What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-03 compared with 2020-01-31 · 386 added, 364 removed, 474 unchanged (61% of the section changed)

3 unchanged sentences

(Dollars in thousands, except per share amounts)

2020 March 28,

Current assets:

Cash and cash equivalents

$ 270,547 $ 241,826

Restricted cash, current

19,600 13,446

Accounts receivable, net

38,171 42,800

Short-term investments

16,374 14,582

Current portion of consumer loans receivable, net

44,830 32,376

Current portion of commercial loans receivable, net

Assets held for sale

13,628 14,657

Current portion of commercial loans receivable from affiliates, net

106,396 113,535

Prepaid expenses and other current assets

37,642 42,197

Total current assets

547,991 516,185

Restricted cash

30,506 31,557

Consumer loans receivable, net

44,129 49,928

Commercial loans receivable, net

20,097 23,685

Commercial loans receivable from affiliates, net

Property, plant and equipment, net

Goodwill and other intangibles, net

77,326 77,190

75,090 75,090

Other intangibles, net

14,923 15,110

Operating lease right-of-use assets

18,378 13,894

$ 838,256 $ 810,431

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

Accrued liabilities

Current portion of securitized financings and other

$ 34,658 $ 29,924

Accrued expenses and other current liabilities

142,193 139,930

Current portion of secured credit facilities and other

Total current liabilities

179,056 172,102

Operating lease liabilities

15,398 10,743

Secured credit facilities and other

12,307 12,705

Deferred income taxes

Securitized financings and other

Stockholders' equity:

6 unchanged sentences

Additional paid-in capital

252,672 252,260

Retained earnings

Accumulated other comprehensive income (loss)

371,085 355,144

Accumulated other comprehensive income

Total stockholders' equity

624,007 607,586

Total liabilities and stockholders' equity

$ 838,256 $ 810,431

See accompanying Notes to Consolidated Financial Statements

3 unchanged sentences

Three Months Ended

Nine Months Ended

2020 June 29,

$ 254,801 $ 264,042

Cost of sales

199,478 203,744

55,323 60,298

Selling, general and administrative expenses

35,323 35,264

Income from operations

20,000 25,034

Interest expense

( 196 ) ( 486 )

Other income, net

Income before income taxes

21,680 27,362

Income tax expense

( 5,006 ) ( 6,080 )

$ 16,674 $ 21,282

Comprehensive income:

$ 16,674 $ 21,282

Reclassification adjustment for securities sold or matured

2 unchanged sentences

Applicable income taxes

( 12 ) ( 23 )

Comprehensive income

$ 16,742 $ 21,371

Net income per share:

$ 1.82 $ 2.34

$ 1.80 $ 2.31

Weighted average shares outstanding:

9,174,182 9,102,685

9,264,661 9,217,599

See accompanying Notes to Consolidated Financial Statements

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended

Three Months Ended

2020 June 29,

OPERATING ACTIVITIES

Net income $ 16,674 $ 21,282

Adjustments to reconcile net income to net cash provided by operating activities:

10 unchanged sentences

Proceeds from sales of consumer loans 39,271 37,625

Principal payments on consumer loans receivable

Principal payments received on consumer loans receivable 3,261 2,176

Inventories 7,139 ( 2,329 )

Prepaid expenses and other current assets 7,128 4,321

Commercial loans receivable 2,556 ( 3,682 )

Accounts payable and accrued liabilities

Accounts payable and accrued expenses and other current liabilities 7,189 ( 1,381 )

Net cash provided by operating activities 35,692 16,798

1 unchanged sentence

Purchases of property, plant and equipment ( 1,856 ) ( 2,063 )

Payments for Destiny Homes, net

Proceeds from sale of property, plant and equipment and assets held for sale 5 42

1 unchanged sentence

Proceeds from sale of investments 3,116 2,662

Net cash used in investing activities

Net cash provided by (used in) investing activities 105 ( 1,469 )

FINANCING ACTIVITIES

Proceeds (payments) from exercise of stock options

Payments for exercise of stock options ( 533 ) ( 1,252 )

Proceeds from secured financings and other 64 75

20 unchanged sentences

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, and there were no disclosable subsequent events.

The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC, and there were no subsequent events requiring disclosure.

These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company's 2020 Annual Report on Form 10-K for the year ended March 28, 2020, filed with the SEC on May 27, 2020 ("Form 10-K").

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements ("Notes").

Actual results could differ from those estimates.

The uncertainty created by the novel coronavirus COVID-19 ("COVID-19") have made such estimates more difficult and subjective.

Accordingly, 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.

1 unchanged sentence

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 st .

The Company's current fiscal year will end on March 28, 2020 .

The Company's current fiscal year will end on April 3, 2021.

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 distributors, community owners and developers and through the Company's 39 Company-owned retail stores.

The Company designs and builds a wide variety of affordable manufactured homes, modular homes and park model RVs through 20 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through the Company's 39 Company-owned retail stores.

Our financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp.

3 unchanged sentences

Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.

Adoption of New Accounting Standards.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases ("Topic 842").

This guidance amends previous accounting considerations and treatments for leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for both finance leases and operating leases.

For finance leases, the lessee recognizes interest expense and amortization of the ROU asset and for operating leases, the lessee recognizes straight-line lease expense.

Effective March 31, 2019, the Company adopted Topic 842 using the modified retrospective transition approach.

This approach provides a method for recording existing leases at adoption, without restating comparative periods.

The Company also elected to adopt the package of practical expedients provided in the guidance, which allowed the Company to retain the historical classification for each lease, and provided relief from reviewing existing or expired contracts to determine if they contain leases under the new guidance.

In addition, an accounting policy election was made to account for non-lease and lease components as a single lease component for all asset classes.

The Company also made an accounting policy election to exclude ROU assets and lease liabilities for leases with an initial term of twelve months or less from the Consolidated Balance Sheet.

As a result of such adoption, net operating lease ROU assets and lease liabilities of $ 13.0 million and $ 13.5 million , respectively, were added to the Company’s Consolidated Balance Sheet as of March 31, 2019.

The difference between the additional lease assets and lease liabilities reflects existing accrued rent balances that were reclassified to the operating lease ROU asset as of March 31, 2019.

The standard did not materially impact our consolidated Net income and had no impact on cash flows.

See Note 9 for additional information.

Accounting Standards Issued But Not Yet Adopted.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Recently Issued or Adopted Accounting Standards.

On March 29, 2020, the Company adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update 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, which will now require a forward-looking impairment model based on expected losses rather than incurred losses.

The guidance also requires increased disclosures.

ASU 2016-13 will be effective beginning with the first quarter of the Company's fiscal year 2021 and will be applied using a modified retrospective transition method.

While early adoption is permitted, the Company does not plan to early adopt the guidance.

The Company is currently evaluating the effect ASU 2016-13 will have on the Company's Consolidated Financial Statements and disclosures.

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments and requires a forward-looking impairment model based on expected losses rather than incurred losses.

We adopted the standard by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings.

The comparative information has not been restated and continues to be reported under the accounting standard in effect for the applicable prior periods.

The cumulative effect of the changes made to our consolidated balance sheet at March 29, 2020, for the adoption of ASU 2016-13 was $ 733,000 , net of taxes.

