What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-02-07 · 77 added, 136 removed, 132 unchanged (62% of the section changed)

1 unchanged sentence

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.

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 (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.

2 unchanged sentences

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;

the sufficiency of our liquidity;

operational and legal risks;

how the Company may be affected by the novel coronavirus COVID-19 pandemic ("COVID-19") or any other pandemic or outbreak;

how we may be affected by the COVID-19 pandemic ("COVID-19") or any other pandemic or outbreak;

labor shortages and the pricing and availability of raw materials;

1 unchanged sentence

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.

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.

2 unchanged sentences

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 in Risk Factors in Part I, Item 1A of our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("Form 10-K").

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 Risk Factors in Part I, Item 1A of our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("Form 10-K").

The following should be read in conjunction with Cavco Industries, Inc.

5 unchanged sentences

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 MidCountry.

We are also one of the leading producers of park model RVs, vacation cabins and factory-built commercial structures.

We are also a leading producer of park model RVs, vacation cabins and factory-built commercial structures.

Our finance subsidiary, CountryPlace Acceptance Corp.

("CountryPlace"), is an approved Federal National Mortgage Association 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.

("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 26 homebuilding production lines located in Millersburg and Woodburn, Oregon;

We operate 26 homebuilding production lines in Millersburg and Woodburn, Oregon;

Riverside, California;

23 unchanged sentences

Company and Industry Outlook

According to data reported by the Manufactured Housing Institute, industry home shipments increased 12.0% in calendar year 2021 compared to the prior year, which was impacted by shutdowns related to COVID-19.

We did not experience any significant factory shutdowns in the prior year period, in contrast to certain other industry participants.

The industry offers solutions to the affordable housing crisis and these industry shipment numbers do not represent demand;

instead, they represent the industry's ability to produce in the current environment.

The average price per square foot for a manufactured home is lower than a site-built home.

Also, based on the relatively low cost associated with manufactured home ownership, our products have traditionally competed with rental housing's monthly payment affordability.

According to data reported by the Manufactured Housing Institute, industry home shipments increased 13.4% for the first 5 months of calendar year 2022 compared to the same period last year.

The industry offers solutions to the affordable housing crisis and these shipment numbers reflect 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 comparatively 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.

2 unchanged sentences

Consumer confidence is especially important among manufactured home buyers interested in our products for seasonal or retirement living.

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 employ 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, including higher utilization of renewable materials and provide lower utility 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.

2 unchanged sentences

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 expose us to risks associated with the creditworthiness of this customer base and our inventory financing partners.

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 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.

While home production continues to experience hiring challenges, unpredictable factory employee absenteeism and building material supply disruptions, our factory utilization for the third fiscal quarter of 2022 was back to pre-pandemic levels of approximately 80%, up from a rate of 75% the past four quarters.

This is the result of an increase in production headcount and less production hours per module.

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

Home order rates have moderated from the extreme highs we saw the past few quarters, but still remain above pre-COVID rates, which we considered to be strong.

Our backlogs at January 1, 2022 were $1.1 billion, consistent with second fiscal quarter of 2022 and up $633 million, or 134.1%, compared to $472 million at December 26, 2020.

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.

Home order rates have moderated from the extreme highs we saw during the summer of 2020 to the summer of 2021.

However, o ur backlogs at July 2, 2022 were $1.0 billion , consistent with the sequential prior quarter of $1.1 billion and up $206 million, or 26.3%, compared to $792 million at July 3, 2021.

The year over year increase includes $231 million attributable to Commodore.

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, gypsum wallboard, steel, windows, appliances, insulation and other petroleum-based produ cts.

Pricing and availability of certain raw materials have recently been volatile due to a number of factors in th e 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 increases may lag behind the escalation of such costs.

Availability of these products has not caused a production halt 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.

Key housing building materials include wood, wood products, steel, gypsum wallboard, windows, doors fiberglass insulation, carpet, vinyl, fasteners, plumbing materials, aluminum, appliances and electrical items .

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 sal es price.

Pricing and availability of certain raw materials have recently been volatile due to a number of factors in the 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 inputs has not caused significant production halts 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 also provide leadership training to new managers and other employees in supervisory roles to enhance communication and improve the oversight and motivation of other employees, more extensively use online 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 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.

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.

2 unchanged sentences

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 monthly collections of principal and interest from borrowers have exceeded scheduled principal and interest payments owed to investors, 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.

Monthly collections of principal and interest from borrowers have exceeded scheduled principal and interest payments owed to 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

Three Months Ended

($ in thousands, except revenue per home sold) January 1,

2022 December 26,

Factory-built housing $ 413,590 $ 270,822 $ 142,768 52.7 %

Financial services 18,124 17,950 174 1.0 %

$ 431,714 $ 288,772 $ 142,942 49.5 %

Factory-built homes sold

by Company-owned retail sales centers 658 768 (110) (14.3) %

to independent retailers, builders, communities and developers 3,766 2,835 931 32.8 %

4,424 3,603 821 22.8 %

Net factory-built housing revenue per home sold $ 93,488 $ 75,166 $ 18,322 24.4 %

Nine Months Ended

($ in thousands, except revenue per home sold) January 1,

2022 December 26,

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

Factory-built housing $ 572,597 $ 312,283 $ 260,314 83.4 %

6 unchanged sentences

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 revenues was primarily due to an increase in the average sales price and the number of units sold.

The higher home prices were driven by product price increases and a shift toward more multi-module homes.

Home sales volume increased from the addition of Commodore and higher factory capacity utilization, partially offset by lower retail sales.

In the factory-built housing segment, the increase in Net revenue was primarily due to an increase in the average sales price and the number of units sold.

The higher home prices were driven by product price increases.

Home sales volume increased from the addition of Commodore, which provided $101 million in Net revenue for the three 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.

4 unchanged sentences

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 sold for the three and nine months ended January 1, 2022 and December 26, 2020:

The table below presents the mix of modules and homes sold for the three months ended July 2, 2022 and July 3, 2021:

Three Months Ended

2022 December 26,

Modules Homes Modules Homes Modules Homes

Housing and Urban Development ("HUD") code homes 6,166 3,583 5,427 3,186 13.6 % 12.5 %

Modular homes 1,270 632 533 255 138.3 % 147.8 %

Park model RVs 209 209 162 162 29.0 % 29.0 %

7,645 4,424 6,122 3,603 24.9 % 22.8 %

Nine Months Ended

2022 December 26,

Modules Homes Modules Homes Modules Homes

HUD code homes 8,515 4,854 5,652 3,276 50.7 % 48.2 %

2 unchanged sentences

9,242 5,346 6,318 3,700 46.3 % 44.5 %

Financial services segment revenue increased primarily due to higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year, partially offset by lower interest income earned on the acquired consumer loan portfolios that continue to amortize and lower unrealized gains on marketable equity securities in the insurance subsidiary's portfolio.

For the three and nine months ended January 1, 2022, we recognized unrealized gains on marketable equity securities of $0.5 million and $0.4 million, respectively.

For the three and nine months ended December 26, 2020, we recognized unrealized gains of $1.0 million and $2.7 million, respectively.

Financial services segment revenue decreased primarily due to lower interest income earned on the acquired consumer loan portfolios that continue to amortize, unrealized losses on marketable equity securities in the insurance subsidiary's portfolio and lower volume of 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.

Three Months Ended

($ in thousands) January 1,

2022 December 26,

Factory-built housing $ 104,119 $ 47,031 $ 57,088 121.4 %

Financial services 11,089 12,207 (1,118) (9.2) %

$ 115,208 $ 59,238 $ 55,970 94.5 %

Gross profit as % of Net revenue

Consolidated 26.7 % 20.5 % N/A 6.2 %

Factory-built housing 25.2 % 17.4 % N/A 7.8 %

Financial services 61.2 % 68.0 % N/A (6.8) %

Nine Months Ended

($ in thousands) January 1,

2022 December 26,

($ in thousands) July 2,

Factory-built housing $ 139,586 $ 66,273 $ 73,313 110.6 %

5 unchanged sentences

Financial services 32.6 % 42.7 % N/A (10.1) %

Factory-built housing gross profit increased for the three and nine months ended January 1, 2022 primarily due to higher average sales prices and increased home sales volume, partially offset by higher material costs per unit and purchase accounting related items at Commodore.

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 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.

While lower lumber product market price benefits are being realized in cost of sales for the three and nine months ended January 1, 2022, we have seen most other product prices increase, offsetting those lumber declines.

In addition to lumber price benefits, Gross profit as a percentage of Net revenue also increased from a shift toward more multi-module homes and from streamlining our HUD code product offering across our network.

For the three and nine months ended January 1, 2022, Financial services gross profit decreased primarily due to higher weather related claims and lower unrealized gains on marketable equity securities compared to the prior year period.

For the three months ended July 2, 2022, Financial services gross profit decreased primarily due to higher weather related claims and unrealized losses on marketable equity securities compared to unrealized gains in the prior year period.

Selling, General and Administrative Expenses

Three Months Ended

($ in thousands) January 1,

2022 December 26,

Factory-built housing $ 55,735 $ 30,575 $ 25,160 82.3 %

Financial services 4,587 4,839 (252) (5.2) %

$ 60,322 $ 35,414 $ 24,908 70.3 %

Selling, general and administrative expenses as % of Net revenue 14.0 % 12.3 % N/A 1.7 %

Nine Months Ended

($ in thousands) January 1,

2022 December 26,

($ in thousands) July 2,

Factory-built housing $ 60,923 $ 35,497 $ 25,426 71.6 %

2 unchanged sentences

Selling, general and administrative expenses as % of Net revenue 11.2 % 12.4 % N/A (1.2) %

For the three months ended January 1, 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 and expenses incurred in engaging third-party consultants in relation to pursuing the availability of the non-recurring energy efficient home net tax credits.

