CAVCO INDUSTRIES, INC. 10-Q

Item 1. Financial Statements CAVCO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) October 1, 2022 April 2, 2022 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 333,249 $ 244,150 Restricted cash, current 14,535 14,849 Accounts receivable, net 96,614 96,052 Short-term investments 16,367 20,086 Current portion of consumer loans receivable, net 18,400 20,639 Current portion of commercial loans receivable, net 32,452 32,272 Current portion of commercial loans receivable from affiliates, net 211 372 Inventories 233,965 243,971 Prepaid expenses and other current assets 73,998 71,726 Total current assets 819,791 744,117 Restricted cash 335 335 Investments 38,323 34,933 Consumer loans receivable, net 28,570 29,245 Commercial loans receivable, net 41,420 33,708 Commercial loans receivable from affiliates, net 2,022 2,214 Property, plant and equipment, net 189,968 164,016 Goodwill 100,577 100,993 Other intangibles, net 27,450 28,459 Operating lease right-of-use assets 16,210 16,952 Total assets $ 1,264,666 $ 1,154,972 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 42,655 $ 43,082 Accrued expenses and other current liabilities 263,396 251,088 Total current liabilities 306,051 294,170 Operating lease liabilities 12,289 13,158 Other liabilities 10,420 10,836 Deferred income taxes 6,048 5,528 Redeemable noncontrolling interest 926 825 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 9,314,152 and 9,292,278 shares, respectively 93 93 Treasury stock, at cost; 404,813 and 241,773 shares, respectively ( 100,000 ) ( 61,040 ) Additional paid-in capital 267,183 263,049 Retained earnings 762,474 628,756 Accumulated other comprehensive loss ( 818 ) ( 403 ) Total stockholders' equity 928,932 830,455 Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,264,666 $ 1,154,972 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 Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Net revenue $ 577,392 $ 359,543 $ 1,165,730 $ 689,965 Cost of sales 419,793 269,615 863,407 526,024 Gross profit 157,599 89,928 302,323 163,941 Selling, general and administrative expenses 66,894 45,372 133,030 86,204 Income from operations 90,705 44,556 169,293 77,737 Interest expense ( 233 ) ( 203 ) ( 394 ) ( 367 ) Other income, net 2,339 4,668 3,222 7,129 Income before income taxes 92,811 49,021 172,121 84,499 Income tax expense ( 18,613 ) ( 11,338 ) ( 38,229 ) ( 19,770 ) Net income 74,198 37,683 133,892 64,729 Less: net income attributable to redeemable noncontrolling interest 82 73 174 73 Net income attributable to Cavco common stockholders $ 74,116 $ 37,610 $ 133,718 $ 64,656 Comprehensive income Net income $ 74,198 $ 37,683 $ 133,892 $ 64,729 Reclassification adjustment for securities sold ( 6 ) — ( 6 ) 1 Applicable income taxes 1 — 1 — Net change in unrealized position of investments held ( 377 ) ( 16 ) ( 519 ) ( 34 ) Applicable income taxes 79 3 109 7 Comprehensive income 73,895 37,670 133,477 64,703 Less: comprehensive income attributable to redeemable noncontrolling interest 82 73 174 73 Comprehensive income attributable to Cavco common stockholders $ 73,813 $ 37,597 $ 133,303 $ 64,630 Net income per share attributable to Cavco common stockholders Basic $ 8.32 $ 4.09 $ 15.01 $ 7.03 Diluted $ 8.25 $ 4.06 $ 14.88 $ 6.97 Weighted average shares outstanding Basic 8,903,703 9,190,866 8,910,933 9,194,577 Diluted 8,978,997 9,273,136 8,983,425 9,274,440 See accompanying Notes to Consolidated Financial Statements 2 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended October 1, 2022 October 2, 2021 OPERATING ACTIVITIES Net income $ 133,892 $ 64,729 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 8,284 3,190 Provision for credit losses ( 263 ) ( 74 ) Deferred income taxes 630 1,987 Stock-based compensation expense 3,525 2,417 Non-cash interest income, net ( 280 ) ( 770 ) Gain on sale or retirement of property, plant and equipment, net ( 25 ) ( 41 ) Gain on investments and sale of loans, net ( 3,303 ) ( 12,555 ) Changes in operating