The application of ASU 2016-13 increased our allowance for loan losses by $ 435,000 for commercial loans receivable and $ 528,000 for non-acquired consumer loans receivable.

It had an insignificant impact to our allowance for credit losses for Accounts receivable, net.

The Company adopted ASU 2016-13 using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30").

The Company determined that $ 1.7 million of the existing purchase discount for acquired consumer loans was related to credit factors and was reclassified to the allowance for loan loss upon adoption.

The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accreted into interest income over the life of the loans.

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.

2 unchanged sentences

Revenue from Contracts with Customers

The following table summarizes customer contract revenues disaggregated by reportable segment and the source of revenue for the three and nine months ended December 28, 2019 and December 29, 2018 (in thousands):

The following table summarizes customer contract revenues disaggregated by reportable segment and the source of revenue for the three months ended June 27, 2020 and June 29, 2019 (in thousands):

Three Months Ended

Nine Months Ended

December 28, 2019

December 29, 2018

December 28, 2019

December 29, 2018

2020 June 29,

Factory-built housing

Housing and Urban Development code homes

$ 189,446 $ 202,479

Modular homes

20,783 19,407

Park model RVs

13,722 12,861

14,139 14,021

Net revenue from factory-built housing

238,090 248,768

Financial services

Insurance agency commissions received from third-party insurance companies

15,941 14,119

Net revenue from financial services

16,711 15,274

Total Net revenue

Other factory-built housing revenue from ancillary products and services including freight, used homes and other services.

$ 254,801 $ 264,042

(1) Other factory-built housing revenue from ancillary products and services including used homes, freight and other services.

(2) Other financial services revenue includes consumer finance and insurance revenue that is not within the scope of ASU 2014-09, Revenue from Contracts with Customers ("Topic 606") .

1 unchanged sentence

Restricted cash consisted of the following (in thousands):

2020 March 28,

Cash related to CountryPlace customer payments to be remitted to third parties $ 18,739 $ 12,740

Other restricted cash 1,196 1,041

Corresponding amounts are recorded in accounts payable and accrued liabilities for customer payments and deposits, respectively.

$ 19,935 $ 13,781

Corresponding amounts are recorded in Accounts payable and Accrued expenses and other current liabilities for customer payments and deposits, respectively.

The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the Consolidated Balance Sheets to the combined amounts shown on the Consolidated Statements of Cash Flows (in thousands):

2020 March 28,

2020 June 29,

2019 March 30,

Cash and cash equivalents $ 270,547 $ 241,826 $ 199,820 $ 187,370

Restricted cash, current

19,600 13,446 12,853 12,148

Restricted cash 335 335 351 351

1 unchanged sentence

Investments consisted of the following (in thousands):

2020 March 28,

Available-for-sale debt securities $ 13,975 $ 14,774

1 unchanged sentence

Non-marketable equity investments

21,294 21,536

$ 46,880 $ 46,139

The Company's investments in marketable equity securities consist of investments in the common stock of industrial and other companies.

As of December 28, 2019 and March 30, 2019 , non-marketable equity investments included contributions of $ 15.0 million to equity-method investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities.

As of June 27, 2020 and March 28, 2020, non-marketable equity investments included contributions of $ 15.0 million t o equity-method investments in community-based initiatives that buy and sell the Company's homes and provide home-only financing to residents of certain manufactured home communities.

Other non-marketable equity investments included investments in other distribution operations.

The Company records investments in fixed maturity securities classified as available-for-sale at fair value and records the difference between fair value and cost in Accumulated other comprehensive income (loss).

The following tables summarize the Company's available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment category (in thousands):

December 28, 2019

June 27, 2020

Residential mortgage-backed securities

$ 4,637 $ 65 $ ( 31 ) $ 4,671

State and political subdivision debt securities

4,426 155 — 4,581

Corporate debt securities

4,713 24 ( 14 ) 4,723

$ 13,776 $ 244 $ ( 45 ) $ 13,975

March 28, 2020

Residential mortgage-backed securities

$ 5,400 $ 69 $ ( 26 ) $ 5,443

State and political subdivision debt securities

4,239 134 ( 3 ) 4,370

Corporate debt securities

Treasury and government debt securities

5,021 5 ( 65 ) 4,961

$ 14,660 $ 208 $ ( 94 ) $ 14,774

The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position (in thousands):

December 28, 2019

Less than 12 Months

12 Months or Longer

June 27, 2020

Less than 12 Months 12 Months or Longer Total

Value Unrealized

Residential mortgage-backed securities

$ 721 $ ( 11 ) $ 951 $ ( 20 ) $ 1,672 $ ( 31 )

State and political subdivision debt securities

300 — — — 300 —

Corporate debt securities

787 ( 14 ) — — 787 ( 14 )

$ 1,808 $ ( 25 ) $ 951 $ ( 20 ) $ 2,759 $ ( 45 )

March 28, 2020

Less than 12 Months

12 Months or Longer

Less than 12 Months 12 Months or Longer Total

Value Unrealized

Residential mortgage-backed securities

$ 133 $ — $ 1,779 $ ( 26 ) $ 1,912 $ ( 26 )

State and political subdivision debt securities

601 ( 2 ) 101 ( 1 ) 702 ( 3 )

Corporate debt securities

Treasury and government debt securities

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 as of December 28, 2019 .

3,747 ( 65 ) — — 3,747 ( 65 )

$ 4,481 $ ( 67 ) $ 1,880 $ ( 27 ) $ 6,361 $ ( 94 )

The Company is not aware of any changes to the securities or issuers that would indicate the losses above are indicative of credit impairment as of June 27, 2020, and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost base.

The amortized cost and fair value of the Company's investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands).

Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.

December 28, 2019

June 27, 2020

Due in less than one year $ 4,414 $ 4,431

3 unchanged sentences

Mortgage-backed securities 4,637 4,671

$ 13,776 $ 13,975

The Company recognizes investment gains and losses on available-for-sale debt securities when it sells or otherwise disposes of securities using the specific identification method.

There were no gross gains or losses realized on the sale of available-for-sale debt securities during the three and nine months ended December 28, 2019 or December 29, 2018 .

There were no gross gains or losses realized on the sale of available-for-sale debt securities during the three months ended June 27, 2020 or June 29, 2019.

The Company recognizes unrealized gains and losses on marketable equity securities from changes in market prices during the period as a component of earnings in the Consolidated Statements of Comprehensive Income.

Net investment gains and losses on marketable equity securities for the three and nine months ended December 28, 2019 and December 29, 2018 were as follows (in thousands):

Net investment gains and losses on marketable equity securities for the three months ended June 27, 2020 and June 29, 2019 were as follows (in thousands):

Three Months Ended

Nine Months Ended

2020 June 29,

Marketable equity securities:

Net gains (losses) on securities held

Net gains on securities held $ 1,997 $ 952

Net gains (losses) on securities sold 33 ( 1 )

Total net gain (loss) on marketable equity securities

Total net gain on marketable equity securities

$ 2,030 $ 951

Inventories consisted of the following (in thousands):

2020 March 28,

Raw materials $ 35,552 $ 35,691

1 unchanged sentence

Finished goods 57,724 63,891

$ 106,396 $ 113,535

Consumer Loans Receivable

The following table summarizes consumer loans receivable (in thousands):

2020 March 28,

Loans held for investment (at Acquisition Date, defined below) $ 37,650 $ 37,779

5 unchanged sentences

Allowance for loan losses ( 4,012 ) ( 1,767 )

$ 88,959 $ 82,304

The Company acquired consumer loans receivable as part of its acquisition of Palm Harbor Homes, Inc.

in April 2011 ("Acquisition Date").