The nine month period also includes $2.4 million in deal costs related to the Commodore acquisition and $1.2 million in expenses related to the SEC inquiry.

This was partially offset by a reduction in the amortization of the additional Director and Officer insurance premium, added in the third quarter of fiscal year 2019, which was $4.2 million for the nine months ended December 26, 2020, with no expense in the current year.

In Financial services, Selling, general and administrative expenses increased primarily from greater recognition of deferred origination costs on higher loan sales.

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 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 second half of fiscal 2022.

As a percentage of Net revenue, Selling, general and administrative expenses improved 120 basis points from better utilization of fixed costs on higher sales.

Other Components of Net Income

Three Months Ended

($ in thousands) January 1,

2022 December 26,

Interest expense $ 209 $ 177 $ 32 18.1 %

Other income, net 4,258 2,243 2,015 89.8 %

Income tax (benefit) expense (20,680) 6,189 (26,869) (434.1) %

Effective tax rate (35.1) % 23.9 % N/A (59.0) %

Nine Months Ended

($ in thousands) January 1,

2022 December 26,

($ in thousands) July 2,

Interest expense $ 161 $ 164 $ (3) (1.8) %

Other income, net 883 2,461 (1,578) (64.1) %

Income tax (benefit) expense (910) 15,742 (16,652) (105.8) %

Income tax expense 19,616 8,432 11,184 132.6 %

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 (which increased with the addition of Commodore), interest income earned on cash balances and gains and losses from the sale of property, plant and equipment.

During the year, we also recognized a non-cash gain of $3.3 million on the remeasurement of the assets and liabilities of Craftsman.

See Note 22 to the Consolidated Financial Statements for further information .

The effective income tax rate was a benefit for the three and nine months ended January 1, 2022.

This is due to $34.4 million of 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.

This credit was initially established under the Federal Energy Policy Act of 2005 and most recently extended in the Consolidated Appropriations Act, 2021.

It allows for eligible manufacturer to claim a tax credit for each qualifying newly constructed and sold residence.

Excluding these credits, the effective income tax rate was consistent between periods.

Interest expense consists primarily of 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.

Other income, net declined from a $1.1 million unrealized loss on corporate marketable investments and lower interest income on reduced cash balances.

Liquidity and Capital Resources

We believe that cash and cash equivalents at January 1, 2022, 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 July 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.

2 unchanged sentences

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 the home-only lending programs.

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

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

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.

3 unchanged sentences

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 will be restricted per state regulations.

The following is a summary of the Company's cash flows for the nine months ended January 1, 2022 and December 26, 2020, respectively:

Nine Months Ended

(in thousands) January 1,

2022 December 26,

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, respectively:

Three Months Ended

(in thousands) July 2,

2021 $ Change

4 unchanged sentences

Cash, cash equivalents and restricted cash at end of the period $ 252,962 $ 346,816 $ (93,854)

Net cash provided by operating activities increased primarily from higher net income and proceeds from consumer loan sales, which were $142.4 million this year compared to $122.6 million in the previous year.

This increase was partially offset by the refunds related to the estimated net tax credits under the Internal Revenue Code §45L which had not been received as of January 1, 2022, rising costs of our raw materials and higher purchases of such materials and payments on Accounts p ayable and Accrued expenses and other current liabilities.

Consumer loan originations decreased $1.2 million to $122.9 million for the nine months ended January 1, 2022 from $124.1 million for the nine months ended December 26, 2020.

We enter into commercial loan arrangements with distributors, communities and developers under which we provide funds for financing homes.

In addition, we enter into commercial loan arrangements with certain distributors of our products under which we provide 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.

Cash receipts, net of amounts loaned, increased cash by $8.1 million while the prior period net activity provided an additional $6.4 million in cash.

Net cash provided by operating activities increased primarily from higher net income adjusted for non-cash items.

This increase was partially offset by increased lending in our Financial Services segment, as well as under our commercial loan programs .

Consumer loan originations increased $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.

Net cash used in investing activities consists of buying and selling debt and marketable equity securities in our Financial Services segment, p urchases of property, plant and equipment and funding strategic growth acquisitions.

Greater cash was used in the current period for the purchase of Craftsman and Commodore.

Net cash used in financing activities for the current period was primarily for the repurchase of common stock and the payments of the secured term loans, which have been paid in full as of January 1, 2022.

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

Except as described in Note 1 t o the Consolidated Financial Statements , there have been no other significant changes to our critical accounting policies during the nine months ended January 1, 2022, 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 21 to the Consolidated Financial Statements for a discussion of our related party transactions.

Off Balance Sheet Arrangements

Greater cash used in the current period reflects the purchase of plant facilities in Hamlet, North Carolina.

Net cash used in financing activities for the current period was primarily for the repurchase of common stock .

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 t o 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.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis