavco, Fleetwood and Third Avenue, Cavco provides
all executive-level management services to Fleetwood including, among other things, general management oversight, marketing and customer relations, accounting and cash management. Third Avenues financial interest in Fleetwood is considered a
redeemable noncontrolling interest, and is designated as such in the Consolidated Financial Statements (see Note 19).
During fiscal year 2012, Fleetwood, through its wholly-owned subsidiary, Palm Harbor Homes, Inc., a Delaware
corporation (Palm Harbor or Palm Harbor Delaware), purchased substantially all of the assets and assumed specified liabilities of Palm Harbor Homes, Inc., a Florida corporation, and certain of its subsidiaries, (collectively,
Palm Harbor Florida) pursuant to an auction process under Section 363 of the U.S. Bankruptcy Code. The effective date of the transaction was April 23, 2011 (the Palm Harbor Acquisition Date), except for Palm
Harbors acquisition of the stock of Standard Casualty Co. The aggregate gross purchase price was $83.9 million, exclusive of transaction costs, specified liabilities assumed and post-closing adjustments (these adjustments have been recorded).
Approximately $45.3 million of the purchase price was used to retire the Debtor-In-Possession (DIP) loan previously made by Fleetwood to Palm Harbor Florida. The purchase price was funded by Fleetwoods cash on hand, along with
equal contributions of $36.0 million each from the Company and Third Avenue. On June 7, 2011, regulatory approval of the acquisition of Standard Casualty Co. was received from the Texas Department of Insurance and on June 10, 2011 (the
SCC Acquisition Date), Palm Harbor Delaware completed the purchase of the insurance subsidiary.
4
Palm Harbor Delaware acquired five operating manufactured housing production facilities,
idled factories in nine locations, 49 operating retail locations, one office building, real estate, all related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade names, intellectual property, and specified
contracts and leases. In addition, as of the Palm Harbor Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries
(collectively, CountryPlace). Palm Harbor Delaware also acquired all of the outstanding shares of Standard Casualty Co., Standard Insurance Agency, Inc. and its subsidiary (collectively, Standard). Further, Palm Harbor
Delaware assumed certain liabilities of Palm Harbor Florida, including primarily debt facilities of the finance subsidiaries. The results of Palm Harbors operations and the results of Standards operations since the Palm Harbor
Acquisition Date and SCC Acquisition Date, respectively, have been included in the Consolidated Financial Statements and the related Notes in accordance with the provisions of ASC 810.
Standard is domiciled in Texas and is primarily a specialty writer of manufactured home physical damage insurance. Standard holds
insurance licenses in multiple states; however, a significant portion of its writing occurs in Texas. In addition to writing direct policies, Standard assumes and cedes reinsurance in the ordinary course of business (see Note 12).
CountryPlace originates single-family residential mortgages and services, for itself and others, conforming mortgages, non-conforming
land-home mortgages and manufactured homes chattel loans. CountryPlace is authorized by the U.S. Department of Housing and Urban Development (HUD) to directly endorse Federal Housing Administration (FHA) Title I and Title II
mortgage insurance, is approved by the Government National Mortgage Association (GNMA or Ginnie Mae) to issue GNMA-insured mortgage-backed securities, and is authorized to sell mortgages to, and service mortgages for, the
Federal National Mortgage Association (FNMA or Fannie Mae). A conforming mortgage or loan is one that conforms to the guidelines of a Government-Sponsored Enterprise (GSE), such as Fannie Mae, or a government
agency, such as FHA; a non-conforming mortgage or loan does not conform to these guidelines (see Note 5).
Recent Accounting Pronouncements.
In June 2011, the FASB issued
ASU 2011-05,
Comprehensive Income (Topic 220): Presentation of Comprehensive Income
. The amendments in this update are effective for public companies for fiscal years, and interim periods within those years, beginning after December 15,
2011. In this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a
total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. The adoption of ASU 2011-05 affected the
Companys presentation of comprehensive income within the Consolidated Financial Statements.
In September 2011, the FASB
issued ASU 2011-08,
IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment.
The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2011. In this update, an
entity has the option to first assess qualitative factors to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity
determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to perform the first step of the two-step impairment test. However, if an entity concludes otherwise, then performing
the two-step impairment test is unnecessary. As of the beginning of the current fiscal year, the Company has adopted all of the aforementioned provisions of ASU 2011-08.
In July 2012, the FASB issued ASU 2012-02,
IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.
The amendments are effective for annual and
interim impairment tests performed for fiscal years beginning after September 15, 2012. In this update, an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that
it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is more likely than not that the indefinite-lived intangible asset is
impaired, then the entity is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. However,
if an entity concludes otherwise, then no further action is required. The Company will consider this guidance as it completes its annual impairment evaluation.
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.
5
2. Restricted Cash
Restricted cash consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Cash related to CountryPlace customer payments to be remitted to third parties
|
|
$
|
4,871
|
|
|
$
|
3,643
|
|
Cash related to CountryPlace customers principal and interest payments on securitized loans to be remitted to
bondholders
|
|
|
2,114
|
|
|
|
2,128
|
|
Cash related to retail homebuyer deposits held in trust
|
|
|
397
|
|
|
|
560
|
|
Other restricted cash
|
|
|
453
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,835
|
|
|
$
|
6,784
|
|
|
|
|
|
|
|
|
|
|
3. Investments
The following table summarizes the Companys available-for-sale investment securities, gross unrealized gains and
losses and fair value, aggregated by investment category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. Treasury and government agencies
|
|
$
|
1,355
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
1,367
|
|
Mortgage-backed securities
|
|
|
5,248
|
|
|
|
23
|
|
|
|
(86
|
)
|
|
|
5,185
|
|
States and political subdivisions
|
|
|
1,430
|
|
|
|
30
|
|
|
|
|
|
|
|
1,460
|
|
Corporate debt securities
|
|
|
3,581
|
|
|
|
59
|
|
|
|
|
|
|
|
3,640
|
|
Marketable equity securities
|
|
|
3,860
|
|
|
|
334
|
|
|
|
(103
|
)
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,474
|
|
|
$
|
458
|
|
|
$
|
(189
|
)
|
|
$
|
15,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
U.S. Treasury and government agencies
|
|
$
|
1,371
|
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
$
|
1,381
|
|
Mortgage-backed securities
|
|
|
3,946
|
|
|
|
17
|
|
|
|
(48
|
)
|
|
|
3,915
|
|
States and political subdivisions
|
|
|
1,186
|
|
|
|
26
|
|
|
|
|
|
|
|
1,212
|
|
Corporate debt securities
|
|
|
3,640
|
|
|
|
37
|
|
|
|
(1
|
)
|
|
|
3,676
|
|
Marketable equity securities
|
|
|
3,883
|
|
|
|
218
|
|
|
|
(83
|
)
|
|
|
4,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,026
|
|
|
$
|
309
|
|
|
$
|
(133
|
)
|
|
$
|
14,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
Mortgage-backed securities
|
|
$
|
1,891
|
|
|
$
|
(86
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,891
|
|
|
$
|
(86
|
)
|
Marketable equity securities
|
|
|
540
|
|
|
|
(22
|
)
|
|
|
391
|
|
|
|
(81
|
)
|
|
|
931
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,431
|
|
|
$
|
(108
|
)
|
|
$
|
391
|
|
|
$
|
(81
|
)
|
|
$
|
2,822
|
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
U.S. Treasury and government agencies
|
|
$
|
249
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249
|
|
|
$
|
(1
|
)
|
Mortgage-backed securities
|
|
|
2,509
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
2,509
|
|
|
|
(48
|
)
|
Corporate debt securities
|
|
|
384
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
(1
|
)
|
Marketable equity securities
|
|
|
1,194
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
1,194
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,336
|
|
|
$
|
(133
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,336
|
|
|
$
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the Companys 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 September 30, 2012.