The allowance for loan losses is developed at the loan level and allocated to specific individual loans or to impaired loans.

2 unchanged sentences

The allowance for loan losses reflects the Company's judgment of the probable loss exposure on its loans held for investment portfolio.

The Company acquired consumer loans receivable as part of its acquisition of Palm Harbor Homes, Inc.

("Palm Harbor") in April 2011 ("Acquisition Date").

As of the Acquisition Date, the Company determined the excess of the loan pool's scheduled contractual principal and interest payments over all cash flows expected as an amount that consists of 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 consists of interest that is accreted into interest income over the remaining life of the loans (accretable yield).

Interest income on consumer loans receivable is recognized as Net revenue.

(in thousands)

Loans held for investment (at Acquisition Date) – contractual amount

Purchase discount:

Non-accretable

Less loans reclassified as other assets

Total loans held for investment (at Acquisition Date), net

Over the life of the consumer loans held for investment (at Acquisition Date), the Company estimates cash flows expected to be collected to determine if an allowance for loan loss subsequent to the Acquisition Date is required.

The weighted averages of assumptions used in the calculation of expected cash flows to be collected were as follows:

Prepayment rate

Assuming there was a 1 % (100 basis point) unfavorable variation from the expected level, for each key assumption, the expected cash flows over the life of the portfolio, as of December 28, 2019 , would decrease by approximately $ 817,000 and $ 2.3 million for the expected prepayment rate and expected default rate, respectively.

The changes in accretable yield on consumer loans receivable held for investment (at Acquisition Date) were as follows (in thousands):

On March 29, 2020, the Company adopted ASU 2016-13 using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under ASC 310-30.

The Company determined that $ 1.7 million of the existing purchase discount for such consumer loans was related to credit factors and was reclassified to the allowance for loan loss upon adoption.

The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accredited into interest income over the life of the loans.

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):

Three Months Ended

Nine Months Ended

Balance at the beginning of the period

Reclassifications (from) to non-accretable discount

Balance at the end of the period

Total consumer loans held for investment had the following characteristics:

2020 June 29,

Allowance for loan losses at beginning of period $ 1,767 $ 415

Impact of adoption of ASU 2016-13 2,276 —

Provision for loan losses 161 6

Charge-offs ( 192 ) —

Recoveries — —

Allowance for loan losses at end of period $ 4,012 $ 421

The consumer loans held for investment had the following characteristics:

2020 March 28,

Weighted average contractual interest rate 8.4 % 8.4 %

1 unchanged sentence

Weighted average months to maturity 164 164

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 28, 2019

Consumer Loans Held for Investment

Unsecuritized

Consumer Loans Held

Credit Quality Indicator (FICO® score)

Home-only loans

Conforming mortgages

Non-conforming mortgages

The Company's policy is to place loans on non-accrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower is unable or unwilling to make payments as they become due.

The Company will resume accrual of interest once these factors have been remedied.

Payments received on non-accrual 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.

The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):

2020 March 28,

Consumer Loans Held for Investment

Unsecuritized

Consumer Loans Held

Credit Quality Indicator (FICO® score)

Home-only loans

Conforming mortgages

Non-conforming mortgages

Current $ 92,390 $ 83,861

31-to-60 days 751 547

61-to-90 days 258 307

91+ days 1,705 1,275

$ 95,104 $ 85,990

The following tables disaggregate CountryPlace's gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):

June 27, 2020

2021 2020 2019 2018 2017 Prior Total March 28,

Prime- FICO score 680 and greater

$ 10,464 $ 14,349 $ 2,761 $ 1,693 $ 2,105 $ 27,404 $ 58,776 $ 55,513

Near Prime- FICO score 620-679

6,522 10,390 2,300 1,263 667 11,677 32,819 27,767

Sub-Prime- FICO score less than 620

78 90 — — 86 2,042 2,296 2,142

No FICO score

637 21 29 — — 526 1,213 568

$ 17,701 $ 24,850 $ 5,090 $ 2,956 $ 2,858 $ 41,649 $ 95,104 $ 85,990

Loan contracts secured by geographically concentrated collateral could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed.

As of December 28, 2019 , 41 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 14 % was concentrated in Florida .

As of June 27, 2020 , 36 % of the outstanding principal balance of consumer loans receivable portfolio was concentrated in Texas and 17 % was concentrated in Florida.

As of March 28, 2020, 36 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 16 % was concentrated in Florida.

Other than Texas and Florida , no state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of December 28, 2019 or March 30, 2019 .

Other than Texas and Florida, no state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of June 27, 2020 or March 28, 2020.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

2 unchanged sentences

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 $ 1.1 million and $ 1.5 million as of December 28, 2019 and March 30, 2019 , respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 1.0 million and $ 1.5 million as of December 28, 2019 and March 30, 2019 , respectively.

Commercial Loans Receivable and Allowance for Loan Losses

Repossessed homes totaled approximately $ 842,000 and $ 1.5 million as of June 27, 2020 and March 28, 2020, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 674,000 and $ 560,000 as of June 27, 2020 and March 28, 2020, respectively.

Commercial Loans Receivable

The Company's commercial loans receivable balance consists of two classes:

5 unchanged sentences

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 distributors to finance their inventory purchases.

The participation commercial loan receivables are unsecured general obligations of the independent floor plan lenders.

The participation commercial loans receivables are unsecured general obligations of the independent floor plan lenders.

Commercial loans receivable, net consisted of the following, by class of financing notes receivable (in thousands):

2020 March 28,

Direct loans receivable $ 44,915 $ 47,058

2 unchanged sentences

Deferred financing fees, net ( 244 ) ( 244 )

$ 44,009 $ 46,565

The commercial loans receivable balance had the following characteristics:

2020 March 28,

Weighted average contractual interest rate 5.3 % 5.7 %

Weighted average months to maturity 11 10

The Company evaluates the potential for loss from its participation loan programs based on the independent lender's overall financial stability, as well as historical experience, and has determined that an applicable allowance for loan losses was not needed at December 28, 2019 or March 30, 2019 .

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 distributors, 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 risk of loss is spread over numerous borrowers.

Borrower activity is monitored on a regular basis and contractual arrangements are in place to provide adequate loss mitigation in the event of a default.

The Company has historically been able to sell repossessed homes, thereby mitigating loss exposure.

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 the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, a specific reserve is determined and recorded within the estimated allowance for loan losses.

The Company recorded an allowance for loan losses of $ 162,000 and $ 160,000 at December 28, 2019 and December 29, 2018 , respectively.

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses applicable to the direct programs (in thousands):

The Company evaluates the potential for loss from its commercial loan programs based on the borrower's risk rating, overall financial stability, historical experience and estimates of other economic factors.

