What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-05-31 compared with 2021-05-28 · 93 added, 182 removed, 130 unchanged (68% of the section changed)

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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;

potential acquisitions, strategic investments and other expansions;

operational and legal risks;

how we may be affected by the COVID-19 pandemic, governmental regulations and legal proceedings;

the availability of favorable consumer and wholesale manufactured home financing, market interest rates and Company investments;

how we may be affected by the COVID-19 pandemic 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;

and the ultimate outcome of our commitments and contingencies.

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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 under Item 1A, "Risk Factors," and elsewhere in this Annual Report.

We expressly disclaim any obligation to update any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise.

We expressly disclaim any obligation to update any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise, except as required by law.

For all of these reasons, you should not place undue reliance on any such forward-looking statements included in this Annual Report.

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References to "Note" or "Notes" pertain to the Notes to the 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, marketed under a variety of brand names, including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny.

We are also one of the leading producers of park model RVs, vacation cabins and factory-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand.

Our finance subsidiary, CountryPlace, is an approved Fannie Mae and Freddie Mac seller/servicer and a 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, provides property and casualty insurance to owners of manufactured homes.

From our inception in 1965, we have traditionally served affordable housing markets in the southwestern United States principally through manufactured home production.

During the period from 1997 to 2000, Cavco was purchased by, and became a wholly-owned subsidiary of, Centex Corporation, which operated the Company until 2003, when Cavco became a stand-alone publicly-held company traded on the Nasdaq Global Select Market under the ticker symbol CVCO.

We have strategically expanded our factory operations and related business activities primarily through the acquisition of other industry participants.

This has enabled us to meet the needs of the affordable housing market on a national basis.

We operate 20 homebuilding production lines located in Millersburg and Woodburn, Oregon;

Nampa, Idaho;

Riverside, California;

Phoenix and Goodyear, Arizona;

Austin, Fort Worth, Seguin and Waco, Texas;

Montevideo, Minnesota;

Nappanee, Indiana;

Lafayette, Tennessee;

Martinsville and Rocky Mount, Virginia;

Douglas and Moultrie, Georgia;

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 40 Company-owned U.S.

retail locations.

Our manufacturing facilities are strategically positioned across the United States and utilize local market research to design homes to meet the demands of our customers.

We have the ability to customize floor plans and designs to fulfill specific needs and interests.

By offering a full range of homes from entry-level models to large custom homes and with the ability to engineer designs in-house, we can accommodate virtually any customer request.

In addition to homes built to the federal HUD code, we also construct modular homes that conform to state and local codes, park model RVs, cabins and light commercial buildings at many of our manufacturing facilities.

We seek out niche market opportunities where our diverse product lines and custom building capabilities provide a competitive advantage.

Our green building initiatives involve the creation of an energy efficient envelope and higher utilization of renewable materials.

These homes provide environmentally-friendly maintenance requirements, typically lower utility costs and sustainability.

We also build homes designed to use alternative energy sources, such as solar and wind.

From bamboo flooring and tankless water heaters to solar-powered homes, our products are diverse and tailored to a wide range of consumer interests.

Innovation in housing design is a forte of the Company and we continue to introduce new models at competitive price points with expressive interiors and exteriors that complement home styles in the areas in which they are located.

Company Outlook

Housing demand remains strong as qualified individuals continue pursuing affordable home-ownership.

Home order rates have moderated from the extreme highs we saw during the summer of 2020 to the summer of 2021, but still remain above pre-pandemic rates, which we considered to be strong.

We maintain a backlog of orders from our network of licensed distributors, communities and developers.

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We strive to manage our production levels, capacity and workforce size based upon current market demand.

The backlog of home sales orders at April 3, 2021 was $603 million in total, up $479 million from $124 million as of March 28, 2020.

The backlog of home sales orders at April 2, 2022 was $1.1 billion in total, up $511 million from $603 million as of April 3, 2021.

The year over year increase includes $264 million attributable to Commodore.

Backlog excludes home orders that have been paused or canceled at the request of the customer.

During the onset of COVID-19, we continued to operate substantially all of our homebuilding and retail sales facilities while working to follow COVID-19 health guidelines.

We adjusted our operations to manage exposure and transmission risks by implementing enhanced facility cleaning, social distancing and other related protocols while continuing to serve our customers.

Operational efficiencies declined from adjusting home production processes to comply with health guidelines and managing higher factory employee absenteeism and building material supply shortages.

Accordingly, our factory capacity utilization rate fluctuated during the fiscal year and was at approximately 75% during the fourth fiscal quarter of 2021, compared to pre-pandemic levels of more than 80%.

While it is difficult to predict the future impacts of the COVID-19 pandemic on housing demand, employee availability, supply chain and Company performance and ope rations, 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 COVID-19 environment to increase home production.

Although we continue to experience hiring challenges and other inefficiencies from building material supply disruptions, we have reduced our total open production positions needed by nearly 25% over the past year, bringing our total average plant capacity utilization rate to exceeding 80% during the fourth fiscal quarter of 2022, which is above pre-pandemic levels.

While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and ope rations, 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 working to more extensively use on-line 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, we believe our ability to recruit the workforce we need to help meet the overall need for affordable housing continues to improve.

We are also working to more extensively use web-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.

We believe our ability to recruit the workforce we need to help meet the overall need for affordable housing continues to improve.

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.

In addition, we provide loans to independent floor plan lenders that then lend to distributors to finance their inventory purchases (see Note 7 to the Consolidated Financial Statements).

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 opportunity for product exposure to potential home buyers.

While these initiatives support our ongoing efforts to expand product distribution, they do expose us to risks associated with the creditworthiness of this customer base and our inventory financing partners.

Although Company-owned, and most independently owned, retail stores remained open for business at the onset of the pandemic, customer traffic initially declined, resulting in fewer home orders from our distribution channels than would be typical during the spring selling season.

However, sales order activity was exceptionally strong during the rest of fiscal year 2021.

Home sales order rates during the second and third fiscal quarters were nearly 65% higher than the comparable prior year quarters, and nearly 50% higher for the fourth quarter.

The financial services segment also maintained operations since the onset of the COVID-19 pandemic, largely through the implementation of work-from-home solutions.

During these uncertain economic times, 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.

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.

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.

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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 directly with other industry participants to develop secondary market opportunities for manufactured home-only loan 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 work independently 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 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.

We also work with industry trade associations to encourage favorable legislative and GSE action to address the mortgage financing needs of buyers of affordable homes.

We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our factory-built housing operations and reduce our exposure to the actions of independent lenders.

We also work independently and with industry trade associations to encourage favorable legislative and GSE action to address the financing needs of buyers of affordable homes.

Federal law requires GSEs to implement the "Duty to Serve" requirements specified in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008.

In December 2017, Fannie Mae and Freddie Mac released their final Underserved Markets Plans that describe, with specificity, the actions they would take over a three-year period to fulfill the "Duty to Serve" obligation.

These plans became effective on January 1, 2018.

On January 5, 2021, the Federal Housing Finance Agency, the GSE regulator, announced that it had issued "Non-Objections" to modified plans which are extended through 2021.

The plans offered enhanced mortgage loan products for manufactured homes titled as real property through Fannie Mae's "MH Advantage" and Freddie Mac's "ChoiceHome" programs that began in the latter part of calendar year 2018.

In April 2022, Fannie Mae and Freddie Mac released their Underserved Markets Plans for 2022-2024 that describe, with specificity, the actions they would take over the three-year period to fulfill the "Duty to Serve" obligation.

As with prior plans, the 2022-2024 plans offer enhanced mortgage loan products for manufactured homes titled as real property, including Fannie Mae's "MH Advantage" and Freddie Mac's "ChoiceHome" programs that began in the latter part of calendar year 2018.

Although some progress has been made with these programs, meaningful positive impact in the form of increased home orders has yet to be realized.

Small-scale pilot programs included in the plans for the purchase of home-only loans have not occurred.

Public input into the GSE's proposed 2022-2024 Underserved Markets Plans is scheduled for summer 2021.

The plans do not include purchases of home-only loans during the three-year timeframe.

Expansion of the secondary market for home-only loans through GSEs could support further demand for housing as lending options would likely become more available to home buyers.

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Fiscal Year 2022 Compared to Fiscal Year 2021

Net revenue consisted of the following for fiscal years 2021, which included an extra week in the fiscal period, and 2020, respectively:

Net revenue consisted of the following for fiscal years 2022 and 2021, respectively:

($ in thousands, except revenue per home sold) April 2,

2021 March 28,

2022 April 3,

Factory-built housing $ 1,556,283 $ 1,037,889 $ 518,394 49.9 %

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Net factory-built housing revenue per home sold $ 93,207 $ 73,019 $ 20,188 27.6 %

In the factory-built housing segment, revenues increased $62.3 million from higher home selling prices, driven by product price increases and a shift toward more multi-section homes.