The Companys investments in marketable equity securities consist of investments in common stock of industrial and other companies ($2.6 million of the total fair value and $91,000 of the total
unrealized losses) and bank trust, insurance, and public utility companies ($1.5 million of the total fair value and $12,000 of the total unrealized losses).
The amortized cost and fair value of the Companys investments in debt securities, by contractual maturity, are shown in the table below (in thousands). Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
March 31, 2012
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Due in less than one year
|
|
$
|
2,522
|
|
|
$
|
2,531
|
|
|
$
|
1,355
|
|
|
$
|
1,359
|
|
Due after one year through five years
|
|
|
4,685
|
|
|
|
4,792
|
|
|
|
5,498
|
|
|
|
5,573
|
|
Due after five years through ten years
|
|
|
257
|
|
|
|
257
|
|
|
|
260
|
|
|
|
270
|
|
Due after ten years
|
|
|
4,150
|
|
|
|
4,072
|
|
|
|
3,030
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,614
|
|
|
$
|
11,652
|
|
|
$
|
10,143
|
|
|
$
|
10,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 six months ended September 30, 2012 were approximately $25,000 and $56,000, respectively. Gross losses realized were approximately $13,000 and $14,000 for the three and six
months ended September 30, 2012, respectively.
4. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Raw materials
|
|
$
|
18,939
|
|
|
$
|
18,570
|
|
Work in process
|
|
|
5,979
|
|
|
|
6,270
|
|
Finished goods and other
|
|
|
35,115
|
|
|
|
37,406
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,033
|
|
|
$
|
62,246
|
|
|
|
|
|
|
|
|
|
|
7
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 a manner similar to ASC 310-30,
Loans and
Debt Securities Acquired with Deteriorated Credit Quality
(ASC 310-30). Consumer loans receivable held for sale and construction advances are carried at the lower of cost or market value.
The following table summarizes consumer loans receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Loans held for investment (acquired on Palm Harbor Acquisition Date)
|
|
$
|
105,565
|
|
|
$
|
110,629
|
|
Loans held for investment (originated after Palm Harbor Acquisition Date)
|
|
|
627
|
|
|
|
511
|
|
Loans held for sale
|
|
|
5,033
|
|
|
|
4,534
|
|
Loans heldconstruction advances on non-conforming mortgages
|
|
|
5,381
|
|
|
|
3,865
|
|
|
|
|
|
|
|
|
|
|
Consumer loans receivable
|
|
|
116,606
|
|
|
|
119,539
|
|
Deferred financing fees and other, net
|
|
|
(293
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
Consumer loans receivable, net
|
|
$
|
116,313
|
|
|
$
|
119,299
|
|
|
|
|
|
|
|
|
|
|
As of the Palm Harbor Acquisition Date, 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 pools scheduled contractual principal and
contractual interest payments over all cash flows expected as of the Palm Harbor Acquisition Date as an amount that cannot be accreted into interest income (the non-accretable difference). The remaining difference 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 sales.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Consumer loans receivable held for investment contractual amount
|
|
$
|
281,612
|
|
|
$
|
293,818
|
|
Purchase Discount
|
|
|
|
|
|
|
|
|
Accretable
|
|
|
(102,314
|
)
|
|
|
(106,949
|
)
|
Non-accretable
|
|
|
(73,275
|
)
|
|
|
(75,928
|
)
|
Less consumer loans receivable reclassified as other assets
|
|
|
(458
|
)
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
Total acquired consumer loans receivable held for investment, net
|
|
$
|
105,565
|
|
|
$
|
110,629
|
|
|
|
|
|
|
|
|
|
|
Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected by
CountryPlace. At the balance sheet date, the Company evaluates whether the present value of expected cash flows, determined using the effective interest rate, has decreased and, if so, recognizes an allowance for loan loss subsequent to the Palm
Harbor Acquisition Date. The present value of any subsequent increase in the loan pools 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 pools remaining life.
8
The changes in accretable yield on acquired consumer loans receivable held for investment
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Balance at the beginning of the period
|
|
$
|
103,385
|
|
|
$
|
115,471
|
|
|
$
|
106,949
|
|
|
$
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,335
|
|
Reclassifications from nonaccretable discount
|
|
|
2,460
|
|
|
|
|
|
|
|
2,460
|
|
|
|
|
|
Accretion
|
|
|
(3,531
|
)
|
|
|
(4,090
|
)
|
|
|
(7,095
|
)
|
|
|
(6,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
102,314
|
|
|
$
|
111,381
|
|
|
$
|
102,314
|
|
|
$
|
111,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CountryPlaces consumer loans receivable consists of fixed-rate, fixed-term, 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 property loans and retail installment sale contracts), 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 GSEs,
and those that are non-conforming. In most instances, CountryPlaces loans are secured by a first-lien position and are provided for the consumer purchase of a home. In rare instances CountryPlace may provide other types of loans in second-lien
or unsecured positions. 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 (FICO). At the time of each loans 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 CountryPlaces gross consumer loans receivable as of September 30, 2012, for each class by portfolio segment and credit quality indicator as of the time of origination (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans Held for Investment
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Securitized
|
|
|
Securitized
|
|
|
|
|
|
Construction
|
|
|
Loans Held
|
|
|
|
|
|
|
2005
|
|
|
2007
|
|
|
Unsecuritized
|
|
|
Advances
|
|
|
For Sale
|
|
|
Total
|
|
Asset Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattel loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-619
|
|
$
|
1,354
|
|
|
$
|
880
|
|
|
$
|
905
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,139
|
|
620-719
|
|
|
20,177
|
|
|
|
13,634
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
34,921
|
|
720+
|
|
|
23,023
|
|
|
|
15,527
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
39,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
44,554
|
|
|
|
30,041
|
|
|
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
77,308
|
|
|
|
|
|
|
|
|
Conforming mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-619
|
|
|
|
|
|
|
|
|
|
|
309
|
|
|
|
189
|
|
|
|
|
|
|
|
498
|
|
620-719
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
3,431
|
|
|
|
3,584
|
|
|
|
8,578
|
|
720+
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
1,761
|
|
|
|
1,449
|
|
|
|
3,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
1,883
|
|
|
|
5,381
|
|
|
|
5,033
|
|
|
|
12,297
|
|
|
|
|
|
|
|
|
Non-conforming mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-619
|
|
|
97
|
|
|
|
850
|
|
|
|
2,622
|
|
|
|
|
|
|
|
|
|
|
|
3,569
|
|
620-719
|
|
|
2,119
|
|
|
|
7,515
|
|
|
|
5,125
|
|
|
|
|
|
|
|
|
|
|
|
14,759
|
|
720+
|
|
|
2,179
|
|
|
|
4,935
|
|
|
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
8,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4,395
|
|
|
|
13,300
|
|
|
|
9,288
|
|
|
|
|
|
|
|
|
|
|
|
26,983
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,949
|
|
|
$
|
43,341
|
|
|
$
|
13,902
|
|
|
$
|
5,381
|
|
|
$
|
5,033
|
|
|
$
|
116,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
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. Consumer loans receivable are located in the key states shown below with the corresponding percentage of
loans aged 61 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
Aging 61 days or more
|
|
|
|
Portfolio
|
|
|
Percent of states
|
|
|
Percent of total
|
|
State
|
|
concentration
|
|
|
loan balance
|
|
|
loan balance
|
|
Texas
|
|
|
42.2
|
%
|
|
|
0.86
|
%
|
|
|
0.36
|
%
|
Florida
|
|
|
7.2
|
%
|
|
|
2.92
|
%
|
|
|
0.21
|
%
|
New Mexico
|
|
|
6.7
|
%
|
|
|
1.87
|
%
|
|
|
0.12
|
%
|
Arizona
|
|
|
5.9
|
%
|
|
|
2.89
|
%
|
|
|
0.17
|
%
|
Alabama
|
|
|
5.5
|
%
|
|
|
1.45
|
%
|
|
|
0.08
|
%
|
California
|
|
|
2.1
|
%
|
|
|
3.33
|
%
|
|
|
0.07
|
%
|
All others
|
|
|
30.4
|
%
|
|
|
4.23
|
%
|
|
|
1.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
2.30
|
%
|
The states of Florida, Arizona and California have experienced economic weakness resulting from the decline in real
estate values. The risks created by these concentrations have been considered by management in the determination of the accretable yield and the adequacy of any allowance for loan losses. Other than Texas, no other state had concentrations in excess
of 10% of the principal balance of the consumer loans receivable as of September 30, 2012.
6. Inventory Finance Receivables and Allowance for Loan Loss
The Companys inventory finance receivables balance consists of two classes: (i) amounts loaned by the
Company under participation inventory financing programs; and (ii) direct inventory financing arrangements for the home product inventory needs of our independent distribution base.
Under the terms of the participation programs, the Company provides loans to independent floorplan lenders, representing a significant
portion of the funds that such financiers then lend to retailers to finance their inventory purchases of our products. The participation inventory finance receivables are unsecured general obligations of the independent floorplan lenders.
Under the terms of the direct inventory finance arrangements, the Company provides funds for the independent retailers
inventory financed. The notes are secured by the inventory collateral and other security depending on the borrowers (retailers) circumstances. The other terms of direct inventory finance arrangements vary depending on the needs of the
borrower and the opportunity for the Company, but generally follow the same tenets as the participation programs.
Inventory
finance notes receivables, net, consist of the following by class of financing notes receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Direct inventory finance receivables
|
|
$
|
19,997
|
|
|
$
|
18,367
|
|
Participation inventory finance receivables
|
|
|
7,454
|
|
|
|
6,529
|
|
Allowance for loan loss
|
|
|
(139
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,312
|
|
|
$
|
24,681
|
|
|
|
|
|
|
|
|
|
|
The Company evaluates the potential for loss from its participation inventory finance programs based on the independent
lenders overall financial stability and has determined that an applicable allowance for loan loss was not needed at either September 30, 2012 or March 31, 2012.
10
With respect to the direct inventory finance notes receivable, the risk of loss is spread
over numerous borrowers. Borrower inventory levels and activity are 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 $139,000 and $215,000 at September 30, 2012 and March 31, 2012, 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 inventory finance receivables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of period
|
|
$
|
196
|
|
|
$
|
173
|
|
|
$
|
215
|
|
|
$
|
169
|
|
Provision for credit losses
|
|
|
(57
|
)
|
|
|
12
|
|
|
|
(76
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
139
|
|
|
$
|
185
|
|
|
$
|
139
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table disaggregates inventory finance notes receivable and the estimated allowance for loan loss for each
class of financing receivable by evaluation methodology (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Inventory Finance
|
|
|
Participation Inventory Finance
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
Inventory finance notes receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
13,854
|
|
|
$
|
13,916
|
|
|
$
|
|
|
|
$
|
|
|
Individually evaluated for impairment
|
|
|
6,143
|
|
|
|
4,451
|
|
|
|
7,454
|
|
|
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,997
|
|
|
$
|
18,367
|
|
|
$
|
7,454
|
|
|
$
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
(139
|
)
|
|
$
|
(215
|
)
|
|
$
|
|
|
|
$
|
|
|
Individually evaluated for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(139
|
)
|
|
$
|
(215
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans are subject to regular review and are given
managements 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 Companys 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. Payments received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal. Charge-offs occur
when it becomes probable that outstanding amounts will not be recovered. At September 30, 2012, the Company did not have any loans on nonaccrual status and was not aware of any potential problem loans that would have a material effect on the
inventory finance receivables balance.