The Company has included considerations related to the COVID-19 pandemic when assessing its risk of loan loss and setting reserve amounts for its commercial finance portfolio as of June 27, 2020.

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):

Three Months Ended

Nine Months Ended

2020 June 29,

Balance at beginning of period

Impact of adoption of ASU 2016-13 435 —

Change in estimated loan losses, net

1 unchanged sentence

Balance at end of period

The following table disaggregates commercial loans receivable and the estimated allowance for loan losses for each class of financing receivable by evaluation methodology (in thousands):

Direct Commercial Loans

Participation Commercial Loans

Commercial loans receivable:

Collectively evaluated for impairment

Individually evaluated for impairment

Allowance for loan losses:

Collectively evaluated for impairment

Individually evaluated for impairment

The following table disaggregates the Company's commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):

June 27, 2020

2021 2020 2019 2018 2017 Total March 28,

Risk profile based on payment activity:

$ 13,074 $ 18,359 $ 9,370 $ 2,534 $ 1,619 $ 44,956 $ 47,016

— — 125 — — 125 186

Nonperforming

— — — — — — —

$ 13,074 $ 18,359 $ 9,495 $ 2,534 $ 1,619 $ 45,081 $ 47,202

Loans are subject to regular review and are given management's attention whenever a problem situation appears to be developing.

3 unchanged sentences

The Company will resume accrual of interest once these factors have been remedied.

At December 28, 2019 , there were no commercial loans 90 days or more past due that were still accruing interest.

At June 27, 2020, there were no commercial loans 90 days or more past due that were still accruing interest.

Payments received on non-accrual loans are recorded on a cash basis, first to interest and then to principal.

At December 28, 2019 , the Company was not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.

At June 27, 2020, the Company was not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.

Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.

The following table disaggregates the Company's commercial loans receivable by class and credit quality indicator (in thousands):

Direct Commercial Loans

Participation Commercial Loans

Risk profile based on payment activity:

Nonperforming

The Company had concentrations of commercial loans receivables related to factory-built homes in excess of 10% of the commercial loans receivables principal balance located in the following states:

Additionally, at March 30, 2019 , 10.4 % of the commercial loans receivables principal balance was concentrated in Oregon.

The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses.

As of December 28, 2019 and March 30, 2019 , the Company had concentrations with one independent third-party and its affiliates that equaled 19.8 % and 22.0 % of the commercial loans receivable principal balance outstanding, respectively, all of which was secured.

As of June 27, 2020 and March 28, 2020, 10.0 % and 11.0 %, respectively, of the Company's outstanding commercial loans receivable principal balance was concentrated in California.

Other than California, no state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of June 27, 2020 or March 28, 2020.

The Company had concentrations with one independent third-party and its affiliates that equaled 19.8 % and 21.0 % of the net commercial loans receivables principal balance outstanding, all of which was secured, as of June 27, 2020 and March 28, 2020 respectively.

T he risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan loss.

Property, Plant and Equipment, net

Property, plant and equipment, net, consisted of the following (in thousands):

2020 March 28,

Property, plant and equipment, at cost:

Land $ 26,827 $ 26,827

Buildings and improvements 52,820 52,011

Machinery and equipment 31,369 30,984

111,016 109,822

Accumulated depreciation ( 33,690 ) ( 32,632 )

Depreciation expense was $ 1.4 million and $ 1.1 million for the three months ended December 28, 2019 and December 29, 2018 , respectively.

For the nine months ended December 28, 2019 and December 29, 2018 , depreciation expense was $ 3.8 million and $ 3.2 million , respectively.

$ 77,326 $ 77,190

Depreciation expense was $ 1.4 million and $ 1.2 million for the three months ended June 27, 2020 and June 29, 2019, respectively.

Included in the amounts above are certain assets under finance leases.

7 unchanged sentences

The estimated life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option that the Company is reasonably certain to exercise.

Certain of the Company's lease agreements include rental payments adjusted periodically for inflation.

These lease agreements do not contain any material residual value guarantees or material restrictive covenants.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments in accordance with the lease.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

Since the Company’s leases do not provide a readily determinable implicit interest rate, the Company must estimate an incremental borrowing rate.

In determining the estimated incremental borrowing rate, the Company considers the lease period and comparable market interest rates, as well as any other information available at the lease commencement date.

The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

The following table provides information about the financial statement classification of the Company's lease balances reported within the Consolidated Balance Sheets as of December 28, 2019 (in thousands):

Classification

Operating lease assets

Operating lease right-of-use assets

Finance lease assets

Property, plant and equipment, net (1)

The following table provides information about the financial statement classification of the Company's lease balances reported within the Consolidated Balance Sheets as of June 27, 2020 and March 28, 2020 (in thousands):

Classification June 27,

2020 March 28,

Operating lease assets Operating lease right-of-use assets

$ 18,378 $ 13,894

Finance lease assets Property, plant and equipment, net (1)

Total lease assets $ 19,393 $ 14,919

Lease Liabilities

Operating lease liabilities

Accrued liabilities

Finance lease liabilities

Current portion of securitized financings and other

Operating lease liabilities

Finance lease liabilities

Securitized financings and other

Operating lease liabilities Accrued expenses and other current liabilities $ 4,097 $ 4,170

Finance lease liabilities Current portion of secured credit facilities and other

Operating lease liabilities Operating lease liabilities 15,398 10,743

Finance lease liabilities Secured credit facilities and other 275 289

Total lease liabilities $ 19,844 $ 15,279

(1) Recorded net of accumulated amortization of $ 99,000 as of December 28, 2019 .

The following table provides information about the financial statement classification of the Company's lease expenses reported within the Consolidated Statements of Comprehensive Income for the three and nine months ended December 28, 2019 (in thousands):

December 28, 2019

Lease Expense Category

Classification

Three Months Ended

Nine Months Ended

Operating lease expense (1)

Cost of sales

Selling, general and administrative expenses

Finance lease expense:

Amortization of leased assets

Cost of sales

Interest on lease liabilities

Interest expense

Total lease expense

(1) Excludes short-term and variable lease expenses, which are immaterial.

Cash payments for operating leases for the three and nine months ended December 28, 2019 were $ 890,000 and $ 2.5 million , respectively.

Cash payments for finance leases for the three and nine months ended December 28, 2019 were $ 36,000 and $ 106,000 , respectively.

The present value of the minimum payments for future fiscal years under non-cancelable leases as of December 28, 2019 were as follows (in thousands):

Operating Leases

Finance Leases

(1) Recorded net of accumulated amortization of $ 113,000 and $ 103,000 as of June 27, 2020 and March 28, 2020, respectively.

The balance increased from a five-year lease extension at one of our active manufacturing facilities.

The present value of the minimum payments for future fiscal years under non-cancelable leases as of June 27, 2020 were as follows (in thousands):

Operating Leases Finance Leases Total

Remainder of 2021 $ 3,189 $ 58 $ 3,247

2022 4,148 73 4,221

2023 3,814 73 3,887

2024 3,480 73 3,553

2025 2,706 73 2,779

Thereafter 5,005 49 5,054

Total lease payments 22,342 399 22,741

1 unchanged sentence

Present value of lease liabilities $ 19,495 $ 349 $ 19,844

The following table provides information about the weighted average remaining lease terms and weighted average discount rates as of December 28, 2019 :

Remaining Lease Term (Years)

Discount Rate

The following table provides information about the weighted average remaining lease terms and weighted average discount rates as of June 27, 2020:

Remaining Lease Term (Years) Discount Rate

Operating leases 5.8 4.5 %

Finance leases 5.3 5.0 %

Operating Leases pre-Topic 842 adoption :

The Company has non-cancelable operating leases with third parties, primarily for administrative and distribution center space and computer equipment.

The Company's facility leases generally provide for periodic rent increases and many contain escalation clauses and renewal options.

Rent expense for these third-party operating leases was $ 5.2 million for the fiscal year ended March 30, 2019 and $ 5.3 million for each of the fiscal years ended March 31, 2018 and April 1, 2017, and is included in Cost of sales and Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income.

Future minimum lease commitments for future fiscal years under all non-cancelable operating leases having a remaining term in excess of one year as of March 30, 2019 were as follows (in thousands):

Total remaining lease payments

Goodwill and Other Intangibles

Goodwill and other intangibles, net, consisted of the following (in thousands):

December 28, 2019

March 30, 2019

June 27, 2020 March 28, 2020

Amount Accumulated

Amortization Net

Amount Accumulated

Amortization Net

Indefinite-lived:

Goodwill $ 75,090 $ — $ 75,090 $ 75,090 $ — $ 75,090

Trademarks and trade names

8,900 — 8,900 8,900 — 8,900

State insurance licenses

1,100 — 1,100 1,100 — 1,100

Total indefinite-lived intangible assets

85,090 — 85,090 85,090 — 85,090

Finite-lived:

Customer relationships 11,300 ( 6,622 ) 4,678 11,300 ( 6,463 ) 4,837

Amortization expense recognized on intangible assets was $ 188,000 and $ 80,000 for the three months ending December 28, 2019 and December 29, 2018 , respectively.

Amortization expense recognized on intangible assets for the nine months ended December 28, 2019 and December 29, 2018 was $ 419,000 and $ 244,000 , respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

1,424 ( 1,179 ) 245 1,424 ( 1,151 ) 273

$ 97,814 $ ( 7,801 ) $ 90,013 $ 97,814 $ ( 7,614 ) $ 90,200

Amortization expense recognized on intangible assets was $ 187,000 and $ 80,000 for the three months ending June 27, 2020 and June 29, 2019, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

2020 March 28,

Salaries, wages and benefits $ 23,958 $ 25,885

9 unchanged sentences

Accrued taxes 2,385 1,908

Capital lease obligation

Other 16,068 16,002

$ 142,193 $ 139,930

Activity in the liability for estimated warranties was as follows (in thousands):

Three Months Ended

Nine Months Ended

2020 June 29,

Balance at beginning of period $ 18,678 $ 17,069

Purchase accounting additions

Charged to costs and expenses 6,347 7,821

2 unchanged sentences

Debt and Finance Lease Obligations

Debt and finance lease obligations primarily consisted of amounts related to loans sold that did not qualify for loan sale accounting treatment and lease obligations in which it is expected that the Company will obtain ownership of a leased asset at the end of the lease term.

Debt and finance lease obligations primarily consisted of secured credit facilities at the Company's finance subsidiary and lease obligations in which it is expected that the Company will obtain ownership of a leased asset at the end of the lease term.

The following table summarizes debt and finance lease obligations (in thousands):

2007-1 securitized financings (acquired as part of the Palm Harbor transaction)

2020 March 28,

Secured credit facilities

$ 10,178 $ 10,474

Other secured financings

Finance lease liabilities

Prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed an initial securitization (2005-1) and a second securitized borrowing (2007-1).

The Company repurchased these loan portfolios in January 2019 and August 2019, respectively, eliminating the related securitized financings.

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 FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality to accrete the discount.

Prior to the repurchase, over the life of the loans, the Company estimated cash flows expected to be paid on the securitized financings.

The Company evaluated at the balance sheet date whether the present value of its securitized financings, determined using the effective interest rate, had increased or decreased.

The amount of accretable yield recognized on a prospective basis over the securitized financing's remaining life was adjusted by the present value of any subsequent change in cash flows expected to be paid.

The changes in accretable yield on securitized financings were as follows (in thousands):

Three Months Ended

Nine Months Ended

Balance at the beginning of the period

Adjustment to cash flows

Balance at the end of the period

The Company has entered into secured credit facilities with independent third party banks with draw periods from one to fifteen months and maturity dates of ten years after the expiration of the draw periods.

This draw down period expired in September 2019.

The proceeds are used by the Company to originate and hold consumer home-only loans secured by manufactured homes, which are pledged as collateral to the facilities.

Upon completion of the draw down period, the facilities were converted into an amortizing loan based on a 20-year amortization period with a balloon payment due upon maturity .

The maximum advance for loans under this program is 80 % of the outstanding collateral principal balance, with the Company providing the remaining funds.

As of December 28, 2019 , the outstanding balance of the converted loans was $ 10.8 million at a weighted average interest rate of 4.91 % .

$ 14,512 $ 14,953

The Company's finance subsidiary entered into secured credit facilities with independent third-party banks with draw periods from one to fifteen months and maturity dates of ten years after the expiration of the draw periods, which have now expired.

The proceeds were used by the Company to originate and hold consumer home-only loans secured by manufactured homes, which are pledged as collateral to the facilities.

Upon completion of the draw down periods, the facilities were converted into an amortizing loan based on a 20-year amortization period with a balloon payment due upon maturity .

The maximum advance for loans under this program was 80 % of the outstanding collateral principal balance, with the Company providing the remaining funds.

As of June 27, 2020, the outstanding balance of the converted loans was $ 10.2 million at a weighted average interest rate of 4.91 %.

See Note 9 for further discussion of the finance lease obligations.

6 unchanged sentences

Three Months Ended

December 28, 2019

December 29, 2018

Direct premiums

Assumed premiums—nonaffiliate

Ceded premiums—nonaffiliate

Nine Months Ended

December 28, 2019

December 29, 2018

June 27, 2020 June 29, 2019

Written Earned Written Earned

Direct premiums

Assumed premiums—nonaffiliate

Ceded premiums—nonaffiliate

$ 5,765 $ 5,185 $ 5,033 $ 4,570

Assumed premiums—nonaffiliated

7,653 6,790 7,513 6,435

Ceded premiums—nonaffiliated

( 3,202 ) ( 3,202 ) ( 2,987 ) ( 2,987 )

$ 10,216 $ 8,773 $ 9,559 $ 8,018

Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $ 300,000 per claim, of which Standard Casualty cedes $ 175,000 of the risk of loss per reinsurance.

4 unchanged sentences

The Company has reinsurance reinstatement premium protection coverage, which will assist in reducing premium repurchase expense in the event of a catastrophic weather claim.

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 recognition 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 also 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 general, the Company is no longer subject to examination by the Internal Revenue Service for years before fiscal year 2017 or state and local income tax examinations by tax authorities for years before fiscal year 2015.

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.