assets and liabilities, net of acquisitions Accounts receivable ( 562 ) ( 3,136 ) Consumer loans receivable originated ( 97,155 ) ( 85,370 ) Proceeds from sales of consumer loans 100,537 101,556 Principal payments received on consumer loans receivable 4,961 6,875 Inventories 10,006 ( 19,980 ) Prepaid expenses and other current assets ( 4,832 ) 993 Commercial loans receivable ( 7,652 ) 3,331 Accounts payable and accrued expenses and other current liabilities 15,179 16,935 Net cash provided by operating activities 162,942 80,087 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 33,188 ) ( 4,671 ) Payments for acquisitions, net — ( 151,309 ) Proceeds from sale of property, plant and equipment 402 53 Purchases of investments ( 9,742 ) ( 6,251 ) Proceeds from sale of investments 7,595 6,133 Net cash used in investing activities ( 34,933 ) ( 156,045 ) FINANCING ACTIVITIES Payments for taxes on stock option exercises and releases of equity awards ( 982 ) ( 26 ) Proceeds from exercise of stock options 1,591 2,891 Payments on finance leases and other secured financings ( 393 ) ( 1,122 ) Payments for common stock repurchases ( 38,960 ) ( 20,436 ) Distributions to noncontrolling interest ( 480 ) ( 180 ) Net cash used in financing activities ( 39,224 ) ( 18,873 ) Net increase (decrease) in cash, cash equivalents and restricted cash 88,785 ( 94,831 ) Cash, cash equivalents and restricted cash at beginning of the fiscal year 259,334 339,307 Cash, cash equivalents and restricted cash at end of the period $ 348,119 $ 244,476 Supplemental disclosures of cash flow information Cash paid for income taxes $ 48,027 $ 19,127 Cash paid for interest $ 142 $ 195 Supplemental disclosures of noncash activity Change in GNMA loans eligible for repurchase $ ( 3,286 ) $ ( 8,830 ) Right-of-use assets recognized and operating lease obligations incurred $ 1,445 $ 2,205 Fair value of assets acquired under finance leases $ — $ 7,398 Finance lease obligations incurred $ — $ 6,043 See accompanying Notes to Consolidated Financial Statements 3 Table of Contents CAVCO INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In addition, references throughout to numbered "Notes" refer to these Notes to Consolidated Financial Statements, unless otherwise stated. In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified from secured financings to accrued expenses to conform to current period classification. We have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC; 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 October 1, 2022, 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 2022 Annual Report on Form 10-K for the year ended April 2, 2022, filed with the SEC ("Form 10-K"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Due to uncertainties, actual results could differ from the estimates and assumptions used in preparation of the Consolidated Financial Statements. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 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 1, 2023 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 26 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community operators and residential developers and through our 42 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 ("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. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes. During fiscal 2022, we acquired an additional 20% ownership in Craftsman Homes, LLC and Craftsman Homes Development, LLC (collectively known as "Craftsman"), which gave us a controlling interest and therefore became a consolidated entity, and we purchased certain manufactured housing assets and assumed certain liabilities of The Commodore Corporation ("Commodore"). Craftsman is a manufactured home retailer with four locations in Nevada selling Company and other manufacturer branded homes. Commodore added six manufacturing facilities and two wholly-owned retail locations, and also participates in commercial lending operations with its dealers. In addition to the below, for a description of significant accounting policies we used in the preparation of our Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K. 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 Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Factory-built housing U.S. Housing and Urban Development code homes $ 496,763 $ 285,947 $ 1,003,946 $ 548,337 Modular homes 37,236 31,386 71,574 58,003 Park model RVs 10,502 9,728 24,257 19,399 Other 15,101 15,033 32,422 28,638 559,602 342,094 1,132,199 654,377 Financial services Insurance agency commissions received from third-party insurance companies 1,029 850 2,426 1,723 All other sources 16,761 16,599 31,105 33,865 17,790 17,449 33,531 35,588 $ 577,392 $ 359,543 $ 1,165,730 $ 689,965 3. Restricted Cash Restricted cash consisted of the following (in thousands): October 1, 2022 April 2, 2022 Cash related to CountryPlace customer payments to be remitted to third parties $ 13,933 $ 13,857 Other restricted cash 937 1,327 14,870 15,184 Current portion ( 14,535 ) ( 14,849 ) $ 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 in the Consolidated Statements of Cash Flows (in thousands): October 1, 2022 October 2, 2021 Cash and cash equivalents $ 333,249 $ 224,291 Restricted cash 14,870 20,185 $ 348,119 $ 244,476 5 Table of Contents 4. Investments Investments consisted of the following (in thousands): October 1, 2022 April 2, 2022 Available-for-sale debt securities $ 19,488 $ 17,760 Marketable equity securities 14,441 16,780 Non-marketable equity investments 20,761 20,479 54,690 55,019 Less short-term investments ( 16,367 ) ( 20,086 ) $ 38,323 $ 34,933 Investments in marketable equity securities consist of investments in the common stock of industrial and other companies. Our non-marketable equity investments include investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities and other investments in manufactured housing distributors. The amortized cost and fair value of our investments in available-for-sale debt securities, by security type are shown in the table below (in thousands): October 1, 2022 April 2, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Residential mortgage-backed securities $ 3,161 $ 3,059 $ 1,668 $ 1,613 State and political subdivision debt securities 6,560 6,208 10,100 9,906 Corporate debt securities 10,802 10,221 6,502 6,241 $ 20,523 $ 19,488 $ 18,270 $ 17,760 The amortized cost and fair value of our investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands). Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties. October 1, 2022 Amortized Cost Fair Value Due in less than one year $ 1,443 $ 1,423 Due after one year through five years 14,521 13,610 Due after five years through ten years 1,005 1,007 Due after ten years 393 389 Mortgage-backed securities 3,161 3,059 $ 20,523 $ 19,488 There were no gross gains or losses realized on the sale of available-for-sale debt securities during the three and six months ended October 1, 2022 or October 2, 2021. 6 Table of Contents Net investment gains and losses on marketable equity securities were as follows (in thousands): Three Months Ended Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Marketable equity securities Net (loss) gain recognized during the period $ ( 233 ) $ 243 $ ( 2,575 ) $ 1,939 Less: Net loss (gain) recognized on securities sold during the period 216 ( 143 ) 290 ( 279 ) Unrealized (loss) gain recognized during the period on securities still held $ ( 17 ) $ 100 $ ( 2,285 ) $ 1,660 5. Inventories Inventories consisted of the following (in thousands): October 1, 2022 April 2, 2022 Raw materials $ 93,358 $ 95,929 Work in process 29,600 30,638 Finished goods 111,007 117,404 $ 233,965 $ 243,971 6. Consumer Loans Receivable The following table summarizes consumer loans receivable (in thousands): October 1, 2022 April 2, 2022 Loans held for investment, previously securitized $ 23,241 $ 26,014 Loans held for investment 14,213 14,771 Loans held for sale 11,035 8,500 Construction advances 993 3,547 49,482 52,832 Deferred financing fees and other, net ( 773 ) ( 833 ) Allowance for loan losses ( 1,739 ) ( 2,115 ) 46,970 49,884 Less current portion ( 18,400 ) ( 20,639 ) $ 28,570 $ 29,245 7 Table of Contents 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 Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Allowance for loan losses at beginning of period $ 1,905 $ 2,918 $ 2,115 $ 3,188 Change in estimated loan losses, net ( 166 ) 210 ( 376 ) ( 57 ) Charge-offs — ( 329 ) ( 19 ) ( 332 ) Recoveries — — 19 — Allowance for loan losses at end of period $ 1,739 $ 2,799 $ 1,739 $ 2,799 The consumer loans held for investment had the following characteristics: October 1, 2022 April 2, 2022 Weighted average contractual interest rate 8.3 % 8.3 % Weighted average effective interest rate 9.0 % 9.2 % Weighted average months to maturity 150 151 The following table is a consolidated summary of the delinquency status of the outstanding consumer loans receivable (in thousands): October 1, 2022 April 2, 2022 Current $ 47,539 $ 49,546 31 to 60 days 336 1,202 61 to 90 days 361 41 91+ days 1,246 2,043 $ 49,482 $ 52,832 The following tables disaggregate the principal value of consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands): October 1, 2022 2023 2022 2021 2020 2019 Prior Total Prime- FICO score 680 and greater $ 8,596 $ 1,624 $ 1,064 $ 2,411 $ 1,265 $ 19,014 $ 33,974 Near Prime- FICO score 620-679 1,049 153 1,022 1,135 1,615 9,116 14,090 Sub-Prime- FICO score less than 620 — — 20 52 — 1,173 1,245 No FICO score — — — 16 25 132 173 $ 9,645 $ 1,777 $ 2,106 $ 3,614 $ 2,905 $ 29,435 $ 49,482 8 Table of Contents April 2, 2022 2022 2021 2020 2019 2018 Prior Total Prime- FICO score 680 and greater $ 8,155 $ 1,615 $ 2,371 $ 1,339 $ 853 $ 20,485 $ 34,818 Near Prime- FICO score 620-679 1,661 1,274 1,413 1,976 617 9,266 16,207 Sub-Prime- FICO score less than 620 45 20 52 — — 1,318 1,435 No FICO score — — — 26 — 346 372 $ 9,861 $ 2,909 $ 3,836 $ 3,341 $ 1,470 $ 31,415 $ 52,832 As of October 1, 2022 and April 2, 2022, 43 % and 39 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas, respectively, and 16 % and 17 %, respectively was concentrated in Florida. Other than Texas and Florida, no sta te had concentrations in excess of 10 % of the outstanding principal balance of the consumer loans receivable as of October 1, 2022 or April 2, 2022. Repossessed homes totaled approximately $ 375,000 and $ 499,000 as of October 1, 2022 and April 2, 2022, respectively, and are included in Prepaid expenses and other current assets on the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $ 605,000 and $ 1.1 million as of October 1, 2022 and April 2, 2022, respectively. 7. Commercial Loans Receivable The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community operators and residential developers. Commercial loans receivable (including from affiliates), net consisted of the following (in thousands): October 1, 2022 April 2, 2022 Loans receivable $ 77,345 $ 69,693 Allowance for loan losses ( 1,123 ) ( 1,011 ) Deferred financing fees, net ( 117 ) ( 116 ) 76,105 68,566 Less current portion ( 32,663 ) ( 32,644 ) $ 43,442 $ 35,922 The commercial loans receivable balance had the following characteristics: October 1, 2022 April 2, 2022 Weighted average contractual interest rate 6.1 % 6.4 % Weighted average months outstanding 9 9 9 Table of Contents The following table represents changes in the estimated allowance for loan losses (in thousands): Three Months Ended Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Balance at beginning of period $ 1,054 $ 785 $ 1,011 $ 816 Change in estimated loan losses, net 69 41 112 10 Balance at end of period $ 1,123 $ 826 $ 1,123 $ 826 Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due. As of October 1, 2022 and April 2, 2022, there were no commercial loans considered watch list or nonperforming. The following table disaggregates the principal value of our commercial loans receivable by fiscal year of origination (in thousands): October 1, 2022 2023 2022 2021 2020 2019 Prior Total Performing $ 43,323 $ 23,047 $ 6,698 $ 2,561 $ 815 $ 901 $ 77,345 April 2, 2022 2022 2021 2020 2019 2018 Prior Total Performing $ 52,592 $ 10,181 $ 4,031 $ 1,391 $ 1,498 $ — $ 69,693 As of October 1, 2022, 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 October 1, 2022 and April 2, 2022, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 19 % and 25 %, respectively. No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of October 1, 2022 or April 2, 2022. As of October 1, 2022 and April 2, 2022, one independent third-party and its affiliates comprised 13 % and 14 %, respectively, of the net commercial loans receivable principal balance outstanding, all of which was secured . 8. Property, Plant and Equipment, net Property, plant and equipment, net, consisted of the following (in thousands): October 1, 2022 April 2, 2022 Property, plant and equipment, at cost Land $ 34,777 $ 32,154 Buildings and improvements 142,890 100,775 Machinery and equipment 56,601 48,638 Construction in progress 12,474 29,281 246,742 210,848 Accumulated depreciation ( 56,774 ) ( 46,832 ) $ 189,968 $ 164,016 Depreciation expense for the three and six months ended October 1, 2022 was $ 3.8 million and $ 7.3 million, respectively. Depreciation expense for the three and six months ended October 2, 2021 was $ 1.4 million and $ 2.9 million, respectively. 10 Table of Contents 9. Goodwill and Other Intangibles Goodwill and other intangibles, net, consisted of the following (in thousands): October 1, 2022 April 2, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Indefinite-lived Goodwill $ 100,577 $ — $ 100,577 $ 100,993 $ — $ 100,993 Trademarks and trade names 15,680 — 15,680 15,680 — 15,680 State insurance licenses 1,100 — 1,100 1,100 — 1,100 117,357 — 117,357 117,773 — 117,773 Finite-lived Customer relationships 19,500 ( 9,334 ) 10,166 19,500 ( 8,392 ) 11,108 Other 1,924 ( 1,420 ) 504 1,924 ( 1,353 ) 571 $ 138,781 $ ( 10,754 ) $ 128,027 $ 139,197 $ ( 9,745 ) $ 129,452 Amortization expense recognized on intangible assets was $ 502,000 and $ 1.0 million for the three and six months ended October 1, 2022, respectively. Amortization expense recognized on intangible assets was $ 166,000 and $ 339,000 for the three and six months ended October 2, 2021, respectively. Expected amortization for future fiscal years is as follows (in thousands): Remainder of fiscal year $ 1,003 2024 1,339 2025 1,300 2026 1,258 2027 1,185 2028 1,079 Thereafter 3,506 During the second fiscal quarter, we finalized the purchase price allocation related to the Commodore acquisition, and recorded purchase accounting adjustments that did not have a material effect on the Consolidated Financial Statements. 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): October 1, 2022 April 2, 2022 Salaries, wages and benefits $ 55,232 $ 54,172 Customer deposits 48,255 56,318 Estimated warranties 30,841 26,250 Unearned insurance premiums 26,453 24,917 Accrued volume rebates 24,897 18,641 Other 77,718 70,790 $ 263,396 $ 251,088 11 Table of Contents 11. Warranties Activity in the liability for estimated warranties was as follows (in thousands): Three Months Ended Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Balance at beginning of period $ 28,802 $ 19,344 $ 26,250 $ 18,032 Purchase accounting additions — 6,928 — 6,928 Charged to costs and expenses 13,623 7,994 28,627 17,119 Payments and deductions ( 11,584 ) ( 8,521 ) ( 24,036 ) ( 16,334 ) Balance at end of period $ 30,841 $ 25,745 $ 30,841 $ 25,745 12. Other Liabilities The following table summarizes the non-current portion of our other liabilities (in thousands): October 1, 2022 April 2, 2022 Finance lease payables $ 6,280 $ 6,316 Other secured financing 2,585 2,933 Mandatorily redeemable noncontrolling interest 2,290 2,371 11,155 11,620 Less current portion included in Accrued expenses and other current liabilities ( 735 ) ( 784 ) $ 10,420 $ 10,836 13. Reinsurance and Insurance Loss Reserves Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. We remain obligated for amounts ceded in the event that the reinsurers do not meet their obligations. The effects of reinsurance on premiums written and earned were as follows (in thousands): Three Months Ended October 1, 2022 October 2, 2021 Written Earned Written Earned Direct premiums $ 7,168 $ 7,338 $ 6,310 $ 6,323 Assumed premiums—nonaffiliated 8,818 8,211 8,240 7,630 Ceded premiums—nonaffiliated ( 4,414 ) ( 4,414 ) ( 3,714 ) ( 3,714 ) $ 11,572 $ 11,135 $ 10,836 $ 10,239 Six Months Ended October 1, 2022 October 2, 2021 Written Earned Written Earned Direct premiums $ 14,896 $ 14,388 $ 13,149 $ 12,319 Assumed premiums—nonaffiliated 17,846 16,168 16,814 15,008 Ceded premiums—nonaffiliated ( 8,643 ) ( 8,643 ) ( 7,361 ) ( 7,361 ) $ 24,099 $ 21,913 $ 22,602 $ 19,966 12 Table of Contents Typical insurance policies written or assumed have a maximum coverage of $ 300,000 per claim, of which we cede $ 125,000 of the risk of loss per reinsurance. Therefore, our risk of loss is limited to $ 175,000 per claim on typical policies, subject to the reinsurers meeting their obligations. After this limit, amounts are recoverable through reinsurance for catastrophic losses in excess of $ 2 million per occurrence, up to a maximum of $ 70 million in the aggregate for that occurrence. Standard Casualty establishes reserves for claims and claims expense on reported and incurred but not reported ("IBNR") claims of non-reinsured losses. Reserves for claims are included in the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets and claims expenses are recorded in Cost of sales on the Consolidated Statements of Comprehensive Income. The following details the activity in the reserve for the six months ended October 1, 2022 and October 2, 2021 (in thousands): Three Months Ended Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Balance at beginning of period $ 8,574 $ 8,348 $ 8,149 $ 7,451 Net incurred losses during the period 7,809 7,282 16,586 15,257 Net claim payments during the period ( 8,593 ) ( 8,280 ) ( 16,945 ) ( 15,358 ) Balance at end of period $ 7,790 $ 7,350 $ 7,790 $ 7,350 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 the Company was liable under such agreements approximated $ 189.4 million and $ 141.0 million at October 1, 2022 and April 2, 2022, respectively, without reduction for the resale value of the homes. We had a reserve for repurchase commitments of $ 5.0 million at October 1, 2022 and $ 3.6 million at April 2, 2022, and there were no repurchases during either period. Construction-Period Mortgages. We fund construction-period mortgages through periodic advances during home construction. At the time of initial funding, we commit to fully fund the loan contract in accordance with a predetermined schedule. The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment to fund future advances. Loan contracts with off-balance sheet commitments are summarized below (in thousands): October 1, 2022 April 2, 2022 Construction loan contract amount $ 3,397 $ 9,330 Cumulative advances ( 993 ) ( 3,547 ) $ 2,404 $ 5,783 Representations and Warranties of Mortgages Sold . We sell loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers. 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 $ 816,000 as of October 1, 2022 and $ 866,000 as of April 2, 2022, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets, reflects management's estimate of probable loss. There were no claim requests that resulted in the repurchase of a loan during the six months ended October 1, 2022. 13 Table of Contents 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 October 1, 2022, we had outstanding IRLCs with a notional amount of $ 37.0 million. For the three months ended October 1, 2022 and October 2, 2021, we recognized losses of $ 9,000 and $ 5,000 respectively on outstanding IRLCs. For the six months ended October 1, 2022 and October 2, 2021, we recognized gains of $ 31,000 and $ 42,000 , respectively. 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 October 1, 2022, we had $ 6.6 million in outstanding Commitments. We recognized non-cash gains of $ 178,000 and $ 79,000 in the second quarter of fiscal 2023 and 2022, respectively . During the six months ended October 1, 2022 and October 2, 2021, we recognized losses of $ 84,000 and $ 268,000 , respectively. Legal Matters. On September 2, 2021, the SEC filed a civil complaint in the United States District Court, District of Arizona, naming the Company along with the Company's former Chairman, President & Chief Executive Officer ("former CEO") and the Company's former Chief Financial Officer, alleging violations of the antifraud and internal accounting control provisions of the Securities Exchange Act of 1934 (the "Exchange Act") based on trading in the shares of another company directed by the former CEO that resulted in an unrealized gain of approximately $ 265,000 . In the prior year, the Company recorded an accrual relating to this loss contingency. On September 23, 2022, the United States District Court for the District of Arizona approved the settlement of the SEC action against the Company. Without admitting or denying the findings of the consent judgment, the Company agreed to the imposition of an injunction against future violations of the antifraud and internal accounting control provisions of the Exchange Act and a monetary penalty of $ 1.5 million, which did not have a material impact on the Company's financial statements. The settlement resolves all claims in such action against the Company. 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 on 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 and Redeemable Noncontrolling Interest The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the six months ended October 1, 2022 (dollars in thousands): Equity Attributable to Cavco Stockholders Treasury Stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Redeemable Noncontrolling Interest Common Stock Shares Amount Balance, April 2, 2022 9,292,278 $ 93 $ ( 61,040 ) $ 263,049 $ 628,756 $ ( 403 ) $ 830,455 $ 825 Net income — — — — 59,602 — 59,602 92 Other comprehensive loss, net — — — — — ( 112 ) ( 112 ) — Issuance of common stock under stock incentive plans, net 5,957 — — ( 848 ) — — ( 848 ) — Stock-based compensation — — — 1,425 — — 1,425 — Common stock repurchases — — ( 38,960 ) — — — ( 38,960 ) — Distributions — — — — — — — ( 240 ) Balance, July 2, 2022 9,298,235 $ 93 $ ( 100,000 ) $ 263,626 $ 688,358 $ ( 515 ) $ 851,562 $ 677 Net income — — — — 74,116 — 74,116 82 Other comprehensive loss, net — — — — — ( 303 ) ( 303 ) — Issuance of common stock under stock incentive plans, net 15,917 — — 1,457 — — 1,457 — Stock-based compensation — — — 2,100 — — 2,100 — Distributions — — — — — — — ( 240 ) Subsequent change in redemption value — — — — — — — 407 Balance, October 1, 2022 9,314,152 $ 93 $ ( 100,000 ) $ 267,183 $ 762,474 $ ( 818 ) $ 928,932 $ 926 15 Table of Contents The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the six months ended October 2, 2021 (dollars in thousands): Equity Attributable to Cavco Stockholders Treasury Stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Redeemable Noncontrolling Interest Common Stock Shares Amount Balance, April 3, 2021 9,241,256 $ 92 $ ( 1,441 ) $ 253,835 $ 431,057 $ 97 $ 683,640 $ — Net income — — — — 27,046 — 27,046 — Other comprehensive loss, net — — — — — ( 13 ) ( 13 ) — Issuance of common stock under stock incentive plans, net 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 $ — Initial value of noncontrolling interest upon transaction — — — — — — — 1,235 Net income — — — — 37,610 — 37,610 73 Other comprehensive income, net — — — — — ( 13 ) ( 13 ) — Issuance of common stock under stock incentive plans, net 29,295 1 — 2,728 — — 2,729 — Stock-based compensation — — — 1,317 — — 1,317 — Common stock repurchases — — ( 7,594 ) — — — ( 7,594 ) — Distributions — — — — — — — ( 180 ) Balance, October 2, 2021 9,275,016 $ 93 $ ( 21,877 ) $ 259,116 $ 495,713 $ 71 $ 733,116 $ 1,128 16 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 Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Net income attributable to Cavco common stockholders $ 74,116 $ 37,610 $ 133,718 $ 64,656 Weighted average shares outstanding Basic 8,903,703 9,190,866 8,910,933 9,194,577 Effect of dilutive securities 75,294 82,270 72,492 79,863 Diluted 8,978,997 9,273,136 8,983,425 9,274,440 Net income per share attributable to Cavco common stockholders Basic $ 8.32 $ 4.09 $ 15.01 $ 7.03 Diluted $ 8.25 $ 4.06 $ 14.88 $ 6.97 Anti-dilutive common stock equivalents excluded 413 2,808 596 5,417 17. Fair Value Measurements The book value and estimated fair value of our financial instruments were as follows (in thousands): October 1, 2022 April 2, 2022 Book Value Estimated Fair Value Book Value Estimated Fair Value Available-for-sale debt securities $ 19,488 $ 19,488 $ 17,760 $ 17,760 Marketable equity securities 14,441 14,441 16,780 16,780 Non-marketable equity investments 20,761 20,761 20,479 20,479 Consumer loans receivable 46,970 53,340 49,884 53,354 Commercial loans receivable 76,105 71,878 68,566 65,942 Other secured financing ( 2,585 ) ( 2,468 ) ( 2,933 ) ( 3,119 ) 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 recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets. October 1, 2022 April 2, 2022 Number of loans serviced with MSRs 4,153 4,346 Weighted average servicing fee (basis points) 34.74 34.76 Capitalized servicing multiple 109.7 % 85.07 % Capitalized servicing rate (basis points) 38.10 29.57 Serviced portfolio with MSRs (in thousands) $ 535,339 $ 560,178 MSRs (in thousands) $ 2,039 $ 1,656 17 Table of Contents 18. Related Party Transactions In addition to our Company-owned stores, we have non-marketable equity investments in other manufactured housing distributors. In the ordinary course of business, we sell homes and lend to certain of these distributors through our commercial lending programs. For the three and six months ended October 1, 2022, the total amount of sales to related parties was $ 20.1 million and $ 37.3 million, respectively. For the three and six months ended October 2, 2021, the total amount of sales to related parties was $ 14.0 million and $ 28.8 million, respectively. As of October 1, 2022, receivables from related parties included $ 5.1 million of accounts receivable and $ 2.2 million of commercial loans outstanding. As of April 2, 2022, receivables from related parties included $ 3.3 million of accounts receivable and $ 2.6 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 Six Months Ended October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021 Net revenue Factory-built housing $ 559,602 $ 342,094 $ 1,132,199 $ 654,377 Financial services 17,790 17,449 33,531 35,588 $ 577,392 $ 359,543 $ 1,165,730 $ 689,965 Income (loss) before income taxes Factory-built housing $ 90,374 $ 46,893 $ 170,146 $ 80,452 Financial services 2,437 2,128 1,975 4,047 $ 92,811 $ 49,021 $ 172,121 $ 84,499 October 1, 2022 April 2, 2022 Total assets: Factory-built housing $ 1,096,450 $ 929,535 Financial services 168,216 225,437 $ 1,264,666 $ 1,154,972 20. Subsequent Event As announced on October 27, 2022 in a current report on Form 8-K, we have signed a binding offer to acquire the business of Solitaire Homes, Inc. and other related entities (collectively “Solitaire Homes”), including its four manufacturing facilities, twenty-two retail locations and its dedicated transportation operations. The addition of Solitaire Homes strengthens our position in the Southwest, with high quality products that complement our existing home offerings. The purchase price totals $ 93 million, before certain adjustments that will be determined upon close of the transaction. We expect to fund the acquisition entirely with cash on hand. The transaction is expected to close early in the Company's fourth quarter of fiscal year 2023, subject to applicable regulatory approvals and the satisfaction of certain customary conditions. 18 Table of Contents