CAVCO INDUSTRIES, INC. 10-Q

Item 1. Financial Statements CAVCO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) July 3, 2021 April 3, 2021 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 329,753 $ 322,279 Restricted cash, current 16,728 16,693 Accounts receivable, net 51,054 47,396 Short-term investments 19,749 19,496 Current portion of consumer loans receivable, net 32,429 37,690 Current portion of commercial loans receivable, net 16,500 14,568 Current portion of commercial loans receivable from affiliates, net 2,113 4,664 Inventories 150,917 131,234 Prepaid expenses and other current assets 48,621 57,779 Total current assets 667,864 651,799 Restricted cash 335 335 Investments 38,192 35,010 Consumer loans receivable, net 35,095 37,108 Commercial loans receivable, net 21,245 20,281 Commercial loans receivable from affiliates, net 4,730 4,801 Property, plant and equipment, net 97,981 96,794 Goodwill 75,090 75,090 Other intangibles, net 14,190 14,363 Operating lease right-of-use assets 16,150 16,252 Total assets $ 970,872 $ 951,833 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 30,175 $ 32,120 Accrued expenses and other current liabilities 210,190 203,133 Current portion of secured financings and other 1,822 1,851 Total current liabilities 242,187 237,104 Operating lease liabilities 13,085 13,361 Secured financings and other 9,927 10,335 Deferred income taxes 6,606 7,393 Stockholders' equity 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 9,245,721 and 9,241,256 shares, respectively 92 92 Treasury stock, at cost; 67,901 and 6,600 shares, respectively ( 14,283 ) ( 1,441 ) Additional paid-in capital 255,071 253,835 Retained earnings 458,103 431,057 Accumulated other comprehensive income 84 97 Total stockholders' equity 699,067 683,640 Total liabilities and stockholders' equity $ 970,872 $ 951,833 See accompanying Notes to Consolidated Financial Statements 1 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended July 3, 2021 June 27, 2020 Net revenue $ 330,422 $ 254,801 Cost of sales 256,409 199,478 Gross profit 74,013 55,323 Selling, general and administrative expenses 40,832 35,323 Income from operations 33,181 20,000 Interest expense ( 164 ) ( 196 ) Other income, net 2,461 1,876 Income before income taxes 35,478 21,680 Income tax expense ( 8,432 ) ( 5,006 ) Net income $ 27,046 $ 16,674 Comprehensive income Net income $ 27,046 $ 16,674 Reclassification adjustment for securities sold 1 26 Applicable income taxes — ( 5 ) Net change in unrealized position of investments held ( 18 ) 59 Applicable income taxes 4 ( 12 ) $ 27,033 $ 16,742 Net income per share Basic $ 2.94 $ 1.82 Diluted $ 2.92 $ 1.80 Weighted average shares outstanding Basic 9,198,229 9,174,182 Diluted 9,276,529 9,264,661 See accompanying Notes to Consolidated Financial Statements 2 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended July 3, 2021 June 27, 2020 OPERATING ACTIVITIES Net income $ 27,046 $ 16,674 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,576 1,613 Provision for credit losses ( 239 ) ( 884 ) Deferred income taxes ( 783 ) 406 Stock-based compensation expense 1,100 945 Non-cash interest income, net ( 394 ) ( 2,186 ) Gain (loss) on sale or retirement of property, plant and equipment, net ( 35 ) 289 Gain on investments and sale of loans, net ( 5,579 ) ( 4,982 ) Changes in operating assets and liabilities Accounts receivable ( 3,659 ) 4,629 Consumer loans receivable originated ( 42,706 ) ( 47,356 ) Proceeds from sales of consumer loans 49,631 39,271 Principal payments received on consumer loans receivable 3,929 3,261 Inventories ( 19,683 ) 7,139 Prepaid expenses and other current assets 2,801 7,128 Commercial loans receivable ( 243 ) 2,556 Accounts payable and accrued expenses and other current liabilities 11,513 7,189 Net cash provided by operating activities 24,275 35,692 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 2,593 ) ( 1,856 ) Proceeds from sale of property, plant and equipment 38 5 Purchases of investments ( 4,429 ) ( 1,160 ) Proceeds from sale of investments 3,368 3,116 Net cash (used in) provided by investing activities ( 3,616 ) 105 FINANCING ACTIVITIES Proceeds from (payments for) exercise of stock options 136 ( 533 ) Proceeds from secured financings and other — 64 Payments on secured financings and other ( 444 ) ( 453 ) Payments for common stock repurchases ( 12,842 ) — Net cash used in financing activities ( 13,150 ) ( 922 ) Net increase in cash, cash equivalents and restricted cash 7,509 34,875 Cash, cash equivalents and restricted cash at beginning of the fiscal year 339,307 255,607 Cash, cash equivalents and restricted cash at end of the period $ 346,816 $ 290,482 Supplemental disclosures of cash flow information Cash paid for income taxes $ 4,774 $ 2,536 Cash paid for interest $ 100 $ 127 Supplemental disclosures of noncash activity Change in GNMA loans eligible for repurchase $ ( 6,607 ) $ 1,242 Right-of-use assets recognized and operating lease obligations incurred $ 708 $ 5,559 See accompanying Notes to Consolidated Financial Statements 3 Table of Contents CAVCO INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that are necessary to fairly state the results for the periods presented. We have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the 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 subsequent events requiring disclosure. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our 2021 Annual Report on Form 10-K for the year ended April 3, 2021, 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 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. Due to that and other uncertainties, actual results could differ from those estimates. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31 st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31 st . The current fiscal year will end on April 2, 2022 and will include 52 weeks. We operate in two 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 20 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through our 40 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. 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. 4 Table of Contents 2. Revenue from Contracts with Customers The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands): Three Months Ended July 3, 2021 June 27, 2020 Factory-built housing U.S. Housing and Urban Development code homes $ 262,390 $ 189,446 Modular homes 26,617 20,783 Park model RVs 9,671 13,722 Other 13,605 14,139 312,283 238,090 Financial services Insurance agency commissions received from third-party insurance companies 873 770 Other 17,266 15,941 18,139 16,711 $ 330,422 $ 254,801 3. Restricted Cash Restricted cash consisted of the following (in thousands): July 3, 2021 April 3, 2021 Cash related to CountryPlace customer payments to be remitted to third parties $ 15,928 $ 16,049 Other restricted cash 1,135 979 17,063 17,028 Less current portion ( 16,728 ) ( 16,693 ) $ 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 on the Consolidated Statements of Cash Flows (in thousands): July 3, 2021 April 3, 2021 Cash and cash equivalents $ 329,753 $ 322,279 Restricted cash 17,063 17,028 $ 346,816 $ 339,307 5 Table of Contents 4. Investments Investments consisted of the following (in thousands): July 3, 2021 April 3, 2021 Available-for-sale debt securities $ 17,962 $ 14,946 Marketable equity securities 17,550 17,600 Non-marketable equity investments 22,429 21,960 57,941 54,506 Less current portion ( 19,749 ) ( 19,496 ) $ 38,192 $ 35,010 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, non-marketable equity investments included contributions of $ 15.0 million t 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 in other distribution operations. The following tables summarize our available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment category (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. 6 Table of Contents 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 Amortized Cost Fair Value Due in less than one year $ 1,518 $ 1,519 Due after one year through five years 11,033 11,028 Due after five years through ten years 1,391 1,450 Due after ten years 1,305 1,341 Mortgage-backed securities 2,609 2,624 $ 17,856 $ 17,962 There were no gross gains or losses realized on the sale of available-for-sale debt securities during t he three months ended July 3, 2021 or June 27, 2020. 