Our tax provision for interim periods is determined by estimating an annual effective tax rate, adjusted for discrete items arising in the fiscal quarters.

Each quarter we update the annual effective tax rate and record a year to date adjustment to the tax provision.

Income taxes totaled $ 5.0 million in the first quarter of fiscal 2021, a 23.1 % reported effective tax rate compared to $ 6.1 million in the first quarter of fiscal 2020, a 22.2 % effective tax rate.

The higher effective tax rate in the current quarter was primarily from lower tax benefits from the exercise of stock options compared to the same period last year.

Commitments and Contingencies

4 unchanged sentences

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 distributor ) 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 $ 77.2 million and $ 77.1 million at December 28, 2019 and March 30, 2019 , respectively, without reduction for the resale value of the homes.

The maximum amount for which the Company was liable under such agreements approximated $ 78.8 million and $ 79.3 million at June 27, 2020 and March 28, 2020, respectively, 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 (accounted for pursuant to ASC 460) or a contingent liability for each repurchase arrangement (accounted for under the provisions of ASC 450-20).

The Company recorded an estimated liability of $ 2.5 million and $ 2.4 million at December 28, 2019 and March 30, 2019 , respectively, related to the commitments pertaining to these agreements.

Letters of Credit.

Under the provisions of ASC 460, during the period in which a home is sold (inception of the purchase commitment), the Company records the greater of the estimated value of the non-contingent obligation (accounted for pursuant to ASC 460) or a contingent liability for each repurchase arrangement (accounted for under the provisions of ASC 450-20) as a liability.

The Company had a reserve for repurchase commitments of $ 2.5 million and $ 2.7 million at June 27, 2020 and March 28, 2020, respectively.

Letter of Credit.

To secure certain reinsurance contracts, Standard Casualty maintains an irrevocable letter of credit of $ 11.0 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.

There were no amounts outstanding against the letter of credit at either December 28, 2019 or March 30, 2019 .

This letter of credit is secured by certain of Standard Casualty's investments.

There were no amounts outstanding against the letter of credit at either June 27, 2020 or March 28, 2020.

Construction-Period Mortgages.

5 unchanged sentences

Loan contracts with off-balance sheet commitments are summarized below (in thousands):

2020 March 28,

Construction loan contract amount $ 31,376 $ 31,136

10 unchanged sentences

The Company maintains a reserve for these contingent repurchase and indemnification obligations.

This reserve of $ 1.0 million as of December 28, 2019 and March 30, 2019 , included in Accrued liabilities, reflects management's estimate of probable loss.

This reserve of $ 1.1 million as of June 27, 2020 and $ 1.0 million as of March 28, 2020, included in Accrued expenses and other current liabilities, reflects management's estimate of probable loss.

CountryPlace considers a variety of assumptions, including borrower performance (both actual and estimated future defaults), historical repurchase demands and loan default rates to estimate the liability for loan repurchases and indemnifications.

During the nine months ended December 28, 2019 , no claim request resulted in the execution of an indemnification agreement or in the repurchase of a loan.

During the three months ended June 27, 2020, no claim request resulted in the execution of an indemnification agreement or in the repurchase of a loan.

Interest Rate Lock Commitments .

6 unchanged sentences

As a result, the Company 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 28, 2019 , CountryPlace had outstanding IRLCs with a notional amount of $ 15.2 million , which are recorded at fair value in accordance with ASC 815, Derivatives and Hedging ("ASC 815").

As of June 27, 2020, CountryPlace had outstanding IRLCs with a notional amount of $ 27.0 million, which 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.

3 unchanged sentences

The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on loans held for sale.

During the three and nine months ended December 28, 2019 , the Company recognized losses of $ 5,000 and $ 8,000 , respectively, on outstanding IRLCs.

During the three and nine months ended December 29, 2018 , the Company recognized gains of $ 13,000 and $ 25,000 , respectively, on outstanding IRLCs.

During the three months ended June 27, 2020 and June 29, 2019, the Company recognized losses of $ 125,000 and $ 1,000 , respectively, on outstanding IRLCs.

Forward Sales Commitments .

CountryPlace manages the risk profiles of a portion of its outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities ("MBS") and whole loan sale commitments.

As of December 28, 2019 , CountryPlace had $ 55.9 million in outstanding notional forward sales of MBSs and forward sales commitments.

As of June 27, 2020, CountryPlace had $ 60.8 million in outstanding notional forward sales of MBSs and forward sales commitments.

Commitments for forward sales of whole loans are typically in an amount proportionate with the amount of IRLCs expected to close in particular time frames, assuming no change in mortgage interest rates, for the respective loan products intended for whole loan sale.

The estimated fair values of forward sales of MBS and forward sale commitments are based on quoted market values and are recorded within Prepaid expenses and other current assets in the Consolidated Balance Sheets.

During the three and nine months ended December 28, 2019 , the Company recognized gains of $ 79,000 and $ 163,000 on forward sales and whole loan sale commitments, respectively.

The Company recognized losses of $ 304,000 and $ 242,000 on forward sales and whole loan sale commitments during the three and nine months ended December 29, 2018 , respectively.

During the three months ended June 27, 2020 and June 29, 2019 , the Company recognized gains of $ 1.0 million and $ 35,000 on forward sales and whole loan sale commitments, respectively.

Legal Matters.

Since August 2018, the Company has been cooperating with an investigation by the SEC's enforcement staff in Los Angeles regarding trading in another public company’s securities by the Company, its former Chief Executive Officer and others outside the Company.

The Audit Committee of the Board of Directors conducted and completed an internal investigation led by independent legal counsel and other advisers to assess the Company's trading.

The results of the Audit Committee’s work have been shared with the Company’s auditors, listing exchange and with the SEC staff.

The Company has also made internal records and personnel available to the SEC staff and intends to continue cooperating with the SEC on this matter.

The Company is party to certain other 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, product liability and warranty, personal injury and employment.

Although litigation is inherently uncertain, based on past experience and the information currently available, except as discussed above, 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.

Since 2018, the Company has been cooperating with an investigation by the enforcement staff of the SEC regarding trading in personal and Company accounts directed by the Company's former Chief Executive Officer, Joseph Stegmayer.

The Audit Committee of the Board conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the results of the Audit Committee's work were shared with the Company's auditors, listing exchange and the SEC staff.

The Company continues to make documents and personnel available to the SEC staff and intends to continue cooperating with its investigation.

Cavco Industries, Inc., was filed in the Superior Court for the State of California, Riverside on June 25, 2019 and Malik Griffin v.

Fleetwood Homes, Inc ., was filed in the Superior Court for the State of California, San Bernardino on September 19, 2019, seeking recovery on behalf of a putative class of current and former hourly employees for certain alleged wage-and-hour violations, including, among other things:

(i) alleged failure to comply with certain wage statement formatting requirements;

(ii) alleged failure to compensate employees for straight-time and overtime hours worked;

and (iii) alleged failure to provide employees with all requisite work breaks.

The Company is party to certain other lawsuits in the ordinary course of business.

Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations after taking into account any existing reserves, which reserves are included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company's consolidated financial position, liquidity or results of operations in any future reporting periods.

Stockholders' Equity

The following table represents changes in stockholders' equity for each quarterly period during the nine months ended December 28, 2019 (dollars in thousands):

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

The following table represents changes in stockholders' equity during the three months ended June 27, 2020 (dollars in thousands):

Additional paid-in capital Retained earnings Accumulated other comprehensive income Total

Shares Amount

Balance, March 28, 2020 9,173,242 $ 92 $ 252,260 $ 355,144 $ 90 $ 607,586

Cumulative effect of implementing ASU 2016-13, net — — — ( 733 ) — ( 733 )

Net income — — — 16,674 — 16,674

Issuance of common stock under stock incentive plans 3,822 — ( 533 ) — — ( 533 )

2 unchanged sentences

Balance, June 27, 2020 9,177,064 $ 92 $ 252,672 $ 371,085 $ 158 $ 624,007

Issuance of common stock under stock incentive plans

Stock-based compensation

Other comprehensive income, net

Balance, September 28, 2019

Issuance of common stock under stock incentive plans

Stock-based compensation

Other comprehensive income, net

Balance, December 28, 2019

The following table represents changes in stockholders' equity for each quarterly period during the nine months ended December 29, 2018 (dollars in thousands):

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

The following table represents changes in stockholders' equity during the three months ended June 29, 2019 (dollars in thousands):

Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total

Shares Amount

Balance, March 30, 2019 9,098,320 $ 91 $ 249,447 $ 280,078 $ ( 28 ) $ 529,588

Cumulative effect of implementing ASU 2016-01, net

Cumulative effect of implementing Topic 606, net

Net income — — — 21,282 — 21,282

Issuance of common stock under stock incentive plans 13,304 — ( 1,252 ) — — ( 1,252 )

2 unchanged sentences

Balance, June 29, 2019 9,111,624 $ 91 $ 248,825 $ 301,360 $ 61 $ 550,337

Issuance of common stock under stock incentive plans

Stock-Based Compensation

Other comprehensive loss, net

Balance, September 29, 2018

Issuance of common stock under stock incentive plans

Stock-based compensation

Other comprehensive income, net

Balance, December 29, 2018

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 1,650,000 shares of the Company's common stock, of which 235,065 shares were still available for grant as of December 28, 2019 .

The plans, which are shareholder approved, permit the award of up to 1,650,000 shares of the Company's common stock, of which 246,157 shares were still available for grant as of June 27, 2020.

Upon option exercise, new shares of the Company's common stock are issued and when restricted stock vests, restricted stock shares issued become unrestricted.

2 unchanged sentences

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 charged against income for the three and nine months ended December 28, 2019 was $ 820,000 and $ 2.3 million , respectively.

The Company recorded stock-based compensation expense of $ 821,000 and $ 2.9 million for the three and nine months ended December 29, 2018 , respectively.

As of December 28, 2019 , total unrecognized compensation cost related to stock options was approximately $ 6.1 million and the related weighted-average period over which it is expected to be recognized is approximately 2.83 years .

Stock-based compensation charged against income for the three months ended June 27, 2020 and June 29, 2019 was $ 945,000 and $ 630,000 , respectively.

As of June 27, 2020, total unrecognized compensation cost related to stock options was approximately $ 5.7 million and the related weighted-average period over which it is expected to be recognized is approximately 2.49 years.

Stock Options.

3 unchanged sentences

The expected life of the options, volatility and dividend rates are estimated based on historical data.

The following table summarizes stock option activity for the nine months ended December 28, 2019 :

The following table summarizes stock option activity for the three months ended June 27, 2020:

Outstanding at March 28, 2020 364,174

Granted 15,250

Exercised ( 9,100 )

Canceled or expired ( 6,200 )

Outstanding at December 28, 2019

Exercisable at December 28, 2019

Outstanding at June 27, 2020 364,124

Exercisable at June 27, 2020 194,058

Restricted Stock Awards.

2 unchanged sentences

Number of Shares

Performance-Based Awards

Service-Based Awards

Performance-Based Awards Service-Based Awards Total

Outstanding at March 28, 2020 7,305 4,500 11,805

Awarded 7,300 — 7,300

Released — — —

Canceled or expired ( 350 ) — ( 350 )

Outstanding at December 28, 2019

Unvested target stock awards that may vest based upon performance conditions through fiscal year 2022

Outstanding at June 27, 2020 14,255 4,500 18,755

Unvested target stock awards that vest based upon performance conditions through fiscal year 2022 6,955

Unvested target stock awards that vest based upon performance conditions through fiscal year 2023 7,300

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

2020 June 29,

$ 16,674 $ 21,282

Weighted average shares outstanding:

9,174,182 9,102,685

Effect of dilutive securities

90,479 114,914

9,264,661 9,217,599

Net income per share:

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three and nine months ended December 28, 2019 were 14,482 and 29,971 , respectively.

In addition, 7,305 outstanding restricted share awards were excluded from the calculation of diluted earnings per share for both the three and nine months ended December 28, 2019 , because the underlying performance criteria had not yet been met.

For the three and nine months ended December 29, 2018 , anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share were 21,894 and 8,115 , respectively.

$ 1.82 $ 2.34

$ 1.80 $ 2.31

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended June 27, 2020 and June 29, 2019 were 39,996 and 60,600 , respectively.

In addition, 14,255 and 7,600 outstanding restricted share awards were excluded from the calculation of diluted earnings per share for both the three months ended June 27, 2020 and June 29, 2019, respectively, because the underlying performance criteria had not yet been met.

Fair Value Measurements

The book value and estimated fair value of the Company's financial instruments were as follows (in thousands):

December 28, 2019

March 30, 2019

June 27, 2020 March 28, 2020

Value Estimated

Fair Value Book

Value Estimated

Available-for-sale debt securities

$ 13,975 $ 13,975 $ 14,774 $ 14,774

Marketable equity securities

11,611 11,611 9,829 9,829

Non-marketable equity investments

21,294 21,294 21,536 21,536

Consumer loans receivable

88,959 102,578 82,304 97,395

Interest rate lock commitment derivatives

40 40 164 164

Forward loan sale commitment derivatives

5 5 ( 1,011 ) ( 1,011 )

Commercial loans receivable

44,009 47,503 46,565 46,819

Securitized financings and other

For Level 1 classified securities, the fair value is based on quoted market prices.

The fair value of Level 2 securities is based on other inputs, as further described below.

The fair value approximates book value based on the non-marketable nature of the investments.

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 is estimated based on recent GSE mortgage-backed bond prices.

The fair value of the construction advances approximates book value and the sales price of these loans.

The fair values are based on changes in GSE mortgage-backed bond prices and, additionally for IRLCs, pull through rates.

The fair value is estimated using market interest rates of comparable loans.

The fair value is estimated using recent public transactions of similar asset-backed securities.

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:

Quoted prices in active markets for identical assets or liabilities.

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.

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.

( 14,512 ) ( 14,099 ) ( 14,953 ) ( 15,592 )

See Note 19, Fair Value Measurements and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies in our 2020 Form 10-K for more information on the input levels and methodologies we use in determining fair value.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

December 28, 2019

June 27, 2020

Total Level 1 Level 2 Level 3

Residential mortgage-backed securities (1)

$ 4,671 $ — $ 4,671 $ —

State and political subdivision debt securities (1)

4,581 — 4,581 —

Corporate debt securities (1)

4,723 — 4,723 —

Marketable equity securities (2)

11,611 11,611 — —

Interest rate lock commitment derivatives (3)

1 unchanged sentence

Mortgage servicing rights (4)

1,195 — — 1,195

March 28, 2020

U.S Treasury and government debt securities (1)

Total Level 1 Level 2 Level 3

Residential mortgage-backed securities (1)

$ 5,443 $ — $ 5,443 $ —

State and political subdivision debt securities (1)

4,370 — 4,370 —

Corporate debt securities (1)

4,961 — 4,961 —

Marketable equity securities (2)

9,829 9,829 — —

Interest rate lock commitment derivatives (3)

Forward loan sale commitment derivatives (3)

( 1,011 ) — — ( 1,011 )

Mortgage servicing rights (4)

Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income (loss) at each measurement date .

1,225 — — 1,225

(1) Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income at each measurement date.

(2) Unrealized gains or losses on investments are recorded in earnings at each measurement date.

1 unchanged sentence

(4) Changes in the fair value of mortgage servicing rights are recognized in the current period earnings through Net revenue.

No transfers between Level 1, Level 2 or Level 3 occurred during the nine months ended December 28, 2019 .

No transfers between Level 1, Level 2 or Level 3 occurred during the three months ended June 27, 2020.

The Company's policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

Financial instruments for which fair value is disclosed but not required to be recognized in the balance sheet on a recurring basis are summarized below (in thousands):

December 28, 2019

June 27, 2020

Total Level 1 Level 2 Level 3

Loans held for investment

$ 63,647 $ — $ — $ 63,647

Loans held for sale

26,691 — — 26,691

Loans held—construction advances

12,240 — — 12,240

Commercial loans receivable

47,503 — — 47,503

Securitized financings and other

( 14,099 ) — ( 14,099 ) —

Non-marketable equity investments

21,294 — — 21,294

March 28, 2020

Total Level 1 Level 2 Level 3

Loans held for investment

$ 68,503 $ — $ — $ 68,503

Loans held for sale

15,492 — — 15,492

Loans held—construction advances

13,400 — — 13,400

Commercial loans receivable

46,819 — — 46,819

Securitized financings and other

( 15,592 ) — ( 15,592 ) —

Non-marketable equity investments

21,536 — — 21,536

No recent sales have been executed in an orderly market of manufactured home loan portfolios with comparable product features, credit characteristics or performance.

3 unchanged sentences

As a result, changes in loan-specific credit risk are not a significant component of the change in fair value and changes are largely driven by changes in interest rates or investor yield requirements.

The cost of loans held for sale was lower than the fair value as of December 28, 2019 .

The cost of loans held for sale was lower than the fair value as of June 27, 2020.

As noted above, activity in the manufactured housing asset-backed securities market is infrequent with no reliable market price information.

2 unchanged sentences

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.

No impairment charges were recorded during the nine months ended December 28, 2019 .

No impairment charges were recorded during the three months ended June 27, 2020.

Mortgage Servicing .

10 unchanged sentences

Other factors noted above as well as the overall market demand for MSRs may also affect the valuation.

2020 March 28,

Number of loans serviced with MSRs 4,660 4,688

7 unchanged sentences

In the ordinary course of business, the Company sells homes and lends to certain of these operations through its commercial lending programs.

For the three and nine months ended December 28, 2019 , the total sales to related parties were $ 13.3 million and $ 37.1 million , respectively.

Total sales to related parties for the three and nine months ended December 29, 2018 were $ 9.0 million and $ 30.2 million , respectively.

As of December 28, 2019 and March 30, 2019 , there were a total of $ 8.3 million and $ 6.2 million of commercial loans outstanding with certain related parties, respectively.

For the three months ended June 27, 2020 and June 29, 2019, the total amount of sales to related parties were $ 12.7 million and $ 13.2 million, respectively.

As of June 27, 2020, receivables from related parties included $ 2.5 million of accounts receivable and $ 10.3 million of commercial loans outstanding.

As of March 28, 2020, receivables from related parties incl uded $ 1.7 million of accounts receivable and $ 8.2 million of commercial loans outstanding.

Acquisition of Destiny Homes

1 unchanged sentence

The transaction was accounted for as a business combination and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of acquisition.

The acquisition-date fair value of the total consideration was $ 16.5 million , which is subject to future adjustments.

Neither Destiny Homes nor the Company incurred debt in connection with the purchase or subsequent operations.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands).

Certain estimated values are not yet finalized and are subject to change, which could be significant.

The allocation of the purchase price is still preliminary due to the short duration since the acquisition date and will be finalized upon completion of the analysis of the fair values of Destiny Home’s assets and specified liabilities.

The Company will finalize the amounts recognized as it obtains the information necessary to complete the analysis.

The Company has not made any purchase accounting adjustments during the quarter.

However, the allocation of the purchase price is still preliminary and will be finalized upon completion of the analysis of the fair values of Destiny Home's assets and specified liabilities.

The Company will finalize the amounts recognized as we obtain the information necessary to complete the analysis.

We expect to finalize these amounts as soon as possible but no later than one year from the acquisition date.

Accounts receivable

Property, plant and equipment, net

Other current assets

Intangible assets (1)

Total identifiable assets acquired

Accounts payable and accrued liabilities

Net identifiable assets acquired

Net assets acquired

(1) Includes $ 1.7 million assigned to trademarks and trade names, which are considered indefinite lived intangible assets and are not subject to amortization and $ 4.2 million assigned to a customer-related intangible subject to a useful life of 10 years amortized on a straight-line basis.

Since the acquisition date, Destiny Homes contributed Net revenue of $ 11.2 million and $ 17.6 million for the three and nine months ended December 28, 2019 , respectively.

Destiny Homes increased consolidated Net income on the Company's Consolidated Statements of Comprehensive Income for the three and nine months ended December 28, 2019 by $ 168,000 and $ 32,000 , respectively.

Net income from the Destiny Homes acquisition included required purchase accounting adjustments whereby home product inventory is recorded at fair value upon acquisition.

This had the effect of eliminating profits from the related home sales after the acquisition date.

Destiny Homes contributed Net revenue of $ 9.8 million and increased consolidated Net income on the Company's Consolidated Statements of Comprehensive Income by $ 125,000 for the three months ended June 27, 2020.

Pro Forma Impact of Acquisition .

The following table presents supplemental pro forma information as if the acquisition of Destiny Homes had occurred on April 1, 2018 (in thousands, except per share data):

The following table presents supplemental pro forma information as if the acquisition of Destiny Homes had occurred on March 31, 2019 (in thousands, except per share data):

Three Months Ended

Nine Months Ended

2020 June 29,

$ 254,801 $ 273,713

16,674 21,855

Diluted net income per share

4 unchanged sentences

Three Months Ended

Nine Months Ended

2020 June 29,

Factory-built housing $ 238,090 $ 248,768

Financial services 16,711 15,274

$ 254,801 $ 264,042

Income before income taxes:

1 unchanged sentence

Financial services 3,230 3,049

$ 21,680 $ 27,362

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements