UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 3, 20212, 2022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-08822
CAVCO INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
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Delaware | 56-2405642 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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3636 North Central Ave, Ste 1200 |
| Phoenix | Arizona | 85012 | |
(Address of principal executive offices, including zip code) |
(602) 256-6263
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading SymbolSymbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 | CVCO | The Nasdaq Stock Market LLC |
| | (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
Emerging Growth Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 30, 2021, 9,187,03029, 2022, 8,894,547 shares of the registrant's Common Stock, $.01 par value, were outstanding.
CAVCO INDUSTRIES, INC.
FORM 10-Q
July 3, 20212, 2022
TABLE OF CONTENTS
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Item 3. Not applicable | |
Item 4. Not applicable | |
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts) | | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
ASSETS | ASSETS | (Unaudited) | | | ASSETS | (Unaudited) | | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 329,753 | | | $ | 322,279 | | Cash and cash equivalents | $ | 238,072 | | | $ | 244,150 | |
Restricted cash, current | Restricted cash, current | 16,728 | | | 16,693 | | Restricted cash, current | 14,555 | | | 14,849 | |
Accounts receivable, net | Accounts receivable, net | 51,054 | | | 47,396 | | Accounts receivable, net | 108,128 | | | 96,052 | |
Short-term investments | Short-term investments | 19,749 | | | 19,496 | | Short-term investments | 15,864 | | | 20,086 | |
Current portion of consumer loans receivable, net | Current portion of consumer loans receivable, net | 32,429 | | | 37,690 | | Current portion of consumer loans receivable, net | 20,888 | | | 20,639 | |
Current portion of commercial loans receivable, net | Current portion of commercial loans receivable, net | 16,500 | | | 14,568 | | Current portion of commercial loans receivable, net | 33,710 | | | 32,272 | |
Current portion of commercial loans receivable from affiliates, net | Current portion of commercial loans receivable from affiliates, net | 2,113 | | | 4,664 | | Current portion of commercial loans receivable from affiliates, net | 145 | | | 372 | |
Inventories | Inventories | 150,917 | | | 131,234 | | Inventories | 254,722 | | | 243,971 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 48,621 | | | 57,779 | | Prepaid expenses and other current assets | 61,941 | | | 71,726 | |
Total current assets | Total current assets | 667,864 | | | 651,799 | | Total current assets | 748,025 | | | 744,117 | |
Restricted cash | Restricted cash | 335 | | | 335 | | Restricted cash | 335 | | | 335 | |
Investments | Investments | 38,192 | | | 35,010 | | Investments | 36,815 | | | 34,933 | |
Consumer loans receivable, net | Consumer loans receivable, net | 35,095 | | | 37,108 | | Consumer loans receivable, net | 28,699 | | | 29,245 | |
Commercial loans receivable, net | Commercial loans receivable, net | 21,245 | | | 20,281 | | Commercial loans receivable, net | 36,811 | | | 33,708 | |
Commercial loans receivable from affiliates, net | Commercial loans receivable from affiliates, net | 4,730 | | | 4,801 | | Commercial loans receivable from affiliates, net | 1,652 | | | 2,214 | |
Property, plant and equipment, net | Property, plant and equipment, net | 97,981 | | | 96,794 | | Property, plant and equipment, net | 185,534 | | | 164,016 | |
Goodwill | Goodwill | 75,090 | | | 75,090 | | Goodwill | 100,993 | | | 100,993 | |
Other intangibles, net | Other intangibles, net | 14,190 | | | 14,363 | | Other intangibles, net | 27,951 | | | 28,459 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 16,150 | | | 16,252 | | Operating lease right-of-use assets | 16,985 | | | 16,952 | |
Total assets | Total assets | $ | 970,872 | | | $ | 951,833 | | Total assets | $ | 1,183,800 | | | $ | 1,154,972 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY | | LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 30,175 | | | $ | 32,120 | | Accounts payable | $ | 44,897 | | | $ | 43,082 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 210,190 | | | 203,133 | | Accrued expenses and other current liabilities | 259,778 | | | 251,088 | |
Current portion of secured financings and other | 1,822 | | | 1,851 | | |
Total current liabilities | Total current liabilities | 242,187 | | | 237,104 | | Total current liabilities | 304,675 | | | 294,170 | |
Operating lease liabilities | Operating lease liabilities | 13,085 | | | 13,361 | | Operating lease liabilities | 13,135 | | | 13,158 | |
Secured financings and other | 9,927 | | | 10,335 | | |
Other liabilities | | Other liabilities | 10,695 | | | 10,836 | |
Deferred income taxes | Deferred income taxes | 6,606 | | | 7,393 | | Deferred income taxes | 3,056 | | | 5,528 | |
Redeemable noncontrolling interest | | Redeemable noncontrolling interest | 677 | | | 825 | |
Stockholders' equity | Stockholders' equity | | Stockholders' equity | |
Preferred stock, $0.01 par value; 1,000,000 shares authorized; NaN shares issued or outstanding | 0 | | | 0 | | |
Common stock, $0.01 par value; 40,000,000 shares authorized; Issued 9,245,721 and 9,241,256 shares, respectively | 92 | | | 92 | | |
Treasury stock, at cost; 67,901 and 6,600 shares, respectively | (14,283) | | | (1,441) | | |
Preferred stock, $0.01 par value; 1,000,000 shares authorized; No shares issued or outstanding | | Preferred stock, $0.01 par value; 1,000,000 shares authorized; No shares issued or outstanding | — | | | — | |
Common stock, $0.01 par value; 40,000,000 shares authorized; Issued 9,298,235 and 9,292,278 shares, respectively | | Common stock, $0.01 par value; 40,000,000 shares authorized; Issued 9,298,235 and 9,292,278 shares, respectively | 93 | | | 93 | |
Treasury stock, at cost; 404,813 and 241,773 shares, respectively | | Treasury stock, at cost; 404,813 and 241,773 shares, respectively | (100,000) | | | (61,040) | |
Additional paid-in capital | Additional paid-in capital | 255,071 | | | 253,835 | | Additional paid-in capital | 263,626 | | | 263,049 | |
Retained earnings | Retained earnings | 458,103 | | | 431,057 | | Retained earnings | 688,358 | | | 628,756 | |
Accumulated other comprehensive income | 84 | | | 97 | | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (515) | | | (403) | |
Total stockholders' equity | Total stockholders' equity | 699,067 | | | 683,640 | | Total stockholders' equity | 851,562 | | | 830,455 | |
Total liabilities and stockholders' equity | $ | 970,872 | | | $ | 951,833 | | |
Total liabilities, redeemable noncontrolling interest and stockholders' equity | | Total liabilities, redeemable noncontrolling interest and stockholders' equity | $ | 1,183,800 | | | $ | 1,154,972 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | Three Months Ended | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Net revenue | Net revenue | | $ | 330,422 | | | $ | 254,801 | | Net revenue | | $ | 588,338 | | | $ | 330,422 | |
Cost of sales | Cost of sales | | 256,409 | | | 199,478 | | Cost of sales | | 443,614 | | | 256,409 | |
Gross profit | Gross profit | | 74,013 | | | 55,323 | | Gross profit | | 144,724 | | | 74,013 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 40,832 | | | 35,323 | | Selling, general and administrative expenses | | 66,136 | | | 40,832 | |
Income from operations | Income from operations | | 33,181 | | | 20,000 | | Income from operations | | 78,588 | | | 33,181 | |
Interest expense | Interest expense | | (164) | | | (196) | | Interest expense | | (161) | | | (164) | |
Other income, net | Other income, net | | 2,461 | | | 1,876 | | Other income, net | | 883 | | | 2,461 | |
Income before income taxes | Income before income taxes | | 35,478 | | | 21,680 | | Income before income taxes | | 79,310 | | | 35,478 | |
Income tax expense | Income tax expense | | (8,432) | | | (5,006) | | Income tax expense | | (19,616) | | | (8,432) | |
Net income | Net income | | $ | 27,046 | | | $ | 16,674 | | Net income | | 59,694 | | | 27,046 | |
Less: net income attributable to redeemable noncontrolling interest | | Less: net income attributable to redeemable noncontrolling interest | | 92 | | | — | |
Net income attributable to Cavco common stockholders | | Net income attributable to Cavco common stockholders | | $ | 59,602 | | | $ | 27,046 | |
| Comprehensive income | Comprehensive income | | | Comprehensive income | | |
Net income | Net income | | $ | 27,046 | | | $ | 16,674 | | Net income | | $ | 59,694 | | | $ | 27,046 | |
Reclassification adjustment for securities sold | Reclassification adjustment for securities sold | | 1 | | | 26 | | Reclassification adjustment for securities sold | | — | | | 1 | |
Applicable income taxes | Applicable income taxes | | 0 | | | (5) | | Applicable income taxes | | — | | | — | |
Net change in unrealized position of investments held | Net change in unrealized position of investments held | | (18) | | | 59 | | Net change in unrealized position of investments held | | (142) | | | (18) | |
Applicable income taxes | Applicable income taxes | | 4 | | | (12) | | Applicable income taxes | | 30 | | | 4 | |
Comprehensive income | | Comprehensive income | | 59,582 | | | 27,033 | |
Less: comprehensive income attributable to redeemable noncontrolling interest | | Less: comprehensive income attributable to redeemable noncontrolling interest | | 92 | | | — | |
Comprehensive income attributable to Cavco common stockholders | | Comprehensive income attributable to Cavco common stockholders | | $ | 59,490 | | | $ | 27,033 | |
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| | $ | 27,033 | | | $ | 16,742 | | | | | | |
| Net income per share | | | |
Net income per share attributable to Cavco common stockholders | | Net income per share attributable to Cavco common stockholders | | |
Basic | Basic | | $ | 2.94 | | | $ | 1.82 | | Basic | | $ | 6.68 | | | $ | 2.94 | |
Diluted | Diluted | | $ | 2.92 | | | $ | 1.80 | | Diluted | | $ | 6.63 | | | $ | 2.92 | |
Weighted average shares outstanding | Weighted average shares outstanding | | | | | Weighted average shares outstanding | | | | |
Basic | Basic | | 9,198,229 | | | 9,174,182 | | Basic | | 8,918,280 | | | 9,198,229 | |
Diluted | Diluted | | 9,276,529 | | | 9,264,661 | | Diluted | | 8,988,929 | | | 9,276,529 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | | Three Months Ended | | Three Months Ended |
| | July 3, 2021 | | June 27, 2020 | | July 2, 2022 | | July 3, 2021 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | OPERATING ACTIVITIES | | | |
Net income | Net income | $ | 27,046 | | | $ | 16,674 | | Net income | $ | 59,694 | | | $ | 27,046 | |
Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | Adjustments to reconcile net income to net cash provided by operating activities | |
Depreciation and amortization | Depreciation and amortization | 1,576 | | | 1,613 | | Depreciation and amortization | 3,946 | | | 1,576 | |
Provision for credit losses | Provision for credit losses | (239) | | | (884) | | Provision for credit losses | (167) | | | (239) | |
Deferred income taxes | Deferred income taxes | (783) | | | 406 | | Deferred income taxes | (2,442) | | | (783) | |
Stock-based compensation expense | Stock-based compensation expense | 1,100 | | | 945 | | Stock-based compensation expense | 1,425 | | | 1,100 | |
Non-cash interest income, net | Non-cash interest income, net | (394) | | | (2,186) | | Non-cash interest income, net | (257) | | | (394) | |
Gain (loss) on sale or retirement of property, plant and equipment, net | (35) | | | 289 | | |
Gain on sale or retirement of property, plant and equipment, net | | Gain on sale or retirement of property, plant and equipment, net | (232) | | | (35) | |
Gain on investments and sale of loans, net | Gain on investments and sale of loans, net | (5,579) | | | (4,982) | | Gain on investments and sale of loans, net | (288) | | | (5,579) | |
Changes in operating assets and liabilities | | |
Changes in operating assets and liabilities, net of acquisitions | | Changes in operating assets and liabilities, net of acquisitions | |
Accounts receivable | Accounts receivable | (3,659) | | | 4,629 | | Accounts receivable | (12,076) | | | (3,659) | |
Consumer loans receivable originated | Consumer loans receivable originated | (42,706) | | | (47,356) | | Consumer loans receivable originated | (47,467) | | | (42,706) | |
Proceeds from sales of consumer loans | Proceeds from sales of consumer loans | 49,631 | | | 39,271 | | Proceeds from sales of consumer loans | 47,881 | | | 49,631 | |
Principal payments received on consumer loans receivable | Principal payments received on consumer loans receivable | 3,929 | | | 3,261 | | Principal payments received on consumer loans receivable | 2,421 | | | 3,929 | |
Inventories | Inventories | (19,683) | | | 7,139 | | Inventories | (10,751) | | | (19,683) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 2,801 | | | 7,128 | | Prepaid expenses and other current assets | 7,359 | | | 2,801 | |
Commercial loans receivable | Commercial loans receivable | (243) | | | 2,556 | | Commercial loans receivable | (3,795) | | | (243) | |
Accounts payable and accrued expenses and other current liabilities | Accounts payable and accrued expenses and other current liabilities | 11,513 | | | 7,189 | | Accounts payable and accrued expenses and other current liabilities | 12,989 | | | 11,513 | |
Net cash provided by operating activities | Net cash provided by operating activities | 24,275 | | | 35,692 | | Net cash provided by operating activities | 58,240 | | | 24,275 | |
INVESTING ACTIVITIES | INVESTING ACTIVITIES | | | | INVESTING ACTIVITIES | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (2,593) | | | (1,856) | | Purchases of property, plant and equipment | (25,007) | | | (2,593) | |
| Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 38 | | | 5 | | Proceeds from sale of property, plant and equipment | 283 | | | 38 | |
Purchases of investments | Purchases of investments | (4,429) | | | (1,160) | | Purchases of investments | (4,228) | | | (4,429) | |
Proceeds from sale of investments | Proceeds from sale of investments | 3,368 | | | 3,116 | | Proceeds from sale of investments | 4,553 | | | 3,368 | |
Net cash (used in) provided by investing activities | (3,616) | | | 105 | | |
Net cash used in investing activities | | Net cash used in investing activities | (24,399) | | | (3,616) | |
FINANCING ACTIVITIES | FINANCING ACTIVITIES | | | | FINANCING ACTIVITIES | | | |
Proceeds from (payments for) exercise of stock options | 136 | | | (533) | | |
Proceeds from secured financings and other | 0 | | | 64 | | |
Payments on secured financings and other | (444) | | | (453) | | |
Payments for taxes on exercises and releases of equity awards | | Payments for taxes on exercises and releases of equity awards | (848) | | | — | |
Proceeds from exercise of stock options | | Proceeds from exercise of stock options | — | | | 136 | |
Payments on finance leases and other secured financings | | Payments on finance leases and other secured financings | (165) | | | (444) | |
Payments for common stock repurchases | Payments for common stock repurchases | (12,842) | | | 0 | | Payments for common stock repurchases | (38,960) | | | (12,842) | |
Distributions to noncontrolling interest | | Distributions to noncontrolling interest | (240) | | | — | |
Net cash used in financing activities | Net cash used in financing activities | (13,150) | | | (922) | | Net cash used in financing activities | (40,213) | | | (13,150) | |
Net increase in cash, cash equivalents and restricted cash | 7,509 | | | 34,875 | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | (6,372) | | | 7,509 | |
Cash, cash equivalents and restricted cash at beginning of the fiscal year | Cash, cash equivalents and restricted cash at beginning of the fiscal year | 339,307 | | | 255,607 | | Cash, cash equivalents and restricted cash at beginning of the fiscal year | 259,334 | | | 339,307 | |
Cash, cash equivalents and restricted cash at end of the period | Cash, cash equivalents and restricted cash at end of the period | $ | 346,816 | | | $ | 290,482 | | Cash, cash equivalents and restricted cash at end of the period | $ | 252,962 | | | $ | 346,816 | |
Supplemental disclosures of cash flow information | Supplemental disclosures of cash flow information | | | | Supplemental disclosures of cash flow information | | | |
Cash paid for income taxes | Cash paid for income taxes | $ | 4,774 | | | $ | 2,536 | | Cash paid for income taxes | $ | 18,486 | | | $ | 4,774 | |
Cash paid for interest | Cash paid for interest | $ | 100 | | | $ | 127 | | Cash paid for interest | $ | 71 | | | $ | 100 | |
Supplemental disclosures of noncash activity | Supplemental disclosures of noncash activity | | | | Supplemental disclosures of noncash activity | | | |
Change in GNMA loans eligible for repurchase | Change in GNMA loans eligible for repurchase | $ | (6,607) | | | $ | 1,242 | | Change in GNMA loans eligible for repurchase | $ | (2,620) | | | $ | (6,607) | |
Right-of-use assets recognized and operating lease obligations incurred | Right-of-use assets recognized and operating lease obligations incurred | $ | 708 | | | $ | 5,559 | | Right-of-use assets recognized and operating lease obligations incurred | $ | 1,159 | | | $ | 708 | |
See accompanying Notes to Consolidated Financial Statements
CAVCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In addition, references throughout to numbered "Notes" refer to these Notes to Consolidated Financial Statements, unless otherwise stated.
In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified to conform to current period classification. We have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC;SEC, and except for the events set forth in Note 20 of the Notes to Consolidated Financial Statements ("Notes") of the Company's Quarterly Report on Form 10-Q for the period ended July 3, 2021, there were no disclosable subsequent events requiring disclosure.events. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our 20212022 Annual Report on Form 10-K for the year ended April 3, 2021,2, 2022, filed with the SEC ("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 Statementsconsolidated financial statements and the accompanying Notes. The uncertainty created by the novel coronavirus COVID-19 pandemic ("COVID-19") has made such estimates more difficult and subjective.notes. Due to that and other uncertainties, actual results could differ from those estimates.the estimates and assumptions used in preparation of the consolidated financial statements. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31st. The current fiscal year will end on April 2, 20221, 2023 and will include 52 weeks.
We operate in 2 segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. We design and build a wide variety of affordable manufactured homes, modular homes and park model RVs through 2026 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through our 4045 Company-owned retail stores. The financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Company ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("GNMA") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.
ForOn September 24, 2021, we acquired the business and certain assets and liabilities of The Commodore Corporation ("Commodore"), including its six manufacturing facilities and two wholly-owned retail locations. The results of operations are included in our Consolidated Financial Statements from the date of acquisition. See Note 19.
In addition to the below, for a description of significant accounting policies we used in the preparation of our Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K.
2. Revenue from Contracts with Customers
The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands):
| | | | Three Months Ended | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Factory-built housing | Factory-built housing | | | | | Factory-built housing | | | | |
U.S. Housing and Urban Development code homes | U.S. Housing and Urban Development code homes | | $ | 262,390 | | | $ | 189,446 | | U.S. Housing and Urban Development code homes | | $ | 507,183 | | | $ | 262,390 | |
Modular homes | Modular homes | | 26,617 | | | 20,783 | | Modular homes | | 34,338 | | | 26,617 | |
Park model RVs | Park model RVs | | 9,671 | | | 13,722 | | Park model RVs | | 13,755 | | | 9,671 | |
Other | Other | | 13,605 | | | 14,139 | | Other | | 17,321 | | | 13,605 | |
| | | 312,283 | | | 238,090 | | | | 572,597 | | | 312,283 | |
Financial services | Financial services | | | | | Financial services | | | | |
Insurance agency commissions received from third-party insurance companies | Insurance agency commissions received from third-party insurance companies | | 873 | | | 770 | | Insurance agency commissions received from third-party insurance companies | | 1,397 | | | 873 | |
Other | | 17,266 | | | 15,941 | | |
All other sources | | All other sources | | 14,344 | | | 17,266 | |
| | | 18,139 | | | 16,711 | | | | 15,741 | | | 18,139 | |
| | | $ | 330,422 | | | $ | 254,801 | | | | $ | 588,338 | | | $ | 330,422 | |
3. Restricted Cash
Restricted cash consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Cash related to CountryPlace customer payments to be remitted to third parties | Cash related to CountryPlace customer payments to be remitted to third parties | $ | 15,928 | | | $ | 16,049 | | Cash related to CountryPlace customer payments to be remitted to third parties | $ | 13,562 | | | $ | 13,857 | |
Other restricted cash | Other restricted cash | 1,135 | | | 979 | | Other restricted cash | 1,328 | | | 1,327 | |
| | 17,063 | | | 17,028 | | | 14,890 | | | 15,184 | |
Less current portion | (16,728) | | | (16,693) | | |
Current portion | | Current portion | (14,555) | | | (14,849) | |
| | $ | 335 | | | $ | 335 | | | $ | 335 | | | $ | 335 | |
Corresponding amounts for customer payments to be remitted to third parties are recorded in Accounts payable.
The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the Consolidated Balance Sheets to the combined amounts shown onin the Consolidated Statements of Cash Flows (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Cash and cash equivalents | Cash and cash equivalents | $ | 329,753 | | | $ | 322,279 | | Cash and cash equivalents | $ | 238,072 | | | $ | 329,753 | |
Restricted cash | Restricted cash | 17,063 | | | 17,028 | | Restricted cash | 14,890 | | | 17,063 | |
| | $ | 346,816 | | | $ | 339,307 | | | $ | 252,962 | | | $ | 346,816 | |
4. Investments
Investments consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Available-for-sale debt securities | Available-for-sale debt securities | $ | 17,962 | | | $ | 14,946 | | Available-for-sale debt securities | $ | 17,278 | | | $ | 17,760 | |
Marketable equity securities | Marketable equity securities | 17,550 | | | 17,600 | | Marketable equity securities | 14,583 | | | 16,780 | |
Non-marketable equity investments | Non-marketable equity investments | 22,429 | | | 21,960 | | Non-marketable equity investments | 20,818 | | | 20,479 | |
| | 57,941 | | | 54,506 | | | 52,679 | | | 55,019 | |
Less current portion | (19,749) | | | (19,496) | | |
Less short-term investments | | Less short-term investments | (15,864) | | | (20,086) | |
| | $ | 38,192 | | | $ | 35,010 | | | $ | 36,815 | | | $ | 34,933 | |
Investments in marketable equity securities consist of investments in the common stock of industrial and other companies.
As of July 3, 2021 and April 3, 2021,Our non-marketable equity investments included contributions of $15.0 million tinclude o 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. Other non-marketable equity investments included investments incommunities and other distribution operations.
The following tables summarizeamortized cost and fair value of our investments in available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment categorysecurity type are shown in the table below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| July 3, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Residential mortgage-backed securities | $ | 2,609 | | | $ | 26 | | | $ | (11) | | | $ | 2,624 | |
State and political subdivision debt securities | 8,265 | | | 109 | | | (19) | | | 8,355 | |
Corporate debt securities | 6,982 | | | 12 | | | (11) | | | 6,983 | |
| $ | 17,856 | | | $ | 147 | | | $ | (41) | | | $ | 17,962 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| April 3, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Residential mortgage-backed securities | $ | 2,787 | | | $ | 30 | | | $ | (13) | | | $ | 2,804 | |
State and political subdivision debt securities | 7,239 | | | 125 | | | (19) | | | 7,345 | |
Corporate debt securities | 4,797 | | | 11 | | | (11) | | | 4,797 | |
| | | | | | | |
| $ | 14,823 | | | $ | 166 | | | $ | (43) | | | $ | 14,946 | |
We are not aware of any changes to the securities or issuers that would indicate the losses above are indicative of credit impairment as of July 3, 2021. Further, we do not intend to sell the investments, and it is more likely than not that we will not be required to sell the investments, before recovery of their amortized cost.
| | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Residential mortgage-backed securities | $ | 1,574 | | | $ | 1,504 | | | $ | 1,668 | | | $ | 1,613 | |
State and political subdivision debt securities | 7,480 | | | 7,232 | | | 10,100 | | | 9,906 | |
Corporate debt securities | 8,876 | | | 8,542 | | | 6,502 | | | 6,241 | |
| $ | 17,930 | | | $ | 17,278 | | | $ | 18,270 | | | $ | 17,760 | |
The amortized cost and fair value of our 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.
| | | July 3, 2021 | | July 2, 2022 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in less than one year | Due in less than one year | $ | 1,518 | | | $ | 1,519 | | Due in less than one year | $ | 1,295 | | | $ | 1,281 | |
Due after one year through five years | Due after one year through five years | 11,033 | | | 11,028 | | Due after one year through five years | 13,158 | | | 12,566 | |
Due after five years through ten years | Due after five years through ten years | 1,391 | | | 1,450 | | Due after five years through ten years | 1,258 | | | 1,269 | |
Due after ten years | Due after ten years | 1,305 | | | 1,341 | | Due after ten years | 645 | | | 658 | |
Mortgage-backed securities | Mortgage-backed securities | 2,609 | | | 2,624 | | Mortgage-backed securities | 1,574 | | | 1,504 | |
| | $ | 17,856 | | | $ | 17,962 | | | $ | 17,930 | | | $ | 17,278 | |
There were 0no gross gains or losses realized on the sale of available-for-sale debt securities during thethe three months ended July 2, 2022 or July 3, 2021 or June 27, 2020.2021.
Net investment gains and losses on marketable equity securities were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 3, 2021 | | June 27, 2020 |
Marketable equity securities | | | | | | | |
Net gain recognized during the period | | | | | $ | 1,696 | | | $ | 2,030 | |
Less: Net gains recognized on securities sold during the period | | | | | (136) | | | (33) | |
Unrealized gains recognized during the period on securities still held | | | | | $ | 1,560 | | | $ | 1,997 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Marketable equity securities | | | | | | | |
Net (loss) gain recognized during the period | | | | | $ | (2,342) | | | $ | 1,696 | |
Less: Net loss (gain) recognized on securities sold during the period | | | | | 74 | | | (136) | |
Unrealized (loss) gain recognized during the period on securities still held | | | | | $ | (2,268) | | | $ | 1,560 | |
5. Inventories
Inventories consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Raw materials | Raw materials | $ | 69,123 | | | $ | 54,336 | | Raw materials | $ | 97,935 | | | $ | 95,929 | |
Work in process | Work in process | 20,426 | | | 19,149 | | Work in process | 30,549 | | | 30,638 | |
Finished goods | Finished goods | 61,368 | | | 57,749 | | Finished goods | 126,238 | | | 117,404 | |
| | $ | 150,917 | | | $ | 131,234 | | | $ | 254,722 | | | $ | 243,971 | |
6. Consumer Loans Receivable
The following table summarizes consumer loans receivable (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Loans held for investment, previously securitized | Loans held for investment, previously securitized | $ | 30,384 | | | $ | 31,949 | | Loans held for investment, previously securitized | $ | 24,732 | | | $ | 26,014 | |
Loans held for investment | Loans held for investment | 17,565 | | | 18,690 | | Loans held for investment | 14,670 | | | 14,771 | |
Loans held for sale | Loans held for sale | 13,542 | | | 15,587 | | Loans held for sale | 10,909 | | | 8,500 | |
Construction advances | Construction advances | 10,479 | | | 13,801 | | Construction advances | 1,908 | | | 3,547 | |
| | 71,970 | | | 80,027 | | | 52,219 | | | 52,832 | |
Deferred financing fees and other, net | Deferred financing fees and other, net | (1,528) | | | (2,041) | | Deferred financing fees and other, net | (727) | | | (833) | |
Allowance for loan losses | Allowance for loan losses | (2,918) | | | (3,188) | | Allowance for loan losses | (1,905) | | | (2,115) | |
| | 67,524 | | | 74,798 | | | 49,587 | | | 49,884 | |
Less current portion | Less current portion | (32,429) | | | (37,690) | | Less current portion | (20,888) | | | (20,639) | |
| | $ | 35,095 | | | $ | 37,108 | | | $ | 28,699 | | | $ | 29,245 | |
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 | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Allowance for loan losses at beginning of period | Allowance for loan losses at beginning of period | | $ | 3,188 | | | $ | 1,767 | | Allowance for loan losses at beginning of period | | $ | 2,115 | | | $ | 3,188 | |
Impact of adoption of Financial Accounting Standards Board's Accounting Standards Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") | | 0 | | | 2,276 | | |
Change in estimated loan losses, net | Change in estimated loan losses, net | | (267) | | | 161 | | Change in estimated loan losses, net | | (210) | | | (267) | |
Charge-offs | Charge-offs | | (3) | | | (192) | | Charge-offs | | (19) | | | (3) | |
Recoveries | | Recoveries | | 19 | | | — | |
Allowance for loan losses at end of period | Allowance for loan losses at end of period | | $ | 2,918 | | | $ | 4,012 | | Allowance for loan losses at end of period | | $ | 1,905 | | | $ | 2,918 | |
The consumer loans held for investment had the following characteristics:
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Weighted average contractual interest rate | Weighted average contractual interest rate | 8.2 | % | | 8.3 | % | Weighted average contractual interest rate | 8.3 | % | | 8.3 | % |
Weighted average effective interest rate | Weighted average effective interest rate | 8.8 | % | | 9.3 | % | Weighted average effective interest rate | 9.3 | % | | 9.2 | % |
Weighted average months to maturity | Weighted average months to maturity | 160 | | 162 | Weighted average months to maturity | 151 | | 151 |
The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):
| | | | | | | | | | | |
| July 3, 2021 | | April 3, 2021 |
Current | $ | 68,258 | | | $ | 76,378 | |
31 to 60 days | 192 | | | 508 | |
61 to 90 days | 3,112 | | | 21 | |
91+ days | 408 | | | 3,120 | |
| $ | 71,970 | | | $ | 80,027 | |
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Current | $ | 50,382 | | | $ | 49,546 | |
31 to 60 days | 192 | | | 1,202 | |
61 to 90 days | 348 | | | 41 | |
91+ days | 1,297 | | | 2,043 | |
| $ | 52,219 | | | $ | 52,832 | |
The following tables disaggregate grossthe principal value of consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):
| | | July 3, 2021 | | July 2, 2022 |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Prime- FICO score 680 and greater | Prime- FICO score 680 and greater | $ | 5,068 | | | $ | 10,500 | | | $ | 2,970 | | | $ | 1,578 | | | $ | 770 | | | $ | 24,028 | | | $ | 44,914 | | Prime- FICO score 680 and greater | $ | 7,796 | | | $ | 3,095 | | | $ | 1,092 | | | $ | 2,300 | | | $ | 1,330 | | | $ | 19,940 | | | $ | 35,553 | |
Near Prime- FICO score 620-679 | Near Prime- FICO score 620-679 | 2,312 | | | 6,528 | | | 2,159 | | | 1,676 | | | 1,360 | | | 10,353 | | | 24,388 | | Near Prime- FICO score 620-679 | 335 | | | 727 | | | 1,389 | | | 1,240 | | | 1,962 | | | 9,304 | | | 14,957 | |
Sub-Prime- FICO score less than 620 | Sub-Prime- FICO score less than 620 | 0 | | | 260 | | | 53 | | | 0 | | | 0 | | | 1,605 | | | 1,918 | | Sub-Prime- FICO score less than 620 | — | | | — | | | 20 | | | 52 | | | — | | | 1,257 | | | 1,329 | |
No FICO score | No FICO score | 150 | | | 149 | | | 0 | | | 27 | | | 0 | | | 424 | | | 750 | | No FICO score | — | | | — | | | — | | | — | | | 26 | | | 354 | | | 380 | |
| | $ | 7,530 | | | $ | 17,437 | | | $ | 5,182 | | | $ | 3,281 | | | $ | 2,130 | | | $ | 36,410 | | | $ | 71,970 | | | $ | 8,131 | | | $ | 3,822 | | | $ | 2,501 | | | $ | 3,592 | | | $ | 3,318 | | | $ | 30,855 | | | $ | 52,219 | |
| | | April 3, 2021 | | April 2, 2022 |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
Prime- FICO score 680 and greater | Prime- FICO score 680 and greater | $ | 18,250 | | | $ | 3,575 | | | $ | 1,718 | | | $ | 971 | | | $ | 1,959 | | | $ | 23,375 | | | $ | 49,848 | | Prime- FICO score 680 and greater | $ | 8,155 | | | $ | 1,615 | | | $ | 2,371 | | | $ | 1,339 | | | $ | 853 | | | $ | 20,485 | | | $ | 34,818 | |
Near Prime- FICO score 620-679 | Near Prime- FICO score 620-679 | 10,227 | | | 2,744 | | | 1,794 | | | 1,364 | | | 500 | | | 10,401 | | | 27,030 | | Near Prime- FICO score 620-679 | 1,661 | | | 1,274 | | | 1,413 | | | 1,976 | | | 617 | | | 9,266 | | | 16,207 | |
Sub-Prime- FICO score less than 620 | Sub-Prime- FICO score less than 620 | 348 | | | 53 | | | 0 | | | 0 | | | 84 | | | 1,579 | | | 2,064 | | Sub-Prime- FICO score less than 620 | 45 | | | 20 | | | 52 | | | — | | | — | | | 1,318 | | | 1,435 | |
No FICO score | No FICO score | 576 | | | 0 | | | 28 | | | 0 | | | 0 | | | 481 | | | 1,085 | | No FICO score | — | | | — | | | — | | | 26 | | | — | | | 346 | | | 372 | |
| | $ | 29,401 | | | $ | 6,372 | | | $ | 3,540 | | | $ | 2,335 | | | $ | 2,543 | | | $ | 35,836 | | | $ | 80,027 | | | $ | 9,861 | | | $ | 2,909 | | | $ | 3,836 | | | $ | 3,341 | | | $ | 1,470 | | | $ | 31,415 | | | $ | 52,832 | |
As of July 3, 20212, 2022 and April 3, 2021, 35%2, 2022, 40% and 39% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas, respectively, and 20%17% was concentrated in Florida.Florida in both periods. Other than Texas and Florida, no state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of July 3, 20212, 2022 or April 3, 2021.2, 2022.
Repossessed homes totaled approximately $493,000$78,000 and $518,000$499,000 as of July 3, 20212, 2022 and April 3, 2021,2, 2022, respectively, and are included in Prepaid expenses and other current assets inon the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $1.0 million$611,000 and $1.1 million as of July 3, 20212, 2022 and April 3, 2021,2, 2022, respectively.
7. Commercial Loans Receivable
The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community owners and developers and amounts loaned by us under participation financing programs.developers.
Commercial loans receivable (including from affiliates), net consisted of the following (in thousands):
| | | | | | | | | | | |
| July 3, 2021 | | April 3, 2021 |
Loans receivable | $ | 45,620 | | | $ | 45,377 | |
Allowance for loan losses | (785) | | | (816) | |
Deferred financing fees, net | (247) | | | (247) | |
| 44,588 | | | 44,314 | |
Less current portion of commercial loans receivable (including from affiliates), net | (18,613) | | | (19,232) | |
| $ | 25,975 | | | $ | 25,082 | |
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Loans receivable | $ | 73,489 | | | $ | 69,693 | |
Allowance for loan losses | (1,054) | | | (1,011) | |
Deferred financing fees, net | (117) | | | (116) | |
| 72,318 | | | 68,566 | |
Less current portion | (33,855) | | | (32,644) | |
| $ | 38,463 | | | $ | 35,922 | |
The commercial loans receivable balance had the following characteristics:
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Weighted average contractual interest rate | Weighted average contractual interest rate | 6.0 | % | | 6.4 | % | Weighted average contractual interest rate | 5.9 | % | | 6.4 | % |
Weighted average months to maturity | 10 | | 11 | |
Weighted average months outstanding | | Weighted average months outstanding | 9 | | 9 |
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 | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | 816 | | | $ | 393 | | Balance at beginning of period | | $ | 1,011 | | | $ | 816 | |
Impact of adoption of ASU 2016-13 | | 0 | | | 435 | | |
Change in estimated loan losses, net | Change in estimated loan losses, net | | (31) | | | 0 | | Change in estimated loan losses, net | | 43 | | | (31) | |
Balance at end of period | Balance at end of period | | $ | 785 | | | $ | 828 | | Balance at end of period | | $ | 1,054 | | | $ | 785 | |
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 90 days or more past due. As of July 3, 20212, 2022 and April 3, 2021,2, 2022, there were 0no commercial loans considered watch list or nonperforming. The following table disaggregates the principal value of our commercial loans receivable by fiscal year of origination (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 3, 2021 | | | | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | | | | |
Performing | | $ | 15,150 | | | $ | 19,119 | | | $ | 5,973 | | | $ | 2,689 | | | $ | 1,743 | | | $ | 946 | | | $ | 45,620 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 2, 2022 | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total | | | | |
Performing | | $ | 26,909 | | | $ | 32,564 | | | $ | 8,326 | | | $ | 3,165 | | | $ | 1,371 | | | $ | 1,154 | | | $ | 73,489 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 3, 2021 | | | | |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | | | | |
Performing | | $ | 30,627 | | | $ | 8,677 | | | $ | 3,206 | | | $ | 1,864 | | | $ | 1,003 | | | $ | 0 | | | $ | 45,377 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 2, 2022 | | | | |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | | | | |
Performing | | $ | 52,592 | | | $ | 10,181 | | | $ | 4,031 | | | $ | 1,391 | | | $ | 1,498 | | | $ | — | | | $ | 69,693 | | | | | |
AtAs of July 3, 2021,2, 2022, there were 0no commercial loans 90 days or more past due that were still accruing interest and we were not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.
As of July 3, 2021, 14%2, 2022 and April 2, 2022, we had concentrations of our outstanding commercial loans receivable principal balance was concentrated in ArizonaNew York of 20% and 13% was concentrated in California. As of April 3, 2021, 13% of our outstanding commercial loans receivable principal balance was concentrated in Arizona.25%, respectively. No other state had concentrations in excess of 10% of the principal balance of the consumercommercial loans receivable as of July 3, 20212, 2022 or April 3, 2021.2, 2022.
We had concentrations with one
One independent third-party and its affiliates that equaled 18%comprised 14% of the net commercial loans receivable principal balance outstanding, all of which was secured, as of both July 3, 20212, 2022 and April 3, 2021.2, 2022.
8. Property, Plant and Equipment, net
Property, plant and equipment, net, consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Property, plant and equipment, at cost | Property, plant and equipment, at cost | | | | Property, plant and equipment, at cost | | | |
Land | Land | $ | 28,314 | | | $ | 28,314 | | Land | $ | 36,096 | | | $ | 32,154 | |
Buildings and improvements | Buildings and improvements | 73,415 | | | 71,827 | | Buildings and improvements | 115,708 | | | 100,775 | |
Machinery and equipment | Machinery and equipment | 35,075 | | | 34,146 | | Machinery and equipment | 49,911 | | | 48,638 | |
Construction in progress | | Construction in progress | 37,010 | | | 29,281 | |
| | 136,804 | | | 134,287 | | | 238,725 | | | 210,848 | |
Accumulated depreciation | Accumulated depreciation | (38,823) | | | (37,493) | | Accumulated depreciation | (53,191) | | | (46,832) | |
| | $ | 97,981 | | | $ | 96,794 | | | $ | 185,534 | | | $ | 164,016 | |
Depreciation expense was $1.4 million for each of the three month periodsmonths ended July 2, 2022 and July 3, 2021 was $3.4 million and June 27, 2020.$1.4 million, respectively.
9. Goodwill and Other Intangibles
Goodwill and other intangibles, net, consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived | Indefinite-lived | | | | | | | | | | | | Indefinite-lived | | | | | | | | | | | |
Goodwill | Goodwill | $ | 75,090 | | | $ | — | | | $ | 75,090 | | | $ | 75,090 | | | $ | — | | | $ | 75,090 | | Goodwill | $ | 100,993 | | | $ | — | | | $ | 100,993 | | | $ | 100,993 | | | $ | — | | | $ | 100,993 | |
Trademarks and trade names | Trademarks and trade names | 8,900 | | | — | | | 8,900 | | | 8,900 | | | — | | | 8,900 | | Trademarks and trade names | 15,680 | | | — | | | 15,680 | | | 15,680 | | | — | | | 15,680 | |
State insurance licenses | State insurance licenses | 1,100 | | | — | | | 1,100 | | | 1,100 | | | — | | | 1,100 | | State insurance licenses | 1,100 | | | — | | | 1,100 | | | 1,100 | | | — | | | 1,100 | |
| | 85,090 | | | — | | | 85,090 | | | 85,090 | | | — | | | 85,090 | | | 117,773 | | | — | | | 117,773 | | | 117,773 | | | — | | | 117,773 | |
Finite-lived | Finite-lived | | Finite-lived | |
Customer relationships | Customer relationships | 11,300 | | | (7,255) | | | 4,045 | | | 11,300 | | | (7,097) | | | 4,203 | | Customer relationships | 19,500 | | | (8,866) | | | 10,634 | | | 19,500 | | | (8,392) | | | 11,108 | |
Other | Other | 1,424 | | | (1,279) | | | 145 | | | 1,424 | | | (1,264) | | | 160 | | Other | 1,924 | | | (1,387) | | | 537 | | | 1,924 | | | (1,353) | | | 571 | |
| | $ | 97,814 | | | $ | (8,534) | | | $ | 89,280 | | | $ | 97,814 | | | $ | (8,361) | | | $ | 89,453 | | | $ | 139,197 | | | $ | (10,253) | | | $ | 128,944 | | | $ | 139,197 | | | $ | (9,745) | | | $ | 129,452 | |
Amortization expense recognized on intangible assets was $173,000$508,000 and $187,000$173,000 for the three months ended July 2, 2022 and July 3, 2021, and June 27, 2020, respectively.
Expected amortization for future fiscal years is as follows (in thousands): | | | | | |
Remainder of fiscal year | $ | 1,504 | |
2024 | 1,339 | |
2025 | 1,300 | |
2026 | 1,258 | |
2027 | 1,185 | |
2028 | 1,079 | |
Thereafter | 3,506 | |
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Customer deposits | Customer deposits | $ | 48,989 | | | $ | 41,835 | | Customer deposits | $ | 54,161 | | | $ | 56,318 | |
Salaries, wages and benefits | Salaries, wages and benefits | 37,176 | | | 37,737 | | Salaries, wages and benefits | 52,899 | | | 54,172 | |
Estimated warranties | | Estimated warranties | 28,802 | | | 26,250 | |
Unearned insurance premiums | Unearned insurance premiums | 24,125 | | | 22,643 | | Unearned insurance premiums | 26,207 | | | 24,917 | |
Company repurchase options on certain loans sold | 19,432 | | | 25,938 | | |
Estimated warranties | 19,344 | | | 18,032 | | |
Accrued volume rebates | Accrued volume rebates | 14,097 | | | 12,132 | | Accrued volume rebates | 22,532 | | | 18,641 | |
| | Other | Other | 47,027 | | | 44,816 | | Other | 75,177 | | | 70,790 | |
| | $ | 210,190 | | | $ | 203,133 | | | $ | 259,778 | | | $ | 251,088 | |
11. Warranties
Activity in the liability for estimated warranties was as follows (in thousands):
| | | | Three Months Ended | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | 18,032 | | | $ | 18,678 | | Balance at beginning of period | | $ | 26,250 | | | $ | 18,032 | |
Charged to costs and expenses | Charged to costs and expenses | | 9,125 | | | 6,347 | | Charged to costs and expenses | | 15,004 | | | 9,125 | |
Payments and deductions | Payments and deductions | | (7,813) | | | (6,487) | | Payments and deductions | | (12,452) | | | (7,813) | |
Balance at end of period | Balance at end of period | | $ | 19,344 | | | $ | 18,538 | | Balance at end of period | | $ | 28,802 | | | $ | 19,344 | |
12. Debt and Finance Lease ObligationsOther Liabilities
Debt and finance lease obligations primarily consist of secured financings at our finance subsidiary and lease obligations for which it is expected that we will obtain ownership of the leased assets at the end of the lease term. The following table summarizes debt and finance lease obligationsthe non-current portion of our other liabilities (in thousands):
| | | | | | | | | | | |
| July 3, 2021 | | April 3, 2021 |
Secured term loan | $ | 7,980 | | | $ | 8,210 | |
Other secured financings | 3,473 | | | 3,672 | |
Finance lease obligations | 296 | | | 304 | |
| 11,749 | | | 12,186 | |
Less current portion | (1,822) | | | (1,851) | |
| $ | 9,927 | | | $ | 10,335 | |
We entered into secured credit facilities with independent third-party banks to originate and hold consumer home-only loans secured by manufactured homes, which were pledged as collateral to the facilities. Those facilities have since been converted into an amortizing loan with maturity dates starting in 2028 and payments based on a 20 or 25-year amortization period, resulting in a balloon payment due upon maturity. The outstanding balance of the converted loans was $8.0 million as of July 3, 2021 and $8.2 million as of April 3, 2021 with a weighted average interest rate of 4.9%. | | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Finance lease payables | $ | 6,298 | | | $ | 6,316 | |
Other secured financing | 2,791 | | | 2,933 | |
Mandatorily redeemable noncontrolling interest | 2,371 | | | 2,371 | |
| 11,460 | | | 11,620 | |
Less current portion included in Accrued expenses and other current liabilities | (765) | | | (784) | |
| $ | 10,695 | | | $ | 10,836 | |
13. Reinsurance and Insurance Loss Reserves
Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. We remain obligated for amounts ceded in the event that the reinsurers do not meet their obligations.
The effects of reinsurance on premiums written and earned were as follows (in thousands):
| | | | | | | Three Months Ended | | Three Months Ended |
| | July 3, 2021 | | June 27, 2020 | | July 2, 2022 | | July 3, 2021 |
| | Written | | Earned | | Written | | Earned | | Written | | Earned | | Written | | Earned |
Direct premiums | Direct premiums | $ | 6,839 | | | $ | 5,996 | | | $ | 5,765 | | | $ | 5,185 | | Direct premiums | $ | 7,728 | | | $ | 7,050 | | | $ | 6,839 | | | $ | 5,996 | |
Assumed premiums—nonaffiliated | Assumed premiums—nonaffiliated | 8,574 | | | 7,378 | | | 7,653 | | | 6,790 | | Assumed premiums—nonaffiliated | 9,028 | | | 7,957 | | | 8,574 | | | 7,378 | |
Ceded premiums—nonaffiliated | Ceded premiums—nonaffiliated | (3,647) | | | (3,647) | | | (3,202) | | | (3,202) | | Ceded premiums—nonaffiliated | (4,229) | | | (4,229) | | | (3,647) | | | (3,647) | |
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| $ | 11,766 | | | $ | 9,727 | | | $ | 10,216 | | | $ | 8,773 | |
| $ | 12,527 | | | $ | 10,778 | | | $ | 11,766 | | | $ | 9,727 | |
Typical insurance policies written or assumed have a maximum coverage of $300,000 per claim, of which we cede $150,000$125,000 of the risk of loss per reinsurance. Therefore, our risk of loss is limited to $150,000$175,000 per claim on typical policies, subject to the reinsurers meeting their obligations. After this limit, amounts are recoverable through reinsurance for catastrophic losses in excess of $2 million per occurrence, up to a maximum of $55$70 million in the aggregate for that occurrence.
Standard Casualty establishes reserves for claims and claims expense on reported and unreportedincurred but not reported ("IBNR") claims of non-reinsured losses. Reserves for claims are included in the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets and claims expenses are recorded in Cost of sales on the Consolidated Statements of Comprehensive Income. The following details the activity in the reserve for the three months ended July 3, 20212, 2022 and June 27, 2020July 3, 2021 (in thousands): | | | Three Months Ended | | | Three Months Ended |
| | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | Balance at beginning of period | $ | 7,451 | | | $ | 5,582 | | Balance at beginning of period | | $ | 8,149 | | | $ | 7,451 | |
Net incurred losses during the year | Net incurred losses during the year | 7,975 | | | 5,982 | | Net incurred losses during the year | | 8,777 | | | 7,975 | |
Net claim payments during the year | Net claim payments during the year | (7,078) | | | (4,834) | | Net claim payments during the year | | (8,352) | | | (7,078) | |
Balance at end of period | Balance at end of period | $ | 8,348 | | | $ | 6,730 | | Balance at end of period | | $ | 8,574 | | | $ | 8,348 | |
14. Commitments and Contingencies
Repurchase Contingencies. We are contingently liable under terms of repurchase agreements with financial institutions providing inventory financing to independent distributors of our products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to distributors in the event of default by the distributor.
The maximum amount for which we werethe Company was liable under such agreements approximated $80.9$167.2 million and $74.2$141.0 million at July 3, 20212, 2022 and April 3, 2021,2, 2022, respectively, without reduction for the resale value of the homes that are repurchased.homes. We had a reserve for repurchase commitments of $2.3$4.4 million at July 3, 20212, 2022 and $3.6 million at April 3, 2021.2, 2022, and there were no repurchases during either period.
Construction-Period Mortgages. We fund construction-period mortgages through periodic advances during home construction. At the time of initial funding, we commit to fully fund the loan contract in accordance with a predetermined schedule. The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment to fund future advances.
Loan contracts with off-balance sheet commitments are summarized below (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Construction loan contract amount | Construction loan contract amount | $ | 28,204 | | | $ | 37,628 | | Construction loan contract amount | $ | 5,447 | | | $ | 9,330 | |
Cumulative advances | Cumulative advances | (10,479) | | | (13,801) | | Cumulative advances | (1,908) | | | (3,547) | |
| | $ | 17,725 | | | $ | 23,827 | | | $ | 3,539 | | | $ | 5,783 | |
Representations and Warranties of Mortgages Sold. We sell loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers and finance certain loans with long-term credit facilities secured by the respective loans. In connection with these activities, we provide to GSEs and whole-loan purchasers and lenders representations and warranties related to the loans sold or financed. Upon a breach of a representation, we may be required to repurchase the loan or to indemnify a party for incurred losses. We maintain a reserve for these contingent repurchase and indemnification obligations. This reserve of $1.3$1.0 million as of July 3, 20212, 2022 and $1.2 million$866,000 as of April 3, 2021,2, 2022, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets, reflects management's estimate of probable loss. There were 0no claim requests that resulted in the execution of an indemnification agreement or in the repurchase of a loan during the three months ended July 3, 2021.2, 2022.
Interest Rate Lock Commitments. In originating loans for sale, we issue interest rate lock commitments ("IRLCs") to prospective borrowers. These IRLCs bind us to fund the approved loan at the specified rate regardless of whether interest rates or market prices for similar loans have changed between the commitment date and the closing date. As of July 3, 2021,2, 2022, we had outstanding IRLCs with a notional amount of $32.1$49.9 million and recognized a gain of $47,000 $40,000 in the 2022fiscal 2023 first quarter and a lossgain of of $125,000$47,000 in the 2021fiscal 2022 first quarter.quarter.
Forward Sales Commitments. We manage the risk profiles of a portion of the outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities ("MBS") and whole loan sale commitments (collectively "Commitments"). As of July 3, 2021,2, 2022, we had $42.9$10.2 million in outstanding Commitments and recognized a non-cash loss of $262,000 in the fiscal 2023 first quarter and a non-cash loss of $347,000 in the fiscal 2022 first quarterquarter. and gain of $1.0 million in the 2021first quarter.
Legal Matters. Since 2018, we have been cooperatingOn September 2, 2021, the SEC filed a civil complaint in the United States District Court, District of Arizona, naming the Company along with an investigation by the enforcement staffCompany's former Chairman, President & Chief Executive Officer ("CEO") and the Company's former Chief Financial Officer, alleging violations of the SEC's Los Angeles Regional Office regarding securitiesantifraud and internal accounting control provisions of the Securities Exchange Act of 1934 based on trading in personal and Company accountsthe shares of another company directed by the Company's former Chief Executive Officer, Joseph Stegmayer. As previously disclosed,CEO that resulted in November 2020,an unrealized gain of approximately $260,000. In the prior year, the Company recorded an accrual relating to this loss contingency. The Company has reached a settlement in principle with the SEC staff issued a Wells Noticeregarding the pending litigation. The settlement is subject to Cavco statingSEC approval that is expected within the next 60 days. A related notice has been filed with the Court in that action. We do not believe that the staff intends to recommend an enforcement action against us in connection with the investigation. While we cannot predict with certainty the resolution of this matter, we do not expect it tosettlement will have a material adverse effectimpact on our Consolidated Financial Statements.results of operations or financial position.
We are party to certain other lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and in(in certain cases,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 our 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 inon 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 our consolidated financial position, liquidity or results of operations in any future reporting periods.
15. Stockholders' Equity and Redeemable Noncontrolling Interest
The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 2, 2022 (dollars in thousands):
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| Equity Attributable to Cavco Stockholders | | |
| | | | | Treasury Stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive loss | | Total | | Redeemable Noncontrolling Interest |
| Common Stock | | | | | | |
| Shares | | Amount | | | | | | |
Balance, April 2, 2022 | 9,292,278 | | | $ | 93 | | | $ | (61,040) | | | $ | 263,049 | | | $ | 628,756 | | | $ | (403) | | | $ | 830,455 | | | $ | 825 | |
Net income | — | | | — | | | — | | | — | | | 59,602 | | | — | | | 59,602 | | | 92 | |
Other comprehensive loss, net | — | | | — | | | — | | | — | | | — | | | (112) | | | (112) | | | — | |
Issuance of common stock under stock incentive plans | 5,957 | | | — | | | — | | | (848) | | | — | | | — | | | (848) | | | — | |
Stock-based compensation | — | | | — | | | — | | | 1,425 | | | — | | | — | | | 1,425 | | | — | |
Common stock repurchases | — | | | — | | | (38,960) | | | — | | | — | | | — | | | (38,960) | | | — | |
Distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (240) | |
Balance, July 2, 2022 | 9,298,235 | | | $ | 93 | | | $ | (100,000) | | | $ | 263,626 | | | $ | 688,358 | | | $ | (515) | | | $ | 851,562 | | | $ | 677 | |
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The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 3, 2021 (dollars in thousands):
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| | | | | Treasury Stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Total |
| Common Stock | | | | | |
| Shares | | Amount | | | | | |
Balance, April 3, 2021 | 9,241,256 | | | $ | 92 | | | $ | (1,441) | | | $ | 253,835 | | | $ | 431,057 | | | $ | 97 | | | $ | 683,640 | |
Net income | — | | | 0 | | | 0 | | | 0 | | | 27,046 | | | 0 | | | 27,046 | |
Other comprehensive income, net | — | | | 0 | | | 0 | | | 0 | | | 0 | | | (13) | | | (13) | |
Issuance of common stock under stock incentive plans | 4,465 | | | 0 | | | — | | | 136 | | | 0 | | | 0 | | | 136 | |
Stock-based compensation | — | | | 0 | | | 0 | | | 1,100 | | | 0 | | | 0 | | | 1,100 | |
Common stock repurchases | — | | | — | | | (12,842) | | | — | | | — | | | — | | | (12,842) | |
Balance, July 3, 2021 | 9,245,721 | | | $ | 92 | | | $ | (14,283) | | | $ | 255,071 | | | $ | 458,103 | | | $ | 84 | | | $ | 699,067 | |
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The following table represents changes in stockholders' equity during the three months ended June 27, 2020 (dollars in thousands):
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| | | | | | | Treasury Stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income | | Total |
| Common Stock | | | | | | |
| Shares | | Amount | | | | | | |
Balance, March 28, 2020 | 9,173,242 | | | $ | 92 | | | | | $ | 0 | | | $ | 252,260 | | | $ | 355,144 | | | $ | 90 | | | $ | 607,586 | |
Cumulative effect of implementing ASU 2016-13, net | — | | | 0 | | | | | 0 | | | 0 | | | (733) | | | 0 | | | (733) | |
Net income | — | | | 0 | | | | | 0 | | | 0 | | | 16,674 | | | 0 | | | 16,674 | |
Other comprehensive income, net | — | | | 0 | | | | | 0 | | | 0 | | | 0 | | | 68 | | | 68 | |
Issuance of common stock under stock incentive plans | 3,822 | | | 0 | | | | | 0 | | | (533) | | | 0 | | | 0 | | | (533) | |
Stock-based compensation | — | | | 0 | | | | | 0 | | | 945 | | | 0 | | | 0 | | | 945 | |
Balance, June 27, 2020 | 9,177,064 | | | $ | 92 | | | | | $ | 0 | | | $ | 252,672 | | | $ | 371,085 | | | $ | 158 | | | $ | 624,007 | |
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| Equity Attributable to Cavco Stockholders | | | | | |
| | | | | Treasury Stock | | Additional paid-in capital | | Retained earnings | | Accumulated other comprehensive income (loss) | | Total | | Redeemable Noncontrolling Interest | | | |
| Common Stock | | | | | | | | |
| Shares | | Amount | | | | | | | | |
Balance, April 3, 2021 | 9,241,256 | | | $ | 92 | | | $ | (1,441) | | | $ | 253,835 | | | $ | 431,057 | | | $ | 97 | | | $ | 683,640 | | | $ | — | | | | |
Net income | — | | | — | | | — | | | — | | | 27,046 | | | — | | | 27,046 | | | — | | | | |
Other comprehensive loss, net | — | | | — | | | — | | | — | | | — | | | (13) | | | (13) | | | — | | | | |
Issuance of common stock under stock incentive plans | 4,465 | | | — | | | — | | | 136 | | | — | | | — | | | 136 | | | — | | | | |
Stock-based compensation | — | | | — | | | — | | | 1,100 | | | — | | | — | | | 1,100 | | | — | | | | |
Common stock repurchases | — | | | — | | | (12,842) | | | — | | | — | | | — | | | (12,842) | | | — | | | | |
Balance, July 3, 2021 | 9,245,721 | | | $ | 92 | | | $ | (14,283) | | | $ | 255,071 | | | $ | 458,103 | | | $ | 84 | | | $ | 699,067 | | | $ | — | | | | |
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16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):
| | | | Three Months Ended | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Net income | | $ | 27,046 | | | $ | 16,674 | | |
Net income attributable to Cavco common stockholders | | Net income attributable to Cavco common stockholders | | $ | 59,602 | | | $ | 27,046 | |
Weighted average shares outstanding | Weighted average shares outstanding | | | | | Weighted average shares outstanding | | | | |
Basic | Basic | | 9,198,229 | | | 9,174,182 | | Basic | | 8,918,280 | | | 9,198,229 | |
Effect of dilutive securities | Effect of dilutive securities | | 78,300 | | | 90,479 | | Effect of dilutive securities | | 70,649 | | | 78,300 | |
Diluted | Diluted | | 9,276,529 | | | 9,264,661 | | Diluted | | 8,988,929 | | | 9,276,529 | |
Net income per share | | | | | |
Net income per share attributable to Cavco common stockholders | | Net income per share attributable to Cavco common stockholders | | | | |
Basic | Basic | | $ | 2.94 | | | $ | 1.82 | | Basic | | $ | 6.68 | | | $ | 2.94 | |
Diluted | Diluted | | $ | 2.92 | | | $ | 1.80 | | Diluted | | $ | 6.63 | | | $ | 2.92 | |
| Anti-dilutive common stock equivalents excluded | | Anti-dilutive common stock equivalents excluded | | 1,617 | | | 8,366 | |
There were 8,366 anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended July 3, 2021 and 39,996 for the three months ended June 27, 2020.
17. Fair Value Measurements
The book value and estimated fair value of our financial instruments were as follows (in thousands):
| | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
| | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value |
Available-for-sale debt securities | Available-for-sale debt securities | $ | 17,962 | | | $ | 17,962 | | | $ | 14,946 | | | $ | 14,946 | | Available-for-sale debt securities | $ | 17,278 | | | $ | 17,278 | | | $ | 17,760 | | | $ | 17,760 | |
Marketable equity securities | Marketable equity securities | 17,550 | | | 17,550 | | | 17,600 | | | 17,600 | | Marketable equity securities | 14,583 | | | 14,583 | | | 16,780 | | | 16,780 | |
Non-marketable equity investments | Non-marketable equity investments | 22,429 | | | 22,429 | | | 21,960 | | | 21,960 | | Non-marketable equity investments | 20,818 | | | 20,818 | | | 20,479 | | | 20,479 | |
Consumer loans receivable | Consumer loans receivable | 67,524 | | | 76,466 | | | 74,798 | | | 86,209 | | Consumer loans receivable | 49,587 | | | 52,208 | | | 49,884 | | | 53,354 | |
| Commercial loans receivable | Commercial loans receivable | 44,588 | | | 42,586 | | | 44,314 | | | 42,379 | | Commercial loans receivable | 72,318 | | | 69,509 | | | 68,566 | | | 65,942 | |
Secured financings other | (11,749) | | | (11,810) | | | (12,186) | | | (12,340) | | |
Other secured financing | | Other secured financing | (2,791) | | | (2,781) | | | (2,933) | | | (3,119) | |
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See Note 19, Fair Value Measurements, and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies, in the Form 10-K for more information on the methodologies we use in determining fair value.
Mortgage Servicing. Mortgage Servicing Rights ("MSRs") are the rights to receive a portion of the interest coupon and fees collected from the mortgagors for performing specified mortgage servicing activities. MSRs are initially recorded at fair value.value in Prepaid expenses and other current assets on the Consolidated Balance Sheets. | | | July 3, 2021 | | April 3, 2021 | | July 2, 2022 | | April 2, 2022 |
Number of loans serviced with MSRs | Number of loans serviced with MSRs | 4,614 | | | 4,647 | | Number of loans serviced with MSRs | 4,216 | | | 4,346 | |
Weighted average servicing fee (basis points) | Weighted average servicing fee (basis points) | 33.86 | | | 33.57 | | Weighted average servicing fee (basis points) | 34.70 | | | 34.76 | |
Capitalized servicing multiple | Capitalized servicing multiple | 67.3 | % | | 45.9 | % | Capitalized servicing multiple | 101.5 | % | | 85.07 | % |
Capitalized servicing rate (basis points) | Capitalized servicing rate (basis points) | 22.78 | | | 15.42 | | Capitalized servicing rate (basis points) | 35.22 | | | 29.57 | |
Serviced portfolio with MSRs (in thousands) | Serviced portfolio with MSRs (in thousands) | $ | 594,373 | | | $ | 593,939 | | Serviced portfolio with MSRs (in thousands) | $ | 543,871 | | | $ | 560,178 | |
MSRs (in thousands) | MSRs (in thousands) | $ | 1,354 | | | $ | 916 | | MSRs (in thousands) | $ | 1,915 | | | $ | 1,656 | |
18. Related Party Transactions
We have non-marketable equity investments in other distribution operations outside of Company-owned retail stores. In the ordinary course of business, we sell homes and lend to certain of these operations through our commercial lending programs. For the three months ended July 2, 2022 and July 3, 2021, and June 27, 2020, the total amount of sales to related parties was $17.2 million and $14.8 millionand$12.7 million, respectively. As of July 3, 2021,2, 2022, receivables from related parties included $4.3$5.3 million of accounts receivable and $6.8$1.8 million of commercial loans outstanding. As of April 3, 2021,2, 2022, receivables from related parties included $4.7$3.3 million of accounts receivable and $9.5$2.6 million of commercial loans outstanding.
19. Acquisitions
On July 4, 2021, we obtained an additional 20% ownership interest in Craftsman Homes, LLC and Craftsman Homes Development, LLC (“the Entities”) which gave us a controlling interest. Accordingly, we now consolidate the Entities and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of acquisition.
On September 24, 2021, we purchased certain manufactured housing assets and assumed certain liabilities of Commodore, including its six manufacturing facilities and two wholly-owned retail locations. In addition to manufacturing, Commodore also participates in commercial lending operations with its dealers. 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.
Pro Forma Impact of Acquisitions (unaudited). The following table presents supplemental pro forma information as if the acquisitions occurred on April 4, 2021 (in thousands, except per share data):
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| | | | | | | July 3, 2021 |
Net revenue | | | | | | | $ | 411,752 | |
Net income attributable to Cavco common stockholders | | | | | | | 28,022 | |
Diluted net income per share | | | | | | | 3.02 | |
20. Business Segment Information
We operate principally in 2 segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations and (2) financial services, which includes manufactured housing consumer finance and insurance. The following table provides selected financial data by segment (in thousands):
| | | | Three Months Ended | | | Three Months Ended |
| | | July 3, 2021 | | June 27, 2020 | | | July 2, 2022 | | July 3, 2021 |
Net revenue | Net revenue | | | | | Net revenue | | | | |
Factory-built housing | Factory-built housing | | $ | 312,283 | | | $ | 238,090 | | Factory-built housing | | $ | 572,597 | | | $ | 312,283 | |
Financial services | Financial services | | 18,139 | | | 16,711 | | Financial services | | 15,741 | | | 18,139 | |
| | | $ | 330,422 | | | $ | 254,801 | | | | $ | 588,338 | | | $ | 330,422 | |
| Income before income taxes | | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | |
Factory-built housing | Factory-built housing | | $ | 33,559 | | | $ | 18,450 | | Factory-built housing | | $ | 79,772 | | | $ | 33,559 | |
Financial services | Financial services | | 1,919 | | | 3,230 | | Financial services | | (462) | | | 1,919 | |
| | | $ | 35,478 | | | $ | 21,680 | | | | $ | 79,310 | | | $ | 35,478 | |
20. Subsequent EventOn July 23, 2021, we entered into an agreement to acquire the business and certain assets and liabilities of The Commodore Corporation ("Commodore"), including its 6 manufacturing and 2 retail locations. Commodore is the largest private independent builder of manufactured and modular housing in the United States, operating under a variety of strong brand names. Commodore operates across the Northeast, Midwest and Mid-Atlantic regions, with wholly owned retail stores. In addition to manufacturing, Commodore also has a commercial lending portfolio with its dealers that we will acquire and continue. For the last 12 months ended March 31, 2021, Commodore generated net sales of approximately $258 million and sold over 6,600 modules, equating to over 3,700 homes.
The purchase price totals $153 million, before certain adjustments that will be determined upon close of the transaction. The estimated cash outlay is $140 million after adjustments and including transaction fees. We expect to fund the acquisition entirely with cash on hand. The transaction is expected to close in our third quarter of fiscal year 2022, subject to applicable regulatory approvals and satisfaction of certain customary conditions.
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| July 2, 2022 | | April 2, 2022 |
Total assets: | | | |
Factory-built housing | $ | 962,704 | | | $ | 929,535 | |
Financial services | 221,096 | | | 225,437 | |
| $ | 1,183,800 | | | $ | 1,154,972 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements in this Report on Form 10-Q include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," or "anticipates," or by discussions of strategy, plans or intentions. Forward-looking statements are typically included, for example, in discussions regarding the manufactured housing and site-built housing industries; our financial performance and operating results; our liquidity and financial resources; our outlook with respect to the Company and the manufactured housing business in general; the expected effect of certain risks and uncertainties on our business, financial condition and results of operations; economic conditions and consumer confidence; increasing interest rates; inflation; potential acquisitions, strategic investments and other expansions; the sufficiency of our liquidity; operational and legal risks; how the Companywe may be affected by the novel coronavirus COVID-19 pandemic ("COVID-19") or any other pandemic or outbreak; labor shortages and the pricing and availability of raw materials; governmental regulations and legal proceedings; the availability of favorable consumer and wholesale manufactured home financing; market interest rates and Company investments and the ultimate outcome of our commitments and contingencies. Forward-looking statements contained in this Report on Form 10-Q ("Report") speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We do not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.time, except as required by law.
Forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, many of which are beyond our control. To the extent that our assumptions and expectations differ from actual results, our ability to meet such forward-looking statements, including the ability to generate positive cash flow from operations, may be significantly hindered. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed inunder Risk Factors in Part I, Item 1A of our 20212022 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("Form 10-K").
Introduction
The following should be read in conjunction with Cavco Industries, Inc. and its subsidiaries' (collectively, "we," "us," "our," the "Company" or "Cavco") Consolidated Financial Statements and the related Notes that appear in Item 1 of this Report. References to "Note" or "Notes" pertain to the Notes to our Consolidated Financial Statements.
Company Overview
Headquartered in Phoenix, Arizona, we design and produce factory-built housing products primarily distributed through a network of independent and Company-owned retailers, planned community operators and residential developers. We are one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments,shipments. Our products are marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood and Destiny.MidCountry. We are also one of thea leading producersproducer of park model RVs, vacation cabins and factory-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand.structures. Our finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), is an approved Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") seller/servicer and a Government National Mortgage Association ("Ginnie Mae") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty Company ("Standard Casualty"), provides property and casualty insurance to owners of manufactured homes.
We operate 2026 homebuilding production lines located in Millersburg and Woodburn, Oregon; Riverside, California; Nampa, Idaho; Riverside, California; Phoenix and Goodyear, Arizona; Austin, Fort Worth, Seguin and Waco, Texas; Montevideo, Minnesota; Dorchester, Wisconsin; Nappanee and Goshen, Indiana; Lafayette, Tennessee; Douglas and Moultrie, Georgia; Shippenville and Emlenton, Pennsylvania; Martinsville and Rocky Mount, Virginia; Douglas and Moultrie, Georgia;Cherryville, North Carolina; and Ocala and Plant City, Florida. The majority of the homes produced are sold to, and distributed by, independently owned and controlled retail operations located throughout the United States and Canada. In addition, our homes are sold through 4045 Company-owned U.S. retail locations.
Included in the above figures are two recent acquisitions. On July 4, 2021, we purchased an additional 20% ownership in Craftsman Homes, LLC and Craftsman Homes Development, LLC (collectively known as "Craftsman") in addition to our existing 50% ownership, making us controlling owner. Craftsman is a manufactured home retailer with four locations in Nevada selling Company and other manufacturer branded homes. They also provide general construction to setup the customer's property and assist with multi-home developments and multi-family dwellings. The transaction was accounted for as a business combination achieved in stages and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of the acquisition of the additional 20% interest, with a reduction for the earnings attributable to the noncontrolling shareholder.
On September 24, 2021, we purchased certain manufactured housing assets and assumed certain liabilities of The Commodore Corporation ("Commodore"), including its six manufacturing facilities and two wholly-owned retail locations. In addition to manufacturing, Commodore also participates in commercial lending operations with its dealers. 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.
Company and Industry Outlook
According to data reported by the Manufactured Housing Institute, industry home shipments increased 14.9%13.4% for the first 5 months of calendar year 20212022 compared to the same period in the prior year, which was impacted by shutdowns related to COVID-19. However, we last year.did not experience any significant factory shutdowns in the prior year period like some other industry participants did.
The industry offers solutions to the affordable housing crisis and these industry shipment numbers do not represent demand; instead, they representreflect the industry's ability to produce in the current environment. The average price per square foot for a manufactured home is usually lower than a site-built home. Also, based on the relativelycomparatively low cost associated with manufactured home ownership, our products have traditionally competed with rental housing's monthly payment affordability.
The two largest manufactured housing consumer demographics, young adults and those who are age 55 and older, are both growing. "First-time" and "move-up" buyers of affordable homes are historically among the largest segments of new manufactured home purchasers. Included in this group are lower-income households that are particularly affected by periods of low employment rates and underemployment. Consumer confidence is especially important among manufactured home buyers interested in our products for seasonal or retirement living.
We seek outemploy a concerted effort to identify niche market opportunities where our diverse product lines and custom building capabilities provide us with a competitive advantage. We are focused on building quality, energy efficient homes for the modern home buyer. Our green building initiatives involve the creation of an energy efficient envelope, andincluding higher utilization of renewable materials. These homesmaterials and provide environmentally-friendly maintenance requirements, typically lower utility costs and sustainability.costs. We also build homes designed to use alternative energy sources, such as solar.
We maintain a conservative cost structure in an effort to build added value into our homes and we work diligently to maintain a solid financial position. Our balance sheet strength, including the position in cash and cash equivalents, helps avoid liquidity problems and enables us to act effectively as market opportunities or challenges present themselves.
We continue to make certain commercial loan programs available to members of our wholesale distribution chain. Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community owners and developers (see Note 7 to the Consolidated Financial Statements). Our involvement in commercial loans helps to increase the availability of manufactured home financing to distributors, community owners and developers and provides additional opportunityopportunities for product exposure to potential home buyers. While these initiatives support our ongoing efforts to expand product distribution, they also expose us to risks associated with the creditworthiness of this customer base and our inventory financing partners.
The lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans results in higher borrowing costs for home-only loans and continues to constrain industry growth. We work directlyindependently and with other industry participants to develop secondary market opportunities for manufactured home-only loan and non-conforming mortgage portfolios and expand lending availability in the industry. Additionally, we continue to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities. We also develop and invest in home-only lending programs to grow sales of homes through traditional distribution points. We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our financial services segment, as well as provide a means that could lead to increased home sales for our factory-built housing operations.operations and reduce our exposure to the actions of independent lenders.
Operational efficienciesHome order rates have declinedmoderated from hiring challenges, higher and largely unpredictable factory employee absenteeism and other inefficiencies from building material supply shortages. Accordingly, our total average plant capacity utilization rate was approximately 75%the extreme highs we saw during the first fiscalsummer of 2020 to the summer of 2021. However, our backlogs at July 2, 2022 were $1.0 billion, consistent with the sequential prior quarter of 2022, which remains consistent with that of our fourth quarter of fiscal 2021.
Sales order activity remained exceptionally strong during the first fiscal quarter$1.1 billion of 2022 and was nearly 50% higher than the comparable prior year quarter. Increased order volume is the result of a higher number of well-qualified home buyers making purchase decisions, supported by reduced home loan interest rates. Increased orders outpaced the challenging production environment during the quarter, raising order backlogsup $206 million, or 26.3%, compared to $792$792 million at July 3, 2021, up 31.3% compared2021. The year over year increase includes $231 million attributable to $603 million at April 3, 2021 and up 404.5% compared to $157 million at June 27, 2020. Backlog excludesCommodore. Backlogs exclude home orders that have been paused or canceled at the request of the customer.
Key housing building materials include wood, and wood products, steel, gypsum wallboard, steel, windows, doors fiberglass insulation, carpet, vinyl, fasteners, plumbing materials, aluminum, appliances insulation and other petroleum-based produelectrical itemscts.. Fluctuations in the cost of materials and labor may affect gross margins from home sales to the extent that costs cannot be efficiently matched to the home sales price. Pricing and availability of certain raw materials have recently been volatile due to a number of factors in thethe current environment. We continue to monitor and react to inflation in these materials by maintaining a focus on our product pricing in response to higher materials costs, but such product pricing increases may lag behind the escalation of such costs. From time to time and to varying degrees, we may experience shortages in the availability of materials and/or labor in the markets served. Availability of these productsinputs has not caused asignificant production halthalts in the current period, but we have experienced periodic shutdowns in other periods and shortages of primary building materials have caused production inefficiencies as we have needed to change processes in response to the delay in materials. These shortages may also result in extended order backlogs, delays in the delivery of homes and reduced gross margins from home sales.
While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and operations, maintaining an appropriately sized and well-trained workforce is key to increasing production to meet increased demand, and we face challenges in overcoming labor-related difficulties in the current environment to increase home production. We continually review the wage rates of our production employees and have established other monetary incentive and benefit programs, with a goal of providing competitive compensation. We are also provide leadership trainingworking to new managers and other employees in supervisory roles to enhance communication and improve the oversight and motivation of other employees, more extensively use onlineweb-based recruiting tools, update our recruitment brochures and improve the appearance and appeal of our manufacturing facilities to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates. Regardless, weWe believe our ability to recruit the workforce we need to help meet the overall need for affordable housing continues to improve.
In the financial services segment, we continue to assist customers in need by servicing existing loans and insurance policies and complying with state and federal regulations regarding loan forbearance, home foreclosures and policy cancellations. Certain loans serviced for investors expose us to cash flow deficits if customers do not make contractual monthly payments of principal and interest in a timely manner. For certain loans serviced for Ginnie Mae and Freddie Mac, and home-only loans serviced for certain other investors, we must remit scheduled monthly principal and/or interest payments and principal curtailments regardless of whether monthly mortgage payments are collected from borrowers. Ginnie Mae permits cash obligations on loans in forbearance from COVID-19 to be offset by other incoming cash flows from loans such as loan pre-payments. Although monthlyMonthly collections of principal and interest from borrowers have exceeded scheduled principal and interest payments owed to investors,investors; however, mandatory extended forbearance under the Coronavirus Aid, Relief and Economic Security Act and certain other regulations related to COVID-19 could negatively impact cash obligations in the future.
Results of Operations
Net Revenue.Revenue
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| Three Months Ended | | | | |
($ in thousands, except revenue per home sold) | July 3, 2021 | | June 27, 2020 | | Change |
Factory-built housing | $ | 312,283 | | | $ | 238,090 | | | $ | 74,193 | | | 31.2 | % |
Financial services | 18,139 | | | 16,711 | | | 1,428 | | | 8.5 | % |
| $ | 330,422 | | | $ | 254,801 | | | $ | 75,621 | | | 29.7 | % |
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Factory-built homes sold | | | | | | | |
by Company-owned retail sales centers | 723 | | | 752 | | | (29) | | (3.9) | % |
to independent retailers, builders, communities & developers | 2,977 | | | 2,597 | | | 380 | | | 14.6 | % |
| 3,700 | | | 3,349 | | | 351 | | | 10.5 | % |
Net factory-built housing revenue per home sold | $ | 84,401 | | | $ | 71,093 | | | $ | 13,308 | | | 18.7 | % |
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($ in thousands, except revenue per home sold) | July 2, 2022 | | July 3, 2021 | | Change |
Factory-built housing | $ | 572,597 | | | $ | 312,283 | | | $ | 260,314 | | | 83.4 | % |
Financial services | 15,741 | | | 18,139 | | | (2,398) | | | (13.2) | % |
| $ | 588,338 | | | $ | 330,422 | | | $ | 257,916 | | | 78.1 | % |
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Factory-built homes sold | | | | | | | |
by Company-owned retail sales centers | 873 | | | 723 | | | 150 | | 20.7 | % |
to independent retailers, builders, communities and developers | 4,473 | | | 2,977 | | | 1,496 | | | 50.3 | % |
| 5,346 | | | 3,700 | | | 1,646 | | | 44.5 | % |
Net factory-built housing revenue per home sold | $ | 107,108 | | | $ | 84,401 | | | $ | 22,707 | | | 26.9 | % |
In the factory-built housing segment, the increase in Net revenuesrevenue was primarily due to a 10.5% increase in units sold and 18.7%an increase in the average sales price.price and the number of units sold. The higher home prices were driven by product price increases and a shift toward more multi-section homes.increases. Home sales volume increased from higher factory capacity utilization. On a sequential basis, adjustingthe addition of Commodore, which provided $101 million in Net revenue for the extra week of production in the fourth quarter of fiscal year 2021, home sales volume would have also increased from slightlythree months ended July 2, 2022, and higher factory capacity utilization.
Net factory-built housing revenue per home sold is a volatile metric dependent upon several factors. A primary factor is the price disparity between sales of homes to independent distributors, builders, communities and developers and sales of homes to consumers by Company-owned retail stores. Wholesale sales prices are primarily comprised of the home and the cost to ship the home from a homebuilding facility to the home-site. Retail home prices include these items and retail markup, as well as items that are largely subject to home buyer discretion, including, but not limited to, installation, utility connections, site improvements, landscaping and additional services. Our homes are constructed in one or more floor sections ("modules") which are then installed on the customer's site. Changes in the number of modules per home, the selection of different home types/models and optional home upgrades create changes in product mix, also causing fluctuations in this metric. The table below presents the mix of modules and homes shippedsold for the three months ended July 2, 2022 and July 3, 2021 and June 27, 2020:2021:
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| Three Months Ended | | | | |
| July 3, 2021 | | June 27, 2020 | | Change |
| Modules | | Homes | | Modules | | Homes | | Modules | | Homes |
U.S. Housing and Urban Development code homes | 5,652 | | | 3,276 | | | 4,881 | | | 2,865 | | | 15.8 | % | | 14.3 | % |
Modular homes | 468 | | | 226 | | | 466 | | | 215 | | | 0.4 | % | | 5.1 | % |
Park model RVs | 198 | | | 198 | | | 269 | | | 269 | | | (26.4) | % | | (26.4) | % |
| 6,318 | | | 3,700 | | | 5,616 | | | 3,349 | | | 12.5 | % | | 10.5 | % |
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| Modules | | Homes | | Modules | | Homes | | Modules | | Homes |
HUD code homes | 8,515 | | | 4,854 | | | 5,652 | | | 3,276 | | | 50.7 | % | | 48.2 | % |
Modular homes | 486 | | | 251 | | | 468 | | | 226 | | | 3.8 | % | | 11.1 | % |
Park model RVs | 241 | | | 241 | | | 198 | | | 198 | | | 21.7 | % | | 21.7 | % |
| 9,242 | | | 5,346 | | | 6,318 | | | 3,700 | | | 46.3 | % | | 44.5 | % |
Financial services segment revenue increaseddecreased primarily due to higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year. These gains were partially offset by lower unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, which were $0.4 million and $1.0 million for the three months ended July 3, 2021 and June 27, 2020, respectively, and lower interest income earned on the acquired consumer loan portfolios that continue to amortize.
home loan sales, partially offset by more insurance policies in force. For the three months ended July 2, 2022 and July 3, 2021, we recognized unrealized losses on marketable equity securities of $1.2 million and unrealized gains of $0.4 million, respectively. Gross Profit.Profit
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| Three Months Ended | | | | |
($ in thousands) | July 3, 2021 | | June 27, 2020 | | Change |
Factory-built housing | $ | 66,273 | | | $ | 46,992 | | | $ | 19,281 | | | 41.0 | % |
Financial services | 7,740 | | | 8,331 | | | (591) | | | (7.1) | % |
| $ | 74,013 | | | $ | 55,323 | | | $ | 18,690 | | | 33.8 | % |
Gross profit as % of Net revenue | | | | | | | |
Consolidated | 22.4 | % | | 21.7 | % | | N/A | | 0.7 | % |
Factory-built housing | 21.2 | % | | 19.7 | % | | N/A | | 1.5 | % |
Financial services | 42.7 | % | | 49.9 | % | | N/A | | (7.2) | % |
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($ in thousands) | July 2, 2022 | | July 3, 2021 | | Change |
Factory-built housing | $ | 139,586 | | | $ | 66,273 | | | $ | 73,313 | | | 110.6 | % |
Financial services | 5,138 | | | 7,740 | | | (2,602) | | | (33.6) | % |
| $ | 144,724 | | | $ | 74,013 | | | $ | 70,711 | | | 95.5 | % |
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Gross profit as % of Net revenue | | | | | | | |
Consolidated | 24.6 | % | | 22.4 | % | | N/A | | 2.2 | % |
Factory-built housing | 24.4 | % | | 21.2 | % | | N/A | | 3.2 | % |
Financial services | 32.6 | % | | 42.7 | % | | N/A | | (10.1) | % |
Factory-built housing gross profit increased for the three months ended July 2, 2022 primarily due to higher average sales prices, increased home sales volume and streamlining of our HUD code product offering across our network, partially offset by higher average sales prices.materials costs per unit. We continue to monitor and react to inflation in building material prices by maintaining a focus on our product pricing; however, product price increases may lag behind the escalation of building material costs. Gross profit as a percentage of Net revenue also increased this period from a shift toward more multi-section homes.
For the three months ended July 2, 2022, Financial services gross profit decreased primarily due to higher weather-relatedweather related claims volume and lower unrealized gainslosses on marketable equity securities.securities compared to unrealized gains in the prior year period.
Selling, General and Administrative Expenses.Expenses
| | | | | | Three Months Ended | | | Three Months Ended | |
($ in thousands) | ($ in thousands) | July 3, 2021 | | June 27, 2020 | | Change | ($ in thousands) | July 2, 2022 | | July 3, 2021 | | Change |
Factory-built housing | Factory-built housing | $ | 35,497 | | | $ | 30,737 | | | $ | 4,760 | | | 15.5 | % | Factory-built housing | $ | 60,923 | | | $ | 35,497 | | | $ | 25,426 | | | 71.6 | % |
Financial services | Financial services | 5,335 | | | 4,586 | | | 749 | | | 16.3 | % | Financial services | 5,213 | | | 5,335 | | | (122) | | | (2.3) | % |
| | $ | 40,832 | | | $ | 35,323 | | | $ | 5,509 | | | 15.6 | % | | $ | 66,136 | | | $ | 40,832 | | | $ | 25,304 | | | 62.0 | % |
Selling, general and administrative expenses as % of Net revenue | Selling, general and administrative expenses as % of Net revenue | 12.4 | % | | 13.9 | % | | N/A | | (1.5) | % | Selling, general and administrative expenses as % of Net revenue | 11.2 | % | | 12.4 | % | | N/A | | (1.2) | % |
For the three months ended July 2, 2022, Selling, general and administrative expenses related to factory-built housing increased between periods primarily from the addition of Commodore, higher salary and incentive-based compensation expense. This was partially offset by a reductionexpense and expenses incurred in engaging third-party consultants in relation to claiming the non-recurring energy efficient home net tax credits which were recognized in the amortization of the additional Director and Officer insurance premium, added in the third quartersecond half of fiscal year 2019, which was $2.1 million for the three months ended June 27, 2020, with no expense in the current period.2022.
In Financial services,As a percentage of Net revenue, Selling, general and administrative expenses increased primarilyimproved 120 basis points from greater expensingbetter utilization of deferred originationfixed costs on higher loan sales and higher compensation expense.
Other Components of Net Income.Income
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($ in thousands) | ($ in thousands) | July 3, 2021 | | June 27, 2020 | | Change | ($ in thousands) | July 2, 2022 | | July 3, 2021 | | Change |
Interest expense | Interest expense | $ | 164 | | | $ | 196 | | | $ | (32) | | | (16.3) | % | Interest expense | $ | 161 | | | $ | 164 | | | $ | (3) | | | (1.8) | % |
Other income, net | Other income, net | 2,461 | | | 1,876 | | | 585 | | | 31.2 | % | Other income, net | 883 | | | 2,461 | | | (1,578) | | | (64.1) | % |
Income tax expense | Income tax expense | 8,432 | | | 5,006 | | | 3,426 | | | 68.4 | % | Income tax expense | 19,616 | | | 8,432 | | | 11,184 | | | 132.6 | % |
Effective tax rate | Effective tax rate | 23.8 | % | | 23.1 | % | | N/A | | 0.7 | % | Effective tax rate | 24.7 | % | | 23.8 | % | | N/A | | 0.9 | % |
Interest expense consists primarily of debt service on the financings of manufactured home-only loans and interest related to finance leases.
Other income, net primarily consists of realized and unrealized gains and losses on corporate investments, interest income related to commercial loan receivable balances, interest income earned on cash balances and gains and losses from the sale of property, plant and equipment. The increase is driven by moreOther income, net declined from a $1.1 million unrealized loss on corporate marketable investments and lower interest income earned on largerreduced cash and commercial loan receivables than the prior year period.balances.
Liquidity and Capital Resources
We believe that cash and cash equivalents at July 3, 2021,2, 2022, together with cash flow from operations, will be sufficient to fund our operations, cover our obligations and provide for growth for the next 12 months and into the foreseeable future. We maintain cash in U.S. Treasury and other money market funds, some of which are in excess of federally insured limits. We expect to continue to evaluate potential acquisitions of, or strategic investments in, businesses that are complementary to the Company, as well as other expansion opportunities. Such transactions may require the use of cash and have other impacts on our liquidity and capital resources. Because of our sufficient cash position, we have not historically sought external sources of liquidity, with the exception of certain credit facilities for theour home-only lending programs. Regardless, depending on our operating results and strategic opportunities, we may needchoose to seek additional or alternative sources of financing in the future. There can be no assurance that such financing would be available on satisfactory terms, if at all. If this financing were not available, it could be necessary for us to reevaluate our long-term operating plans to make more efficient use of our existing capital resources at such time. The exact nature of any changes to our plans that would be considered depends on various factors, such as conditions in the factory-built housing industry and general economic conditions outside of our control.
State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies. As a result, the assets owned by our insurance subsidiary are generally not available to satisfy the claims of Cavco or its legal subsidiaries. We believe that stockholders' equity at the insurance subsidiary remains sufficient and do not believe that the ability to pay ordinary dividends to Cavco at anticipated levels will be restricted per state regulations.
The following is a summary of the Company's cash flows for the three months ended July 2, 2022 and July 3, 2021, and June 27, 2020, respectively:
| | | Three Months Ended | | | Three Months Ended | |
(in thousands) | (in thousands) | July 3, 2021 | | June 27, 2020 | | $ Change | (in thousands) | July 2, 2022 | | July 3, 2021 | | $ Change |
Cash, cash equivalents and restricted cash at beginning of the fiscal year | Cash, cash equivalents and restricted cash at beginning of the fiscal year | $ | 339,307 | | | $ | 255,607 | | | $ | 83,700 | | Cash, cash equivalents and restricted cash at beginning of the fiscal year | $ | 259,334 | | | $ | 339,307 | | | $ | (79,973) | |
Net cash provided by operating activities | Net cash provided by operating activities | 24,275 | | | 35,692 | | | (11,417) | | Net cash provided by operating activities | 58,240 | | | 24,275 | | | 33,965 | |
Net cash (used in) provided by investing activities | (3,616) | | | 105 | | | (3,721) | | |
Net cash used in investing activities | | Net cash used in investing activities | (24,399) | | | (3,616) | | | (20,783) | |
Net cash used in financing activities | Net cash used in financing activities | (13,150) | | | (922) | | | (12,228) | | Net cash used in financing activities | (40,213) | | | (13,150) | | | (27,063) | |
Cash, cash equivalents and restricted cash at end of the period | Cash, cash equivalents and restricted cash at end of the period | $ | 346,816 | | | $ | 290,482 | | | $ | 56,334 | | Cash, cash equivalents and restricted cash at end of the period | $ | 252,962 | | | $ | 346,816 | | | $ | (93,854) | |
Net cash provided by operating activities decreasedincreased primarily due to the rising material costs of our raw materials andfrom higher purchases of such materials.net income adjusted for non-cash items. This increase was partially offset by higher proceeds from consumerincreased lending in our Financial Services segment, as well as under our commercial loan sales of $49.6 million compared to $39.3 million in the previous year.
programs. Consumer loan originations decreased $4.7increased $4.8 million to $47.5 million for the three months ended July 2, 2022 from $42.7 million for the three months ended July 3, 2021 from $47.4 million for the three months ended June 27, 2020 due to origination personnel shortages.
We enter into commercial loan arrangements with distributors, communities and developers under which the Company provides funds for financing homes. In addition, we enter into commercial loan arrangements with certain distributors of our products under which the Company provides funds for wholesale purchases. We have also invested in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities. For additional information regarding our commercial loans receivable, see Note 7 to the Consolidated Financial Statements. Further, we invest in and develop home-only loan pools and lending programs to attract third party financier interest in order to grow sales of new homes through traditional distribution points. Increased lending activity resulted in a net use of $0.2 million while the prior period net activity provided $2.6 million.2021.
Net cash used in or provided by investing activities consistconsists of buying and selling debt and marketable equity securities in our Financial Services segment, purchases of property, plant and equipment and funding strategic growth acquisitions. Greater cash was used in the current period forreflects the purchase of debt securities.plant facilities in Hamlet, North Carolina.
Net cash used in financing activities for the current period was primarily for the repurchase of common stock.
We entered into secured credit facilities with independent third-party banks to facilitate the origination of consumer home-only loans to be held for investment, secured by the manufactured homes which were subsequently pledged as collateral to the facilities. Upon completion of the draw down periods, these facilities were converted into an amortizing loan based on a 20 or 25-year amortization period with a balloon payment due upon maturity. As of July 3, 2021, the outstanding balance of the converted loans was $8.0 million with a weighted average interest rate of 4.91%stock.
Contractual Commitments and Contingencies. There were no material changes to the contractual obligations as set forth in our Annual Report on Form 10-K.
Critical Accounting Policies
There have been no other significant changes to our critical accounting policies during the three months ended July 3, 2021, as compared to those disclosed in Part II, Item 7 of our Form 10-K, under the heading "Critical Accounting Policies," which provides a discussion of the critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.
Other Matters
Related Party Transactions. See Note 18 to the Consolidated Financial Statements for a discussion of our related party transactions.
Off Balance Sheet Arrangements
See Note 14 to the Consolidated Financial Statements for a discussion of our off-balance sheet commitments, which discussion is incorporated herein by reference.
Obligations and Commitments. There were no material changes to the obligations and commitments as set forth in our Annual Report on Form 10-K.
Critical Accounting Estimates
Except as described in Note 1 to the Consolidated Financial Statements, there have been no other significant changes to our critical accounting estimates during the three months ended July 2, 2022, as compared to those disclosed in Part II, Item 7 of our Form 10-K, under the heading "Critical Accounting Estimates," which provides a discussion of the critical accounting estimates that management believes affect its more significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.
Other Matters
Impact of Inflation. At the end of the period, inflation was the highest in the U.S. in over 30 years. Our ability to maintain certain levels of gross margin can be adversely impacted by sudden increases in specific costs, such as the increases in materials and labor. In addition, measures used by the Federal Reserve to combat inflation, such as increases in interest rates, could also have an impact on the ability of home buyers to obtain affordable financing. We can give no assurance that inflation will not affect our future profitability and financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its President and Chief Executive Officer and its PrincipalChief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company's President and Chief Executive Officer and its PrincipalChief Financial Officer concluded that, as of July 3, 2021,2, 2022, its disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting
There havehas been no changeschange in the Company's internal controlscontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended July 3, 20212, 2022 which havehas materially affected, or areis reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See the information under the "Legal Matters" caption in Note 14 to the Consolidated Financial Statements, which is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this Report and in the Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
OnAs announced on October 27,29, 2020 in a current report on Form 8-K, the Company's Board of Directors approved a $100 million stock repurchase program which was announced on a Current Report on Form 8-K filed with the Securities and Exchange Commission on October 29, 2020, and that may be used to purchase its outstanding common stock. The repurchases may be made inprogram was completed during the open market or in privately negotiated transactions in compliance with applicable state and federal securities laws and other legal requirements. The levelfirst quarter of repurchase activity is subject to market conditions and other investment opportunities.fiscal year 2023. The repurchase program does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time. The repurchase program iswas funded using our available cash. The following table sets forth repurchases of our common stock during the first quartercurrent quarter:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of the Publicly Announced Program | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in thousands) |
April 3, 2022 to May 7, 2022 | | 163,040 | | | $ | 238.96 | | | 163,040 | | | $ | — | |
May 8, 2022 to June 4, 2022 | | — | | | — | | | — | | | — | |
June 5, 2022 to July 2, 2022 | | — | | | — | | | — | | | — | |
| | 163,040 | | | $ | 238.96 | | | 163,040 | | | $ | — | |
As announced on May 26, 2022 in a current report on Form 8-K, the Company's Board of fiscal year 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of the Publically Announced Program | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in thousands) |
April 4, 2021 to May 8, 2021 | | 32,984 | | | $ | 212.87 | | | 32,984 | | | $ | 91,538 | |
May 9, 2021 to June 5, 2021 | | 28,317 | | | 205.56 | | | 28,317 | | | 85,717 | |
June 6, 2021 to July 3, 2021 | | — | | | — | | | — | | | 85,717 | |
| | 61,301 | | | | | 61,301 | | | |
Directors approved another $100 million stock repurchase program with the same terms and conditions as the previous plan. There have been no repurchases made under this program.Item 5. Other Information
There is no other information required to be disclosed under this item which was not previously disclosed.
Item 6. Exhibits
| Exhibit No. | Exhibit No. | | Exhibit | | Exhibit No. | | Exhibit | |
| | (1) | | | | (1) | | |
| | (1) | | | | (1) | | |
| | (2) | | | | (2) | | |
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101.SCH | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
All other items required under Part II are omitted because they are not applicable.
(1) Filed herewith.
(2) Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Cavco Industries, Inc. | | | |
Registrant | | | |
| | | |
Signature | | Title | Date |
| | | |
/s/ William C. Boor | | Director, President and Chief Executive Officer | August 6, 20215, 2022 |
William C. Boor | | (Principal Executive Officer) | |
| | | |
/s/ Paul BigbeeAllison K. Aden | | Executive Vice President, Chief AccountingFinancial Officer & Treasurer | August 6, 20215, 2022 |
Paul BigbeeAllison K. Aden | | (Principal Financial and Accounting Officer) | |
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