This was offset by a $23.8 million reduction from lower home sales volume.

In the factory-built housing segment, the increase in Net revenue was primarily due to higher legacy home selling prices, which provided $302.0 million, and higher legacy home sales volume from increased factory capacity utilization, which contributed $39.4 million.

The higher home prices were primarily driven by produc t price increases, and to a lesser extent a shift toward more multi-section homes.

Home sales volume also increased from the addition of Craftsman Homes, LLC and Craftsman Homes Development, LLC (together, "Craftsman") and Commodore, which provided $13.8 million and $166.7 million, respectively.

These increases were partially offset by th e prior year period containing an extra week of production, given the fiscal calendar.

Net factory-built housing revenue per home sold is a volatile metric dependent upon several factors.

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Changes to the proportion of home sales among our distribution channels between reporting periods impacts the overall net revenue per home sold.

For the twelve months ended April 3, 2021, we sold 11,225 homes Wholesale and 2,989 Retail versus 12,247 homes Wholesale and 2,853 homes Retail in the comparable prior year period.

Fluctuations in net factory-built housing revenue per home sold are partially the result of changes in product mix, which results from home buyer tastes and preferences as they select home types/models, as well as optional home upgrades when purchasing the home.

For fiscal 2022, we sold 13,888 homes Wholesale and 2,809 Retail versus 11,225 homes Wholesale and 2,989 homes Retail in the prior year.

Our h omes are constructed in one or more floor sections ("modules") which are then installed on the customer's site.

Fluctuations in net factory-built housing revenue per home sold are also partially the result of changes in the number of modules per home, the selection of different home types/models and optional home upgrades, creating changes in product mix .

These selections vary regularly based on consumer interests, local housing preferences and economic circumstances.

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For these reasons, we have experienced, and expect to continue to experience, volatility in overall net factory-built housing revenue per home sold.

Financial services segment revenue increased primarily from $4.0 million market gains on equity investments, compared to $1.6 million of losses in the prior year, $3.3 million from more insurance policies in force and $0.5 million from higher volume of home loan sales.

These were partially offset by $1.2 million lower interest income earned on the acquired loan portfolios that continue to amortize as expected.

The table below presents the mix of modules and homes sold for the fiscal years 2022 and 2021, respectively :

2022 April 3,

Modules Homes Modules Homes Modules Homes

HUD code homes 24,497 14,136 20,948 12,339 16.9 % 14.6 %

Modular homes 3,569 1,742 2,009 945 77.7 % 84.3 %

Park model RVs 819 819 930 930 (11.9) % (11.9) %

28,885 16,697 23,887 14,214 20.9 % 17.5 %

Financial services segment revenue increased 1.0% primarily due to $4.5 million from more insurance policies in force in the current year, $1.5 million in greater loan servicing income and $1.1 million in net higher proceeds from home loan sales.

These increases were partially offset by $3.8 million in lower interest income earned on the acquired consumer loan portfolios that continue to amortize and $2.6 million in lower unrealized gains on marketable equity securities in the insurance subsidiary's portfolio.

Gross Profit.

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($ in thousands) April 2,

2021 March 28,

2022 April 3,

Gross profit:

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Financial services 51.5 % 56.1 % N/A (4.6) %

Factory-built housing gross profit increased $19.6 million from higher home sales prices and a shift toward more multi-section homes during the period, partially offset by $15.2 million of lower home sales volumes .

Financial services gross profit increased from the $8.2 million revenue gains discussed above, and $3.0 million of favorable non-cash valuation adjustments, including improved loan loss reserves.

These gains were partially offset by $6.8 million higher claims and commission expense.

In the factory-built housing segment, Gross profit increased $323.8 million from higher home sales prices and $30.1 million from more units sold, partially offset by $181.3 million from higher material costs.

In the financial services segment, Gross profit decreased primarily due to higher weather related claims, lower interest income earned on the acquired consumer loan portfolios and lower unrealized gains on marketable equity securities compared to the prior year period.

Selling, General and Administrative Expenses.

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($ in thousands) April 2,

2021 March 28,

2022 April 3,

Selling, general and administrative expenses:

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12.7 % 13.6 % N/A (0.9) %

Selling, general and administrative expenses related to factory-built housing increased from higher wages and incentive compensation expense on improved earnings, charges related to a new, employee-friendly paid time off policy and severance expense related to the Company's former Chief Financial Officer.

These were partially offset by reduced expenses related to the SEC inquiry and lower amortization of the additional D&O insurance premiums.

Selling, general and administrative expenses related to financial services increased primarily from higher salary expenses from continued growth and increased incentive compensation costs from improved earnings.

As a percentage of Net revenue, Selling, general and administrative expenses slightly decreased from better utilization of fixed costs on higher sales.

Selling, general and administrative expenses related to factory-built housing increased primarily due to $30.4 million in higher wages and benefits and incentive compensation expense on improved earnings, $19.0 million attributable to acquired entities, $6.9 million in expenses incurred in engaging third-party consultants in relation to pursuing the non-recurring energy efficient home tax credits and $2.4 million in Commodore related acquisition transaction costs, partially offset by $4.2 million of amortization of additional Director & Officer insurance premiums in the prior year that did not repeat.

Selling, general and administrative expenses related to financial services increased primarily from higher salary expenses from continued growth and increased wages and benefits costs.

As a percentage of Net revenue, Selling, general and administrative expenses improved 90 basis points from better utilization of fixed costs on higher sales.

Interest Expense.

Interest expense was $0.7 million in fiscal year 2021 and $1.5 million in fiscal year 2020, and consists primarily of debt service on the financings of manufactured home-only loans and interest related to finance leases.

The decrease is related to a reduction in securitized bond interest expense, as we e xercised our right to repurchase the 2007-1 securitized loan portfolio in August 2019 , thereby eliminating the related interest expense.

This decrease is partially offset by increases in interest expense from the secured credit facilities.

Interest expense was $0.7 million in both fiscal year 2022 and 2021, and consists primarily of debt service on the financings of manufactured home-only loans and interest related to finance leases.

We realized a decrease in interest expense from the elimination of the securitized bond interest as we e xercised our right to repurchase the 2007-1 securitized loan portfolio in August 2019.

However, this was offset by an increase in interest expense from the secured credit facilities as well as additional finance leases.

Other Income, net .

Other income primaril y 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 equip ment and assets held for sale.

For fisca l years 2021 and 2020, Other income, net was $8.8 million and $9.6 million, respectively, a decrease of $0.8 million or 8.3%.

This decrease was primarily from a $3.4 million net gain recognized last year on the sale of idle land and lower interest income earned on cash balances, partially offset by greater unrealized gains on corporate equity investments in the current year.

Other income, net primaril y 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 equip ment and assets held for sale.

For fisca l years 2022 and 2021, Other income, net was $10.2 million and $8.8 million, respectively, an increase of $1.4 million or 15.9%.

This increase was primarily from a $3.3 million revaluation gain recognized on the consolidation of an equity method investment and $1.2 million higher interest income on commercial loans from the addition of Commodore, partially offset by $3.2 million lower unrealized gains on corporate equity investments in the current year.

Income Before Income Taxes.

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($ in thousands) April 2,

2021 March 28,

2022 April 3,

Income before income taxes:

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Income Tax Expense.

Income tax expense was $20.3 million, resulting in an effective tax rate of 20.9% for the fiscal year ended April 3, 2021, compared to income tax expense of $17.9 million and an effective rate of 19.3% for the fiscal year ended March 28, 2020.

The higher effective tax rate in the current year period primarily relates to higher income and lower tax benefits from stock option exercises.

Income tax expense was $14.2 million, resulting in an effective tax rate of 6.7% for the fiscal year ended April 2, 2022, compared to income tax expense of $20.3 million and an effective rate of 20.9% for the fiscal year ended April 3, 2021.

The lower effective tax rate in the current year period primarily relates to $35.7 million in estimated non-recurring net tax credits related to the sale of energy efficient homes between fiscal year 2018 and fiscal third quarter 2022, available under the Internal Revenue Code §45L, offset by an increase in income before income taxes.

The tax credit for energy efficient homes expired in its current form as of December 31, 2021.