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 5. Inventories Inventories consisted of the following (in thousands): July 3, 2021 April 3, 2021 Raw materials $ 69,123 $ 54,336 Work in process 20,426 19,149 Finished goods 61,368 57,749 $ 150,917 $ 131,234 7 Table of Contents 6. Consumer Loans Receivable The following table summarizes consumer loans receivable (in thousands): July 3, 2021 April 3, 2021 Loans held for investment, previously securitized $ 30,384 $ 31,949 Loans held for investment 17,565 18,690 Loans held for sale 13,542 15,587 Construction advances 10,479 13,801 71,970 80,027 Deferred financing fees and other, net ( 1,528 ) ( 2,041 ) Allowance for loan losses ( 2,918 ) ( 3,188 ) 67,524 74,798 Less current portion ( 32,429 ) ( 37,690 ) $ 35,095 $ 37,108 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 July 3, 2021 June 27, 2020 Allowance for loan losses at beginning of period $ 3,188 $ 1,767 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") — 2,276 Change in estimated loan losses, net ( 267 ) 161 Charge-offs ( 3 ) ( 192 ) Allowance for loan losses at end of period $ 2,918 $ 4,012 The consumer loans held for investment had the following characteristics: July 3, 2021 April 3, 2021 Weighted average contractual interest rate 8.2 % 8.3 % Weighted average effective interest rate 8.8 % 9.3 % Weighted average months to maturity 160 162 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 8 Table of Contents The following tables disaggregate gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands): July 3, 2021 2022 2021 2020 2019 2018 Prior Total Prime- FICO score 680 and greater $ 5,068 $ 10,500 $ 2,970 $ 1,578 $ 770 $ 24,028 $ 44,914 Near Prime- FICO score 620-679 2,312 6,528 2,159 1,676 1,360 10,353 24,388 Sub-Prime- FICO score less than 620 — 260 53 — — 1,605 1,918 No FICO score 150 149 — 27 — 424 750 $ 7,530 $ 17,437 $ 5,182 $ 3,281 $ 2,130 $ 36,410 $ 71,970 April 3, 2021 2021 2020 2019 2018 2017 Prior Total Prime- FICO score 680 and greater $ 18,250 $ 3,575 $ 1,718 $ 971 $ 1,959 $ 23,375 $ 49,848 Near Prime- FICO score 620-679 10,227 2,744 1,794 1,364 500 10,401 27,030 Sub-Prime- FICO score less than 620 348 53 — — 84 1,579 2,064 No FICO score 576 — 28 — — 481 1,085 $ 29,401 $ 6,372 $ 3,540 $ 2,335 $ 2,543 $ 35,836 $ 80,027 As of July 3, 2021 and April 3, 2021 , 35 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 20 % was concentrated in Florida. Other than Texas and Florida, no sta te had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of July 3, 2021 or April 3, 2021. Repossessed homes totaled approximately $ 493,000 and $ 518,000 as of July 3, 2021 and April 3, 2021, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $ 1.0 million and $ 1.1 million as of July 3, 2021 and April 3, 2021, 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. Commercial loans receivable, 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 9 Table of Contents The commercial loans receivable balance had the following characteristics: July 3, 2021 April 3, 2021 Weighted average contractual interest rate 6.0 % 6.4 % Weighted average months to maturity 10 11 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 July 3, 2021 June 27, 2020 Balance at beginning of period $ 816 $ 393 Impact of adoption of ASU 2016-13 — 435 Change in estimated loan losses, net ( 31 ) — Balance at end of period $ 785 $ 828 As of July 3, 2021 and April 3, 2021, there were no commercial loans considered watch list or nonperforming. The following table disaggregates 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 April 3, 2021 2021 2020 2019 2018 2017 Prior Total Performing $ 30,627 $ 8,677 $ 3,206 $ 1,864 $ 1,003 $ — $ 45,377 At July 3, 2021, there were no 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 % of our outstanding commercial loans receivable principal balance was concentrated in Arizona and 13 % was concentrated in California. As of April 3, 2021, 13 % of our outstanding commercial loans receivable principal balance was concentrated in Arizona. No other state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of July 3, 2021 or April 3, 2021. We had concentrations with one independent third-party and its affiliates that equaled 18 % of the net commercial loans receivable principal balance outstanding, all of which was secured, as of July 3, 2021 and April 3, 2021 . 10 Table of Contents 8. Property, Plant and Equipment, net Property, plant and equipment, net, consisted of the following (in thousands): July 3, 2021 April 3, 2021 Property, plant and equipment, at cost Land $ 28,314 $ 28,314 Buildings and improvements 73,415 71,827 Machinery and equipment 35,075 34,146 136,804 134,287 Accumulated depreciation ( 38,823 ) ( 37,493 ) $ 97,981 $ 96,794 Depreciation expense was $ 1.4 million for each of the three month periods ended July 3, 2021 and June 27, 2020. 9. Goodwill and Other Intangibles Goodwill and other intangibles, net, consisted of the following (in thousands): July 3, 2021 April 3, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Indefinite-lived Goodwill $ 75,090 $ — $ 75,090 $ 75,090 $ — $ 75,090 Trademarks and trade names 8,900 — 8,900 8,900 — 8,900 State insurance licenses 1,100 — 1,100 1,100 — 1,100 85,090 — 85,090 85,090 — 85,090 Finite-lived Customer relationships 11,300 ( 7,255 ) 4,045 11,300 ( 7,097 ) 4,203 Other 1,424 ( 1,279 ) 145 1,424 ( 1,264 ) 160 $ 97,814 $ ( 8,534 ) $ 89,280 $ 97,814 $ ( 8,361 ) $ 89,453 Amortization expense recognized on intangible assets was $ 173,000 and $ 187,000 for the three months ended July 3, 2021 and June 27, 2020, respectively. 11 Table of Contents 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 Customer deposits $ 48,989 $ 41,835 Salaries, wages and benefits 37,176 37,737 Unearned insurance premiums 24,125 22,643 Company repurchase options on certain loans sold 19,432 25,938 Estimated warranties 19,344 18,032 Accrued volume rebates 14,097 12,132 Other 47,027 44,816 $ 210,190 $ 203,133 11. Warranties Activity in the liability for estimated warranties was as follows (in thousands): Three Months Ended July 3, 2021 June 27, 2020 Balance at beginning of period $ 18,032 $ 18,678 Charged to costs and expenses 9,125 6,347 Payments and deductions ( 7,813 ) ( 6,487 ) Balance at end of period $ 19,344 $ 18,538 12. Debt and Finance Lease Obligations 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 obligations (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 %. 12 Table of Contents 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 July 3, 2021 June 27, 2020 Written Earned Written Earned Direct premiums $ 6,839 $ 5,996 $ 5,765 $ 5,185 Assumed premiums—nonaffiliated 8,574 7,378 7,653 6,790 Ceded premiums—nonaffiliated ( 3,647 ) ( 3,647 ) ( 3,202 ) ( 3,202 ) $ 11,766 $ 9,727 $ 10,216 $ 8,773 Typical insurance policies written or assumed have a maximum coverage of $ 300,000 per claim, of which we cede $ 150,000 of the risk of loss per reinsurance. Therefore, our risk of loss is limited to $ 150,000 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 million in the aggregate for that occurrence. Standard Casualty establishes reserves for claims and claims expense on reported and unreported claims of non-reinsured losses. The following details the activity in the reserve for the three months ended July 3, 2021 and June 27, 2020 (in thousands): Three Months Ended July 3, 2021 June 27, 2020 Balance at beginning of period $ 7,451 $ 5,582 Net incurred losses during the year 7,975 5,982 Net claim payments during the year ( 7,078 ) ( 4,834 ) Balance at end of period $ 8,348 $ 6,730 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 were liable under such agreements approximated $ 80.9 million and $ 74.2 million at July 3, 2021 and April 3, 2021, respectively, without reduction for the resale value of the homes that are repurchased. We had a reserve for repurchase commitments of $ 2.3 million at July 3, 2021 and April 3, 2021. 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. 13 Table of Contents Loan contracts with off-balance sheet commitments are summarized below (in thousands): July 3, 2021 April 3, 2021 Construction loan contract amount $ 28,204 $ 37,628 Cumulative advances ( 10,479 ) ( 13,801 ) $ 17,725 $ 23,827 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 repurch ase the loan or to indemnify a party for incurred losses. We maintain a reserve for these contingent repurchase and indemnification obliga tions. This reserve of $ 1.3 million as of July 3, 2021 and $ 1.2 million as of April 3, 2021, included in Accrued expenses and other current liabilities, reflects management's estimate of probable loss. There were no 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. 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, we had outstanding IRLCs with a notional amount of $ 32.1 million and recognized a gain of $ 47,000 in the 2022 first quarter and a loss of $ 125,000 in the 2021 first 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, we had $ 42.9 million in outstanding Commitments and recognized a non-cash loss of $ 347,000 in the 2022 first quarter and gain of $ 1.0 million in the 2021 first quarter . Legal Matters. Since 2018, we have been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional Office regarding securities trading in personal and Company accounts directed by the Company 's former Chief Executive Officer, Joseph Stegmayer. As previously disclosed, in November 2020, the SEC staff issued a Wells Notice to Cavco stating 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 to have a material adverse effect on our Consolidated Financial Statements. We are party to certain other lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and, in certain cases, advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on 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 in the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods . 14 Table of Contents 15. Stockholders' Equity The following table represents changes in stockholders' equity during the three months ended July 3, 2021 (dollars in thousands): 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 — — — — 27,046 — 27,046 Other comprehensive income, 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 The following table represents changes in stockholders' equity during the three months ended June 27, 2020 (dollars in thousands): 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 $ — $ 252,260 $ 355,144 $ 90 $ 607,586 Cumulative effect of implementing ASU 2016-13, net — — — — ( 733 ) — ( 733 ) Net income — — — — 16,674 — 16,674 Other comprehensive income, net — — — — — 68 68 Issuance of common stock under stock incentive plans 3,822 — — ( 533 ) — — ( 533 ) Stock-based compensation — — — 945 — — 945 Balance, June 27, 2020 9,177,064 $ 92 $ — $ 252,672 $ 371,085 $ 158 $ 624,007 15 Table of Contents 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 July 3, 2021 June 27, 2020 Net income $ 27,046 $ 16,674 Weighted average shares outstanding Basic 9,198,229 9,174,182 Effect of dilutive securities 78,300 90,479 Diluted 9,276,529 9,264,661 Net income per share Basic $ 2.94 $ 1.82 Diluted $ 2.92 $ 1.80 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 Book Value Estimated Fair Value Book Value Estimated Fair Value Available-for-sale debt securities $ 17,962 $ 17,962 $ 14,946 $ 14,946 Marketable equity securities 17,550 17,550 17,600 17,600 Non-marketable equity investments 22,429 22,429 21,960 21,960 Consumer loans receivable 67,524 76,466 74,798 86,209 Commercial loans receivable 44,588 42,586 44,314 42,379 Secured financings other ( 11,749 ) ( 11,810 ) ( 12,186 ) ( 12,340 ) 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. July 3, 2021 April 3, 2021 Number of loans serviced with MSRs 4,614 4,647 Weighted average servicing fee (basis points) 33.86 33.57 Capitalized servicing multiple 67.3 % 45.9 % Capitalized servicing rate (basis points) 22.78 15.42 Serviced portfolio with MSRs (in thousands) $ 594,373 $ 593,939 MSRs (in thousands) $ 1,354 $ 916 16 Table of Contents 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 3, 2021 and June 27, 2020, the total amount of sales to related parties was $ 14.8 million and $ 12.7 million, respectively. As of July 3, 2021, receivables from related parties included $ 4.3 million of accounts receivable and $ 6.8 million of commercial loans outstanding . As of April 3, 2021, receivables from related parties included $ 4.7 million of accounts receivable and $ 9.5 million of commercial loans outstanding. 19. Business Segment Information We operate principally in two 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 July 3, 2021 June 27, 2020 Net revenue Factory-built housing $ 312,283 $ 238,090 Financial services 18,139 16,711 $ 330,422 $ 254,801 Income before income taxes Factory-built housing $ 33,559 $ 18,450 Financial services 1,919 3,230 $ 35,478 $ 21,680 20. Subsequent Event On July 23, 2021 , we entered into an agreement to acquire the business and certain assets and liabilities of The Commodore Corporation ("Commodore"), including its six manufacturing and two 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. 17 Table of Contents