The following table disaggregates the Companys inventory finance receivables by class and credit quality indicator (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Inventory Finance
|
|
|
Participation Inventory Finance
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
Risk profile based on payment activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
19,949
|
|
|
$
|
17,972
|
|
|
$
|
7,454
|
|
|
$
|
6,529
|
|
Watch list
|
|
|
48
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,997
|
|
|
$
|
18,367
|
|
|
$
|
7,454
|
|
|
$
|
6,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The Company has concentrations of inventory finance notes receivable related to
factory-built homes located in the following states, measured as a percentage of inventory finance receivables principal balance outstanding as of September 30, 2012 and March 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Arizona
|
|
|
17.1
|
%
|
|
|
21.4
|
%
|
Texas
|
|
|
11.4
|
%
|
|
|
11.3
|
%
|
Florida
|
|
|
8.1
|
%
|
|
|
10.7
|
%
|
California
|
|
|
3.8
|
%
|
|
|
3.0
|
%
|
The states of Arizona, Florida, and California have experienced economic weakness. 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 inventory finance receivables in any other states as
of September 30, 2012 or March 31, 2012, respectively.
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: buildings and improvements, 10 to 39 years, and 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):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Property, plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
21,106
|
|
|
$
|
21,106
|
|
Buildings and improvements
|
|
|
25,319
|
|
|
|
25,111
|
|
Machinery and equipment
|
|
|
15,563
|
|
|
|
15,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,988
|
|
|
|
61,693
|
|
|
|
|
Accumulated depreciation
|
|
|
(12,848
|
)
|
|
|
(11,629
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
49,140
|
|
|
$
|
50,064
|
|
|
|
|
|
|
|
|
|
|
8. Goodwill and Other Intangibles
Intangible assets principally consist of goodwill, trademarks and trade names,
state insurance licenses, customer relationships, technology, insurance business in force, and insurance policies and renewal rights. Goodwill, trademarks and trade names and state insurance licenses are indefinite-lived intangible assets and are
tested for impairment annually and whenever events or circumstances indicate that more likely than not impairment has occurred. During the six months ended September 30, 2012 and 2011, 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 11 years, technology over 7 to 10 years, insurance business in force over one year and insurance policies and renewal rights over 15 years.
12
Goodwill and other intangibles consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
March 31, 2012
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Indefinite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
67,346
|
|
|
$
|
|
|
|
$
|
67,346
|
|
|
$
|
67,346
|
|
|
$
|
|
|
|
$
|
67,346
|
|
Trademarks and trade names
|
|
|
6,250
|
|
|
|
|
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
|
|
|
|
6,250
|
|
State insurance licenses
|
|
|
1,100
|
|
|
|
|
|
|
|
1,100
|
|
|
|
1,100
|
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived intangible assets
|
|
|
74,696
|
|
|
|
|
|
|
|
74,696
|
|
|
|
74,696
|
|
|
|
|
|
|
|
74,696
|
|
|
|
|
|
|
|
|
Finite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
6,200
|
|
|
|
(1,877
|
)
|
|
|
4,323
|
|
|
|
6,200
|
|
|
|
(1,246
|
)
|
|
|
4,954
|
|
Insurance business in force
|
|
|
2,070
|
|
|
|
(2,070
|
)
|
|
|
|
|
|
|
2,070
|
|
|
|
(1,969
|
)
|
|
|
101
|
|
Technology
|
|
|
900
|
|
|
|
(134
|
)
|
|
|
766
|
|
|
|
900
|
|
|
|
(87
|
)
|
|
|
813
|
|
Insurance policies and renewal rights
|
|
|
374
|
|
|
|
(35
|
)
|
|
|
339
|
|
|
|
374
|
|
|
|
(23
|
)
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$
|
84,240
|
|
|
$
|
(4,116
|
)
|
|
$
|
80,124
|
|
|
$
|
84,240
|
|
|
$
|
(3,325
|
)
|
|
$
|
80,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense recognized on intangible assets during the three and six months ended September 30, 2012 was
$345,000 and $791,000, respectively. Amortization expense of $1.3 million and $1.7 million was recognized during the three and six months ended September 30, 2011, respectively.
9. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Customer deposits
|
|
$
|
10,820
|
|
|
$
|
9,740
|
|
Salaries, wages and benefits
|
|
|
10,529
|
|
|
|
10,466
|
|
Estimated warranties
|
|
|
8,782
|
|
|
|
9,456
|
|
Unearned insurance premiums
|
|
|
7,352
|
|
|
|
6,146
|
|
Deferred margin
|
|
|
6,120
|
|
|
|
4,399
|
|
Accrued taxes
|
|
|
3,168
|
|
|
|
3,701
|
|
Accrued insurance
|
|
|
2,939
|
|
|
|
2,860
|
|
Accrued volume rebates
|
|
|
1,780
|
|
|
|
1,579
|
|
Reserves related to consumer loans sold
|
|
|
1,096
|
|
|
|
805
|
|
Reserve for repurchase commitments
|
|
|
1,024
|
|
|
|
819
|
|
Insurance loss reserves
|
|
|
957
|
|
|
|
1,141
|
|
Other (various)
|
|
|
6,828
|
|
|
|
7,383
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,395
|
|
|
$
|
58,495
|
|
|
|
|
|
|
|
|
|
|
13
10. 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 provided at the date of sale. The Company has recorded a liability for estimated future warranty costs relating to homes sold based upon
managements 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
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of period
|
|
$
|
9,082
|
|
|
$
|
11,483
|
|
|
$
|
9,456
|
|
|
$
|
9,371
|
|
Liability assumed with Palm Harbor transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,932
|
|
Charged to costs and expenses
|
|
|
2,772
|
|
|
|
2,456
|
|
|
|
5,445
|
|
|
|
5,462
|
|
Payments and deductions
|
|
|
(3,072
|
)
|
|
|
(3,130
|
)
|
|
|
(6,119
|
)
|
|
|
(5,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
8,782
|
|
|
$
|
10,809
|
|
|
$
|
8,782
|
|
|
$
|
10,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Debt Obligations
Debt obligations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Securitized financing 2005-1
|
|
$
|
42,179
|
|
|
$
|
44,726
|
|
Securitized financing 2007-1
|
|
|
44,543
|
|
|
|
46,749
|
|
Construction lending lines
|
|
|
1,041
|
|
|
|
4,550
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,763
|
|
|
$
|
96,025
|
|
|
|
|
|
|
|
|
|
|
The Company acquired CountryPlaces securitized financings and construction lending lines during
the first quarter of fiscal 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 Palm Harbor Acquisition Date 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 securitized financings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Securitized financings contractual amount
|
|
$
|
110,401
|
|
|
$
|
117,507
|
|
Purchase Discount
|
|
|
|
|
|
|
|
|
Accretable
|
|
|
(23,679
|
)
|
|
|
(26,032
|
)
|
|
|
|
Non-accretable (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securitized financings, net
|
|
$
|
86,722
|
|
|
$
|
91,475
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Because the contractual payments on securitized financing are determined by actual cash flows, the Company expects that there will not be a
non-accretable difference.
|
14
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 financings remaining life.
The changes in accretable yield on securitized financings were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Balance at the beginning of the period
|
|
$
|
24,634
|
|
|
$
|
31,346
|
|
|
$
|
26,032
|
|
|
$
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,072
|
|
Accretion
|
|
|
(1,345
|
)
|
|
|
(1,567
|
)
|
|
|
(2,743
|
)
|
|
|
(2,293
|
)
|
Reclassifications from nonaccretable discount
|
|
|
390
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
23,679
|
|
|
$
|
29,779
|
|
|
$
|
23,679
|
|
|
$
|
29,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 12, 2005, prior to Fleetwoods 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 beginning in 2006 through 2015 and were issued with an expected weighted average maturity of 4.66 years. For accounting purposes, this transaction was structured as a securitized borrowing. As of September 30, 2012, the
Class A-1 and Class A-2 bonds had been retired.
On March 22, 2007, prior to Fleetwoods 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 beginning in 2008 through 2017 and were issued with an expected weighted average maturity of 4.86 years. For accounting purposes, this transaction was also structured as a securitized
borrowing. As of September 30, 2012, the Class A-1 and Class A-2 bonds had been retired.
CountryPlaces
securitized debt is subject to provisions which may require acceleration of debt repayment. If cumulative loss ratios exceed levels specified in the respective pooling and servicing agreements for the 2005-1 and 2007-1 securitizations, repayment of
the principal of the related Class A bonds is accelerated until cumulative loss ratios return to specified levels. During periods when cumulative loss ratios exceed the specified levels, 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 debt. However, principal repayment 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 September 30, 2012, the cumulative loss ratio was within the specified level for the 2005-1 securitized portfolio; however, the
cumulative loss ratio for the 2007-1 securitized portfolio exceeded the specified level. The resulting acceleration of securitized debt repayment has not had a materially adverse impact on our cash flows. This specified level subsequently increased
in October 2012, ameliorating the situation; however, the Company expects that the cumulative loss ratio for the 2007-1 securitized portfolio may again exceed its specified level during the current fiscal year. The next scheduled increase in the
specified level is in October 2013.
15
12. Reinsurance
Standard is primarily a specialty writer of manufactured home physical damage insurance. Certain of Standards
premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The ceded reinsurance agreements provide Standard with increased capacity to write larger risks and maintain its exposure to loss
within its capital resources. Standard remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations. Substantially all of Standards assumed reinsurance is with one entity.
The effects of reinsurance on premiums written and earned are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
Direct premiums
|
|
$
|
1,465
|
|
|
$
|
1,011
|
|
|
$
|
436
|
|
|
$
|
324
|
|
Assumed premiumsnonaffiliate
|
|
|
3,320
|
|
|
|
2,957
|
|
|
|
2,572
|
|
|
|
2,434
|
|
Ceded premiumsnonaffiliate
|
|
|
(929
|
)
|
|
|
(929
|
)
|
|
|
(398
|
)
|
|
|
(398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
3,856
|
|
|
$
|
3,039
|
|
|
$
|
2,610
|
|
|
$
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
September 30, 2012
|
|
|
September 30, 2011
|
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
Direct premiums
|
|
$
|
2,776
|
|
|
$
|
1,818
|
|
|
$
|
629
|
|
|
$
|
411
|
|
Assumed premiumsnonaffiliate
|
|
|
6,653
|
|
|
|
5,729
|
|
|
|
3,481
|
|
|
|
3,214
|
|
Ceded premiumsnonaffiliate
|
|
|
(1,692
|
)
|
|
|
(1,692
|
)
|
|
|
(513
|
)
|
|
|
(513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
7,737
|
|
|
$
|
5,855
|
|
|
$
|
3,597
|
|
|
$
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Typical insurance policies written or assumed by Standard have a maximum coverage of $300,000 per claim, of which
Standard cedes $240,000 of the risk of loss per reinsurance. Therefore, Standard maintains risk of loss limited to $60,000 per claim on typical policies. Amounts are recoverable by Standard through reinsurance for catastrophic losses in excess of
$1.0 million per occurrence up to a maximum of $10.0 million in the aggregate.
13. Income Taxes
The Companys 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 FASB 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. The Company is no
longer subject to examination by the IRS for years before fiscal year 2009. 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 Companys 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.
16
14. 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 $14.0 million at
September 30, 2012, without reduction for the resale value of the homes. The Company applies FASB ASC 460,
Guarantees
(ASC 460), and FASB 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 $1.0 million and $819,000 at September 30, 2012 and March 31, 2012, respectively, related to these commitments.
Letters of Credit.
To secure certain reinsurance contracts, Standard maintains an irrevocable letter of credit
of $5.0 million to provide assurance that Standard will fulfill its reinsurance obligations. This letter of credit is secured by certain of the Companys investments. CountryPlace maintains an irrevocable letter of credit of $100,000 related to
state licensing requirements. The Company maintains a $100,000 irrevocable letter of credit to satisfy the remaining requirements of the self-funded workers compensation program which concluded on September 30, 2006. There have been no
draws on any of the aforementioned letters of credit.
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. Construction-period mortgages are carried in the consolidated balance sheet at the actual amount of cumulative advances, 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):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2012
|
|
Construction loan contract amount
|
|
$
|
10,293
|
|
|
$
|
6,397
|
|
Cumulative advances
|
|
|
(5,381
|
)
|
|
|
(3,865
|
)
|
|
|
|
|
|
|
|
|
|
Remaining construction contingent commitment
|
|
$
|
4,912
|
|
|
$
|
2,532
|
|
|
|
|
|
|
|
|
|
|
Representations and Warranties of Mortgages Sold
.
CountryPlace sells loans to GSEs and whole-loan purchasers. In connection with these activities, CountryPlace provides to the GSEs and whole-loan purchasers, representations and warranties related to the loans sold. These representations and
warranties generally relate to the ownership of the loan, the validity of the lien securing the loan, the loans compliance with the criteria for inclusion in the sale transactions, including compliance with underwriting standards or loan
criteria established by the buyer, and CountryPlaces 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 $1.1 million and $805,000 as of September 30, 2012 and March 31, 2012, respectively, included in accrued liabilities, reflects managements 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. One claim request was
received and dismissed during the six months ended September 30, 2012, and six claims were open for review with estimated claims totaling $36,000 as of September 30, 2012.
17
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.
As of September 30, 2012 CountryPlace had
outstanding IRLCs of $30.8 million. IRLCs totaling $15.3 million were related to loans held for sale and loans in construction, which are carried at the lower of cost or market. The remaining $15.5 million of commitments are recorded at fair value
in accordance with ASC 815,
Derivatives and Hedging
. 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 based on quoted market values and 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 six months ended September 30, 2012, CountryPlace recognized a gain of $68,000 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. Commitments to forward sales of whole loans are typically in an amount proportionate with the amount of IRLC expected to close in particular
timeframes, 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 six months ended September 30, 2012,
CountryPlace recognized a loss of $27,000 on forward sales and whole loan sale commitments.
Redeemable Noncontrolling Interest
. In accordance with the Shareholder Agreement entered into among Fleetwood
and its shareholders (Cavco and Third Avenue), as amended, after the fifth anniversary of the Fleetwood Acquisition Date, (i.e., after August 17, 2014), or at any time after Fleetwood has earned net income of at least $10.0 million in each of
its two most recently completed consecutive fiscal years, excluding any gain on bargain purchase, Third Avenue has the Put Right to require Cavco to purchase all of Third Avenues shares of Fleetwood common stock for an amount based upon a
calculation that is designed to approximate fair value. Likewise, Cavco has the Call Right to require Third Avenue to sell all of its shares of Fleetwood common stock based on the same timing and calculation as described above for the Put Right.
Subject to certain conditions, the satisfaction of this purchase price obligation may be in the form of cash or Cavco common stock at Cavcos discretion if Third Avenue exercises its Put Right, or in the form of cash or Cavco common stock at
Third Avenues discretion if Cavco exercises its Call Right. The conditions for the Put Right or Call Right to become exercisable have not been met as of September 30, 2012; however, in any event, these conditions will be met on
August 18, 2014 (see Note 19).
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 Companys 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 Companys consolidated financial position, liquidity or results of operations in any future reporting periods.
18
15. Stockholders Equity
The following table represents changes in stockholders equity attributable to Cavcos stockholders and
redeemable noncontrolling interest for the six months ended September 30, 2012 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Cavco Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
Redeemable
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
Interest
|
|
Balance, March 31, 2012
|
|
|
6,890,796
|
|
|
$
|
69
|
|
|
$
|
131,589
|
|
|
$
|
36,627
|
|
|
$
|
58
|
|
|
$
|
168,343
|
|
|
$
|
86,541
|
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
77,158
|
|
|
|
1
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
|
2,199
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
636
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,114
|
|
|
|
|
|
|
|
2,114
|
|
|
|
2,185
|
|
Other comprehensive loss (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
|
6,967,954
|
|
|
$
|
70
|
|
|
$
|
134,423
|
|
|
$
|
38,741
|
|
|
$
|
89
|
|
|
$
|
173,323
|
|
|
$
|
88,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other comprehensive income is comprised of unrealized gains and losses on available-for-sale investments. Pre-tax unrealized gain on available-for-sale
investments was $92,000 for the six months ended September 30, 2012.
|
16. 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. The plans, which are shareholder approved, permit the award of up to 1,350,000 shares of the Companys common stock, of which 272,076
shares were still available for grant at September 30, 2012. When options are exercised, new shares of the Companys common stock are issued. Stock options may not be granted below 100% of the fair market value of the Companys 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 Boards Compensation
Committee, which consists of independent directors). The stock incentive plans provide for accelerated vesting of stock options and removal of restrictions on restricted stock awards upon a change in control (as defined in the plans).
Stock-based compensation cost charged against income for the three and six months ended September 30, 2012, was
$366,000 and $636,000, respectively. The Company recorded stock-based compensation expense of $271,000 and $456,000 for the three and six months ended September 30, 2011, respectively.
As of September 30, 2012, total unrecognized compensation cost related to stock options was approximately $2.5 million and the
related weighted-average period over which it is expected to be recognized is approximately 1.7 years.
The following table
summarizes the option activity within the Companys stock-based compensation plans for the six months ended September 30, 2012:
|
|
|
|
|
|
|
Number
of Shares
|
|
Outstanding at March 31, 2012
|
|
|
407,500
|
|
Granted
|
|
|
68,200
|
|
Exercised
|
|
|
(77,000
|
)
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
398,700
|
|
|
|
|
|
|
Exercisable at September 30, 2012
|
|
|
176,550
|
|
|
|
|
|
|
A summary of restricted stock activity within the Companys share-based compensation plans and changes for the six
months ended September 30, 2012 is as follows:
|
|
|
|
|
|
|
Number
of Shares
|
|
Nonvested at March 31, 2012
|
|
|
158
|
|
Vested
|
|
|
(158
|
)
|
|
|
|
|
|
Nonvested at September 30, 2012
|
|
|
|
|
|
|
|
|
|
19
17. 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 Companys share-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
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income attributable to Cavco common stockholders
|
|
$
|
1,254
|
|
|
$
|
1,685
|
|
|
$
|
2,114
|
|
|
$
|
11,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,967,954
|
|
|
|
6,890,122
|
|
|
|
6,945,815
|
|
|
|
6,864,427
|
|
Common stock equivalentstreasury stock method
|
|
|
73,801
|
|
|
|
47,685
|
|
|
|
60,507
|
|
|
|
57,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
7,041,755
|
|
|
|
6,937,807
|
|
|
|
7,006,322
|
|
|
|
6,921,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Cavco common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.18
|
|
|
$
|
0.24
|
|
|
$
|
0.30
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.24
|
|
|
$
|
0.30
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months
ended September 30, 2012 and 2011were 13,541 and 16,609, respectively. There were 8,595 and 7,387 anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the six months ended September 30,
2012 and 2011, respectively.
18. Fair Value Measurements
The book value and estimated fair value of the Companys financial instruments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
March 31, 2012
|
|
|
|
Book
|
|
|
Estimated
|
|
|
Book
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
Cash and cash equivalents (1)
|
|
$
|
46,790
|
|
|
$
|
46,790
|
|
|
$
|
41,094
|
|
|
$
|
41,094
|
|
Restricted cash (1)
|
|
|
7,835
|
|
|
|
7,835
|
|
|
|
6,784
|
|
|
|
6,784
|
|
Investments (2)
|
|
|
15,743
|
|
|
|
15,743
|
|
|
|
14,202
|
|
|
|
14,202
|
|
Consumer loans receivable (3)
|
|
|
116,313
|
|
|
|
121,843
|
|
|
|
119,299
|
|
|
|
122,620
|
|
Interest rate lock commitment derivatives (4)
|
|
|
78
|
|
|
|
78
|
|
|
|
11
|
|
|
|
11
|
|
Forward loan sale commitment derivatives (4)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
7
|
|
|
|
7
|
|
Inventory finance receivable (5)
|
|
|
27,312
|
|
|
|
27,312
|
|
|
|
24,681
|
|
|
|
24,681
|
|
Construction lending line (5)
|
|
|
1,041
|
|
|
|
1,041
|
|
|
|
4,550
|
|
|
|
4,550
|
|
Securitized financings (6)
|
|
|
86,722
|
|
|
|
86,523
|
|
|
|
91,475
|
|
|
|
94,765
|
|
(1)
|
The fair value approximates book value due to the instruments short-term maturity.
|
(2)
|
The fair value is based on quoted market prices.
|
(3)
|
Includes consumer loans receivable held for investment, held for sale and construction advances. The fair value of the loans held for investment is
based on the discounted value of the remaining principal and interest cash flows. The fair value of the loans held for sale are estimated based on September 30, 2012 GSE mortgage backed bond prices.
|
(4)
|
The fair values are based on changes in GSE mortgage backed bond prices and pull through rates.
|
(5)
|
The fair value approximates book value based on current market rates and the revolving nature of the instruments.
|
(6)
|
The fair value is estimated using recent transactions of asset-backed securities.
|
20
In accordance with ASC 820,
Fair Value Measurements and Disclosures
(ASC 820), fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The
market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
When the Company uses observable market prices for identical securities that are traded in less active markets, it classifies such securities as Level 2. When observable market prices for identical
securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a
discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation
models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and,
to a lesser degree, unobservable market inputs.
Assets measured at fair value on a recurring basis are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities issued by the U.S Treasury and Government (1)
|
|
$
|
1,367
|
|
|
$
|
|
|
|
$
|
1,367
|
|
|
$
|
|
|
Mortgage-backed securities (1)
|
|
|
5,185
|
|
|
|
|
|
|
|
5,185
|
|
|
|
|
|
Securities issued by states and political subdivisions (1)
|
|
|
1,460
|
|
|
|
|
|
|
|
1,460
|
|
|
|
|
|
Corporate debt securities (1)
|
|
|
3,640
|
|
|
|
|
|
|
|
3,640
|
|
|
|
|
|
Marketable equity securities (1)
|
|
|
4,091
|
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitment derivatives (2)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Forward loan sale commitment derivatives (2)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
(1)
|
Unrealized gains or losses on investments are recorded in accumulated other comprehensive income (loss) at each measurement date.
|
(2)
|
Gains or losses on derivatives are recognized in current period earnings through cost of sales.
|
No transfers between Level 1, Level 2 or Level 3 occurred during the six months ended September 30, 2012. The
Companys policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.
21
Assets and liabilities 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
46,790
|
|
|
$
|
46,790
|
|
|
$
|
|
|
|
$
|
|
|
Restricted cash
|
|
|
7,835
|
|
|
|
7,835
|
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
|
110,960
|
|
|
|
|
|
|
|
|
|
|
|
110,960
|
|
Loans held for sale
|
|
|
5,502
|
|
|
|
|
|
|
|
5,502
|
|
|
|
|
|
Loans heldconstruction advances
|
|
|
5,381
|
|
|
|
|
|
|
|
|
|
|
|
5,381
|
|
Inventory finance receivable
|
|
|
27,312
|
|
|
|
|
|
|
|
|
|
|
|
27,312
|
|
Construction lending facility
|
|
|
1,041
|
|
|
|
|
|
|
|
1,041
|
|
|
|
|
|
Securitized financings
|
|
|
86,523
|
|
|
|
|
|
|
|
86,523
|
|
|
|
|
|
The Company records impairment losses on long-lived assets held
for sale when the fair value of such long-lived assets is below their carrying values. The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. The Company recorded no impairment charges on assets held for sale or used in operations during the six months ended September 30, 2012.
Assets measured on a nonrecurring basis also include impaired loans (nonaccrual loans) disclosed in Note 5 and loans
held for sale. No recent sales have been executed in an orderly market of manufactured home loan portfolios with comparable product features, credit characteristics, or performance. Impaired loans are measured using Level 3 inputs that are
calculated using estimated discounted future cash flows with discount rates considered to reflect current market conditions. Loans held for sale are measured at the lower of cost or fair value using Level 2 inputs that consist of commitments on hand
from investors. These loans are held for relatively short periods, typically no more than 45 days. As a result, changes in loan-specific credit risk are not a significant component of the change in fair value. The cost of loans held for sale is
lower than the fair value as of September 30, 2012.
ASC 825,
Financial Instruments
(ASC 825), requires
disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using other valuation techniques. These techniques involve
uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience, and other
factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an
immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Companys fair values should not be compared to those of other companies.
Under ASC 825, fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying market value of the Company.
22
19. Redeemable Noncontrolling Interest
Redeemable Noncontrolling Interest.
During fiscal year 2010, the Company and an investment partner, Third Avenue
Value Fund, formed Fleetwood Homes, Inc., with an initial contribution of $35.0 million each for equal fifty-percent ownership interests. On July 21, 2009, Fleetwood entered into an asset purchase agreement with Fleetwood Enterprises, Inc. and
certain of its subsidiaries to purchase certain assets and liabilities of its manufactured housing business.
The Company and
Third Avenue Value Fund subsequently contributed an additional $36.0 million each in anticipation of the purchase of Palm Harbor, which was completed during the first quarter of fiscal year 2012. Subsequent to the transaction, a portion of Third
Avenue Value Funds interests were transferred to an affiliate along with the applicable rights and obligations. This transfer had no impact on Cavcos ownership interest. Third Avenue Value Fund and its affiliate are hereinafter
collectively referred to as Third Avenue. See Note 20 for further information.
Financial information for
Fleetwood is included in the Companys Consolidated Financial Statements and the related Notes in accordance with the provisions of ASC 810. Management has determined that, under GAAP, although Fleetwood is only fifty-percent owned by the
Company, Cavco has a controlling interest and is required to fully consolidate the results of Fleetwood. The primary factors that contributed to this determination were Cavcos board and management control of Fleetwood. Members of Cavcos
management hold all of the seats on the board of directors of Fleetwood. In addition, as part of a management services agreement among Cavco, Fleetwood and Third Avenue, Cavco provides all executive-level management services to Fleetwood including,
among other things, general management oversight, marketing and customer relations, accounting and cash management. Third Avenues financial interest in Fleetwood is considered a redeemable noncontrolling interest, as determined by
GAAP, and is designated as such in the Consolidated Financial Statements.
Temporary Equity Classification.
ASC 480,
Distinguishing
Liabilities from Equity,
includes guidance regarding the classification and measurement of redeemable securities, including a requirement that equity instruments that are not required to be classified as liabilities be classified as temporary
equity and outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within
the control of the issuer.
In accordance with the Shareholder Agreement entered into among Fleetwood and its shareholders (Cavco and Third
Avenue), as amended, after the fifth anniversary of the Fleetwood Acquisition Date (i.e. after August 17, 2014), or at any time after Fleetwood has earned net income of at least $10.0 million in each of its two most recently completed
consecutive fiscal years, excluding the gain on bargain purchase, Third Avenue has the Put Right to require Cavco to purchase all of Third Avenues shares of Fleetwood common stock for an amount based upon a calculation that is designed to
approximate fair value. Likewise, Cavco has the Call Right to require Third Avenue to sell all of its shares of Fleetwood common stock based on the same timing and calculation as described above for the Put Right. The conditions for the Put Right or
Call Right to become exercisable have not been met as of September 30, 2012; however, in any event, these conditions will be met on August 18, 2014.
The purchase price to be payable by Cavco for the purchase of Third Avenues shares pursuant to the exercise of the Put Right or the Call Right may be settled in cash or shares of common stock of
Cavco. However, the circumstances under which net share settlement would be allowed are not solely within the control of Cavco. The availability of net share settlement is dependent upon a number of factors. For example, at the time of such
purchase, Cavcos common stock must be listed on either the NASDAQ or the New York Stock Exchange. In the case of Third Avenues exercise of its Put Right, Cavco may elect to pay all or a portion of such purchase price in the form of
shares of common stock of Cavco. In the case of Cavcos exercise of its Call Right, Third Avenue may elect to receive all or a portion of such purchase price in the form of shares of common stock of Cavco. In addition, net share settlement
would not be available if it were to lead to a change of control of Cavco. If either Cavco or Third Avenue makes such election, the shares of Cavco common stock to be issued to Third Avenue would be valued based on the average closing price of
Cavcos common stock for the sixty most recent trading days. There is no explicit cap on the maximum number of common shares that could be potentially issuable upon redemption; therefore, Third Avenues noncontrolling interest in Fleetwood
is classified as a temporary equity mezzanine item between liabilities and stockholders equity.
The carrying amount is
subject to adjustment, after attribution of comprehensive income or loss of Fleetwood, if there are changes in the redemption value at the end of the reporting period. For the period since the Fleetwood Acquisition Date through September 30,
2012, the Company determined that the potential redemption value of the redeemable noncontrolling interest did not exceed its carrying value and no adjustment was needed.
23
20. Related Party Transactions
At September 30, 2012, Third Avenue Management LLC beneficially owned
approximately 7.0% of Cavcos outstanding common shares and is also considered a related party under FASB ASC 850,
Related Party Disclosures
(ASC 850). Third Avenue Management LLC and Third Avenue are either directly or
indirectly under common control. Third Avenues participation in ownership of Fleetwood, the Fleetwood transaction, convertible note payable, and the subsequent Palm Harbor acquisition are therefore considered related party transactions in
accordance with ASC 850.
21. Business Segment Information
The Company operates principally in two segments: (1) factory-built housing, which includes manufactured housing,
modular housing and retail operations and (2) financial services, which includes consumer finance and insurance. The following table details net sales and income (loss) before income taxes by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory-built housing
|
|
$
|
98,903
|
|
|
$
|
119,686
|
|
|
$
|
207,350
|
|
|
$
|
212,526
|
|
Financial services
|
|
|
11,181
|
|
|
|
10,322
|
|
|
|
21,515
|
|
|
|
16,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,084
|
|
|
$
|
130,008
|
|
|
$
|
228,865
|
|
|
$
|
228,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factory-built housing
|
|
$
|
3,504
|
|
|
$
|
4,726
|
|
|
$
|
6,971
|
|
|
$
|
2,578
|
|
Financial services
|
|
|
2,969
|
|
|
|
2,518
|
|
|
|
3,994
|
|
|
|
3,640
|
|
General corporate charges
|
|
|
(2,066
|
)
|
|
|
(2,265
|
)
|
|
|
(3,766
|
)
|
|
|
(3,170
|
)
|
Gain on bargain purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,407
|
|
|
$
|
4,979
|
|
|
$
|
7,199
|
|
|
$
|
25,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24