Fiscal Year 2021 Compared to Fiscal Year 2020

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Liquidity and Capital Resources

We believe that cash and cash equivalents at April 3, 2021, together with cash flow from operations, will be sufficient to fund our operations and provide for growth for the next 12 months and into the foreseeable future.

We believe that cash and cash equivalents at April 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.

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Because of our sufficient cash position, we have not historically sought external sources of liquidity, with the exception of certain credit facilities for the home-only lending programs.

Regardless, depending on our operating results and strategic opportunities, we may need to seek additional or alternative sources of financing.

Regardless, depending on our operating results and strategic opportunities, we may choose 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.

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.

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($ in thousands) April 2,

2021 March 28,

2022 April 3,

2021 $ Change

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Cash, cash equivalents and restricted cash at end of the fiscal year $ 259,334 $ 339,307 $ (79,973)

Net cash pro vided by operating activities increased due to the increased profitability and operating account activity including higher accounts payable and accrued expenses and other current liabilities such as salary and wage accruals, greater customer deposits, Company repurchase options on certain loans sold and unearned insurance premiums and lower prepaid expenses from the continuing amortization of the D&O premiums.

These increases are partially offset by higher inventory levels.

Consumer loan originations increased $4.5 million to $161.6 million during the year ended April 3, 2021, from $157.1 million during the year ended March 28, 2020.

Net cash pro vided by operating activities increased primarily due to the increased profitability, partially offset by increased costs for operating activities, including rising costs of our raw materials and higher purchases of such materials, increased accounts receivables from timing of collections and increased sales and refunds related to the estimated net tax credits under the Internal Revenue Code §45L which have not been received.

Consumer loan originations decreased $2.6 million to $159.0 million during the year ended April 2, 2022, from $161.6 million during the year ended April 3, 2021.

Proceeds from the sale of consumer loans provided $184.8 million in cash, compared to $167.1 million in the previous year, a net increase of $17.7 million.

With respect to consumer lending for the purchase of manufactured housing, states may classify manufactured homes for both legal and tax purposes as personal property rather than real estate.

As a result, financing for the purchase of manufactured homes is characterized by shorter loan maturities and higher interest rates.

Unfavorable changes in these factors may have material negative effects on our results of operations and financial condition.

See Part I, Item IA, "Risk Factors."

Net cash used in investing activities for the year ended April 2, 2022 included purchases of Commodore and Craftsman, as well as purchases of property, plant and equipment.

Net cash used in investing activities for the year ended April 3, 2021 was primarily for purchases of property, plant and equipment, including the new park model RV facility in Arizona, which is expected to be operational in mid-calendar year of 2022, partially offset by net proceeds from sales of investments.

Net cash used in financing activities for the year ended April 2, 2022 was primarily related to common stock repurchases and the payments of the secured term loans, which have been paid in full as of January 1, 2022, partially offset by proceeds received from the exercise of stock options.

Net cas h used in financing activities for the year ended April 3, 2021 was mainly for the payments of tax liabilities on the exercise of stock options and payments on secured financings.

Obligations and Commitments

We enter into commercial loan agreements with distributors, communities and developers under which the Company provides funds for financing homes.

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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.

Net cash used in investing activities for the year ended April 3, 2021 included purchases of property, plant and equipment, primarily used for the new park model RV facility in Arizona, which is expected to be operational in December 2021.

This was partially offset by cash provided from net sales of investments and proceeds from sales of property, plant and equipment.

Net cash used in investing activities in fiscal year 2020 was primarily used for purchases of property, plant and equipment, payments for the acquisition of Destiny Homes and net purchases of investments.

This was partially offset by proceeds from the sale of property, plant and equipment.

Net cash used in financing activities for the year ended April 3, 2021 was mainly used for payments of payroll taxes on the net exercises of stock options, payments on secured financings and common stock repurchases.

Net cas h used in financing activities for fiscal year 2020 was mainly for the repurchase of the 2007-1 securitization and other payments on secured financings.

See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" in the Company's 2020 Annual Report on Form 10-K for a discussion of changes in liquidity between fiscal years 2020 and 2019.

During fiscal year 2020, the Company repurchased the 2007-1 securitized loan portfolio, leaving no further securitized financing balance outstanding as of April 3, 2021 or March 28, 2020.

We have entered into secured credit facilities with independent third-party banks.

The proceeds were used 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-year amortization period with a balloon payment due upon maturity.

As of April 3, 2021, the outstanding balance of the converted loans was $8.2 million with a weighted average interest rate of 4.91%.

In October 2020, we announced a $100 million stock repurchase program that may be used to purchase our outstanding common stock.

The actual timing, number and value of shares repurchased under the program will be determined by the Company in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and other strategic capital needs and opportunities.

The plan does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time.

During fiscal year 2021 , we purchased 6,600 shares for an aggregate amount of $1.4 million under the new $100 million repurchase authorization that occurred on October 27, 2020.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations to make future payments under the debt obligations and lease agreements as of April 3, 2021.

This table excludes long-term obligations for which there is no definite commitment period.

Payments Due by Period

($ in thousands) Total Less than

Years After 5

Debt obligations:

Secured financings and other borrowings, including interest (1)

$ 14,580 $ 2,313 $ 3,655 $ 3,112 $ 5,500

Operating lease obligations 19,776 4,292 7,564 5,654 2,266

Finance lease obligations 341 73 146 122 —

Total contractual obligations $ 34,697 $ 6,678 $ 11,365 $ 8,888 $ 7,766

(1) Interest is calculated by applying contractual interest rates to month-end balances.

The timing of these estimated payments fluctuates based upon various factors, including estimated loan portfolio prepayment and default rates.

Additionally, we have contingent commitments at April 3, 2021 consisting of contingent repurchase obligations and remaining construction contingent commitments.

We have contractual lease obligations for certain production and retail locations, office space and equipment with durations ranging from monthly to 20 years.

Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term by one to three years or more.

For additional information related to these obligations, see Note 9 to the Consolidated Financial Statements.

In addition, we also have contingent commitments at April 2, 2022 consisting of contingent repurchase obligations, construction contingent commitments, interest rate lock commitments ("IRLCs") and forward loan sale commitments.

For additional information related to these contingent obligations, see Note 16 to the Consolidated Financial Statements.

• We are contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent distributors of our products.

The maximum amount for which we were liable under such agreements approximated $74.2 million at April 3, 2021, without reduction for the resale value of the homes.

Although the repurchase obligations outstanding have a finite life, these commitments are continually replaced as we continue to sell manufactured homes to distributors under repurchase and other recourse agreements with lending institutions which have provided wholesale floor plan financing to distributors.

• CountryPlace has a commitment to fund construction-period mortgages up to $23.8 million at April 3, 2021.

The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment to fund future advances.

Off Balance Sheet Arrangements

See Note 16 to the Consolidated Financial Statements for a discussion of the Company's off-balance sheet commitments, which is incorporated herein by reference.

See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources" in the Company's 2021 Annual Report on Form 10-K for a discussion of changes in liquidity between fiscal years 2021 and 2020.

Critical Accounting Estimates

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We believe the following accounting policies are critical to Company operating results or may affect significant judgments and estimates used in the preparation of the Consolidated Financial Statements and should be read in conjunction with the Notes to the Consolidated Financial Statements.

We provide retail home buyers a one-year limited warranty covering defects in material or workmanship in home structure, plumbing and electrical systems.

Nonstructural components of a cosmetic nature are warranted for 120 days, except in specific cases where state laws require longer warranty terms.

We record a liability for estimated future warranty costs relating to homes sold based upon an assessment of historical experience factors.

Factors used in the estimation of the warranty liability include the estimated amount of homes still under warranty including homes in distributor inventories, homes purchased by consumers still within the one-year warranty period, the timing in which work orders are completed and the historical average costs incurred to service a home.

Reserve for Property Casualty Insurance Claims and Claims Expense.

Standard Casualty establishes reserves for claims and claims expense on reported and unreported claims of insured losses.

Our reserve process takes into account known facts and interpretations of circumstances and factors, including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix, contractual terms, changes in law and regulation, judicial decisions and economic conditions.

In the normal course of business, we may also supplement our claims processes by utilizing third party adjusters, appraisers, engineers, inspectors and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims.

The effects of inflation are implicitly considered in the reserving process.

We are self-insured for a significant portion of our general and products liability, auto liability, health, property and workers' compensation liability coverage.

Insurance is maintained for catastrophic exposures and those risks required to be insured by law.

Estimated self-insurance costs are accrued for incurred claims and estimated incurred but not reported claims.

A reserve for products liability is actuarially determined.

The determination of claims and expenses and the appropriateness of the related liabilities are regularly reviewed and updated.

Reserve for Repurchase Commitments.

Manufactured housing companies customarily enter into repurchase and other recourse agreements with lending institutions that have provided wholesale floor plan financing to distributors.

Significant portions of our sales are made to distributors pursuant to repurchase agreements with lending institutions.

These agreements generally provide that we will repurchase a product from the lending institutions in the event such product is repossessed upon a distributor's default.

Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

Impairment of Long-Lived Assets.

We periodically evaluate the carrying value of long-lived assets, both to be held and used and held for sale, for impairment when events and circumstances warrant such a review.

The carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flow from such assets is less than the carrying value.

In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets.

Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.

Losses on long-lived assets to be disposed of are determined in a similar manner, except that the fair values are based primarily on independent appraisals and preliminary or definitive contractual arrangements less costs to dispose.

We did not record an impairment charge on long-lived assets during fiscal years 2021, 2020 or 2019.

Estimates include the number of homes still under warranty, including homes in distributor inventories, homes purchased by consumers still within the one-year warranty period, the timing in which work orders are completed and the historical average costs incurred to service a home.

While the number of homes still under warranty and the timing in which work orders are completed are readily determinable, the average costs incurred will vary based on market prices and availability, which are the primary subjective inputs in estimating the reserve.

We expect that a 5% increase in average costs would increase our reserve proportionally.

Income Taxes and Deferred Tax Assets and Liabilities.

Deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

We periodically evaluate the deferred tax assets based on the requirements established in FASB ASC 740, Income Taxes , which requires a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The determination of the need for, or amount of, any valuation allowance involves significant judgment and is based upon the evaluation of both positive and negative evidence, including estimates of anticipated taxable profits in various jurisdictions with which the deferred tax assets are associated.

At April 2, 2022, based on historical profits earned and forecasted taxable profits, we determined that all deferred tax assets, except for certain state net operating loss deferred tax assets, would be utilized in future periods.

Additionally, the overall state income tax rate is based on income apportionment by state, which is estimated using prior year results, along with expected current year impacts.

Goodwill and Other Intangibles.

Goodwill and indefinite-lived intangibles are tested annually for impairment.

We evaluate the fair value of reporting units and when we record an impairment loss on goodwill.

During the fourth quarter of fiscal year 2022 we conducted our annual goodwill impairment test and no impairment charges were recorded.

The estimated fair values of our two reporting units exceeded their carrying values at the date of their most recent estimated fair value determination.

However, estimated fair values would need to decrease by over 450% for there to be indicators of impairment.

The fair value evaluation of intangible assets acquired includes the use of acceptable valuation approaches utilizing unobservable inputs, which may lead to a high level of uncertainty.

These Level 3 inputs relate to forecasts of future cash flows, pre-tax income and revenue growth rates, as well as the selection of royalty and discount rates.

The analysis depends upon a number of judgments, estimates and assumptions.

Accordingly, such testing is subject to uncertainties, which could cause the fair value to fluctuate from period to period.

As of April 3, 2021, all of our goodwill is attributable to the factory-built housing segment.

We performed the annual goodwill impairment analysis as of April 3, 2021, in accordance with FASB Accounting Standards Update No.

2011-08, Intangibles-Goodwill and Other (Topic 350):

Testing Goodwill for Impairment .

The analysis determined that the fair value of the reporting unit was greater than the carrying value and thus no further procedures were considered necessary.

In the event that we are not able to achieve expected cash flow levels, or other factors indicate that goodwill is impaired, we may need to write off all or part of the goodwill, which would adversely affect our operating results and net worth.

See Part I, Item 1A, "Risk Factors."

Accordingly, such testing is subject to uncertainties, which could cause fair value to fluctuate.

Other Matters

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 the commercial lending programs.

For the years ended April 3, 2021, March 28, 2020 and March 30, 2019, the total amount of sales to related parties were $46.7 million, $51.0 million and $42.2 million, respectively.

As of April 3, 2021, receivables from related parties included $4.7 million of accounts receivable and $9.5 million of commercial loans outstanding.

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

Impact of Inflation.

Sudden increases in specific costs, such as the increases in material and labor, as well as price competition, can affect our ability to efficiently increase selling prices and may adversely impact our results of operations.

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 material and labor.

In addition, measures used 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 future profitability.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis