What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-04 · 200 added, 252 removed, 486 unchanged (48% of the section changed)

3 unchanged sentences

(Dollars in thousands, except per share amounts)

September 30,

2023 April 1,

38 unchanged sentences

Treasury stock, at cost;

671,801 shares

844,742 and 671,801 shares, respectively

( 211,646 ) ( 164,452 )

8 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

$ 452,030 $ 577,392 $ 927,905 $ 1,165,730

5 unchanged sentences

Income from operations 45,451 90,705 101,650 169,293

56,199 78,588

Interest income 5,812 1,851 10,430 3,165

Interest expense ( 257 ) ( 233 ) ( 523 ) ( 394 )

( 266 ) ( 161 )

Other income (expense), net 126 ( 431 )

Other income, net 655 488 781 57

Income before income taxes 51,661 92,811 112,338 172,121

60,677 79,310

Income tax expense ( 10,088 ) ( 18,613 ) ( 24,354 ) ( 38,229 )

9 unchanged sentences

Applicable income taxes

( 14 ) 79 ( 2 ) 109

Comprehensive income 41,627 73,895 87,996 133,477

11 unchanged sentences

(Dollars in thousands)

Three Months Ended

Six Months Ended

September 30,

2023 October 1,

OPERATING ACTIVITIES

17 unchanged sentences

Principal payments received on commercial loans receivable 59,378 41,839

Accounts payable and accrued expenses and other current liabilities 3,111 12,989

Accounts payable, accrued expenses and other liabilities 9,911 15,179

Net cash provided by operating activities 160,200 162,942

1 unchanged sentence

Purchases of property, plant and equipment ( 8,470 ) ( 33,188 )

Payments for acquisitions, net ( 1,298 ) —

Proceeds from sale of property, plant and equipment 4,490 402

1 unchanged sentence

Proceeds from sale of investments 5,356 7,595

Net cash provided (used) by investing activities 2,086 ( 24,399 )

Net cash used in investing activities ( 6,421 ) ( 34,933 )

FINANCING ACTIVITIES

5 unchanged sentences

Net cash used in financing activities ( 42,240 ) ( 39,224 )

Net increase (decrease) in cash, cash equivalents and restricted cash 82,889 ( 6,372 )

Net increase in cash, cash equivalents and restricted cash 111,539 88,785

Cash, cash equivalents and restricted cash at beginning of the fiscal year 283,490 259,334

14 unchanged sentences

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 including from Other income (expense), net to Interest income to conform to current period classification.

In addition, references throughout to numbered "Notes" refer to these Notes to Consolidated Financial Statements (Unaudited), unless otherwise stated.

In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, which are necessary to fairly state the results for the periods presented.

Certain prior period amounts have been reclassified including from Other income, net to Interest income 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 there were no disclosable subsequent events.

9 unchanged sentences

We design and build a wide variety of affordable manufactured homes, modular homes and park model RVs through 29 homebuilding production lines located throughout the United States and two production lines in Mexico.

We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S.

We distribute our homes through a large network of independent distribution points as well as 68 Company-owned U.S.

retail stores, of which 41 are located in Texas.

1 unchanged sentence

("CountryPlace"), and an insurance subsidiary, Standard Casualty Company ("Standard Casualty").

CountryPlace is an approved Federal National Mortgage Association ("'FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer and a Government National Mortgage Association ("GNMA" or "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 and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("GNMA") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes.

Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.

2 unchanged sentences

The results of operations are included in our Consolidated Financial Statements from the date of acquisition.

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.

We have a 70% interest in Craftsman Homes, LLC and Craftsman Homes Development, LLC (collectively "Craftsman").

On September 28, 2023, we executed an amendment to the Membership Interest Purchase Agreement for Craftsman to acquire the remaining 30% ownership for cash on December 31, 2023.

Under the original agreement, we were obligated to purchase 20% on December 31, 2023, and the remaining 10% was under a put/call arrangement with no specified timetable.

As the remaining 10% was not mandatorily redeemable, it was classified as a temporary equity mezzanine item between liabilities and stockholders' equity in the Consolidated Balance Sheets as Redeemable noncontrolling interest.

As the remaining 10% is now mandatorily redeemable, the value attributed to this noncontrolling interest is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets at fair value.

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.

Revenue from Contracts with Customers

The following table summarizes Net revenue disaggregated by reportable segment and source (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30, 2023 October 1, 2022 September 30,

2023 October 1,

Factory-built housing

4 unchanged sentences

Insurance agency commissions received from third-party insurance companies

1,017 1,029 1,916 2,426

All other sources 16,947 16,761 34,814 31,105

3 unchanged sentences

Restricted cash consisted of the following (in thousands):

September 30,

2023 April 1,

5 unchanged sentences

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):

September 30,

2023 October 1,

Cash and cash equivalents $ 377,264 $ 333,249

2 unchanged sentences

Investments consisted of the following (in thousands):

September 30,

2023 April 1,

6 unchanged sentences

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 distribution operations.

Our non-marketable equity investments include investments in other retail distribution operations and community-based initiatives.

We record investments in fixed maturity securities classified as available-for-sale at fair value and record the difference between fair value and cost in Accumulated other comprehensive loss in the Consolidated Balance Sheets.

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):

July 1, 2023 April 1, 2023

September 30, 2023 April 1, 2023

Value Amortized Cost Fair

8 unchanged sentences

Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.

September 30, 2023

Due in less than one year $ 3,422 $ 3,365

5 unchanged sentences

Net investment gains and losses on marketable equity securities were as follows (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Marketable equity securities

Net gain (loss) recognized during the period $ 460 $ ( 2,342 )

Net (loss) gain recognized during the period $ ( 185 ) $ ( 233 ) $ 275 $ ( 2,575 )

Net (gain) loss recognized on securities sold during the period ( 110 ) 216 ( 130 ) 290

Unrealized gain (loss) recognized during the period on securities still held $ 440 $ ( 2,268 )

Unrealized (loss) gain recognized during the period on securities still held $ ( 295 ) $ ( 17 ) $ 145 $ ( 2,285 )

Inventories consisted of the following (in thousands):

September 30,

2023 April 1,

5 unchanged sentences

The following table summarizes consumer loans receivable (in thousands):

September 30,

2023 April 1,

10 unchanged sentences

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Allowance for loan losses at beginning of period $ 1,144 $ 1,905 $ 1,153 $ 2,115

4 unchanged sentences

The consumer loans held for investment had the following characteristics:

September 30,

2023 April 1,

3 unchanged sentences

The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):

September 30,

2023 April 1,

5 unchanged sentences

The following table disaggregates gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):

September 30, 2023

2024 2023 2022 2021 2020 Prior Total

19 unchanged sentences

$ 11,250 $ 185 $ 2,082 $ 3,164 $ 2,765 $ 26,223 $ 45,669

As of July 1, 2023, 39 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 15 % was concentrated in Florida.

As of September 30, 2023, 40 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 14 % was concentrated in Florida.

As of April 1, 2023, 44 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 13 % 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 July 1, 2023 or April 1, 2023.

Repossessed homes totaled approximately $ 1.1 million as of both July 1, 2023 and April 1, 2023 and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 0.6 million and $ 0.5 million as of July 1, 2023 and April 1, 2023, respectively.

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 September 30, 2023 or April 1, 2023.

Repossessed homes totaled approximately $ 0.6 million and $ 1.1 million as of September 30, 2023 and April 1, 2023, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Homes undergoing foreclosure or similar proceedings in progress totaled approximately $ 0.8 million and $ 0.5 million as of September 30, 2023 and April 1, 2023, respectively.

Commercial Loans Receivable

1 unchanged sentence

Commercial loans receivable, net consisted of the following (in thousands):

September 30,

2023 April 1,

6 unchanged sentences

The commercial loans receivable balance had the following characteristics:

September 30,

2023 April 1,

2 unchanged sentences

The following table represents changes in the estimated allowance for loan losses (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Balance at beginning of period

1 unchanged sentence

Change in estimated loan losses, net

( 117 ) 69 ( 89 ) 112

Balance at end of period

2 unchanged sentences

Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due.

As of July 1, 2023 and April 1, 2023, there were no commercial loans considered watch list or nonperforming.

As of September 30, 2023 and April 1, 2023, there were no commercial loans considered watch list or nonperforming.

The following table disaggregates our commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):

September 30, 2023

2024 2023 2022 2021 2020 Prior Total

3 unchanged sentences

$ 80,193 $ 16,028 $ 4,071 $ 2,203 $ 1,231 $ — $ 103,726

As of July 1, 2023, there were no commercial loans 90 days or more past due that were still accruing interest, and we were not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.

As of July 1, 2023 and April 1, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 17 % and 18 %, respectively.

No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of July 1, 2023 or April 1, 2023.

As of July 1, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 13 % and 12 %, respectively, of the net commercial loans receivable principal balance outstanding, all of which was secured .

As of September 30, 2023 and April 1, 2023, 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 September 30, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 16 % and California of 11 %.

As of April 1, 2023, 18 % of our outstanding principal balance of the commercial loans receivable balance was in New York.

No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of September 30, 2023 or April 1, 2023.

As of September 30, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 12 % of the net commercial loans receivable principal balance outstanding, all of which was secured .

Property, Plant and Equipment, net

Property, plant and equipment, net, consisted of the following (in thousands):

September 30,

2023 April 1,

Property, plant and equipment, at cost

Land $ 39,823 $ 39,822

Buildings and improvements $ 169,331 $ 167,291

Machinery and equipment 75,381 76,826

Land 39,822 39,822

Construction in progress 8,228 5,472

2 unchanged sentences

$ 223,664 $ 228,278

Depreciation expense for the three months ended July 1, 2023 and July 2, 2022 was $ 4.2 million and $ 3.4 million, respectively.

Depreciation expense for the three and six months ended September 30, 2023 was $ 4.3 million and $ 8.4 million, respectively.

Depreciation expense for the three and six months ended October 1, 2022 was $ 3.8 million and $ 7.3 million, respectively.

We lease certain production and retail locations, office space and equipment.

The following table provides information about the financial statement classification of our lease balances reported within the Consolidated Balance Sheets as of September 30, 2023 and April 1, 2023 (in thousands):

Classification September 30,

2023 April 1,

Operating lease assets Operating lease right-of-use assets $ 34,413 $ 26,755

Finance lease assets Property, plant and equipment, net (1)

Total lease assets $ 40,457 $ 32,843

Lease Liabilities

Operating lease liabilities Accrued expenses and other current liabilities $ 5,027 $ 6,262

Finance lease liabilities Accrued expenses and other current liabilities 78 347

Operating lease liabilities Operating lease liabilities 30,529 21,678

Finance lease liabilities Other liabilities 6,127 5,896

Total lease liabilities $ 41,761 $ 34,183

(1) Recorded net of accumulated amortization of $ 0.3 million as of September 30, 2023 and April 1, 2023.

The present value of minimum payments for future fiscal years under non-cancelable leases as of September 30,

2023 was as follows (in thousands):

Operating Leases Finance Leases Total

Remainder of fiscal 2024 $ 3,254 $ 178 $ 3,432

Fiscal 2025 6,582 356 6,938

Fiscal 2026 6,160 356 6,516

Fiscal 2027 3,655 356 4,011

Fiscal 2028 3,141 356 3,497

Fiscal 2029 3,072 356 3,428

Thereafter 18,140 10,230 28,370

44,004 12,188 56,192

Amount representing interest ( 8,448 ) ( 5,983 ) ( 14,431 )

$ 35,556 $ 6,205 $ 41,761

Goodwill and Other Intangibles

Goodwill and other intangibles, net, consisted of the following (in thousands):

July 1, 2023 April 1, 2023

September 30, 2023 April 1, 2023

Amount Accumulated

12 unchanged sentences

$ 150,209 $ ( 5,189 ) $ 145,020 $ 150,641 $ ( 6,304 ) $ 144,337

During the three months ended July 1, 2023, fair value adjustments were made to certain assets and liabilities of Solitaire Homes in connection with purchase accounting measurement period adjustments.

During the six months ended September 30, 2023, fair value adjustments were made to certain assets and liabilities of Solitaire Homes in connection with the purchase accounting measurement period.

This resulted in additional Goodwill of $ 1.0 million.

Amortization expense recognized on intangible assets for the three months ended July 1, 2023 and July 2, 2022 was $ 0.4 million and $ 0.5 million, respectively.

Amortization expense recognized on intangible assets for the three and six months ended September 30, 2023 was $ 0.4 million and $ 0.8 million, respectively.

Amortization expense recognized on intangible assets for the three and six months ended October 1, 2022 was $ 0.5 million and $ 1.0 million, respectively.

Customer relationships have a weighted average remaining life of 7.4 years and other finite lived intangibles have a weighted average remaining life of 3.0 years.

1 unchanged sentence

Remainder of fiscal year 2024 $ 785

Fiscal 2025 1,530

Fiscal 2026 1,488

Fiscal 2027 1,415

Fiscal 2028 1,299

Fiscal 2029 1,265

Thereafter 3,143

1 unchanged sentence

Accrued expenses and other current liabilities consisted of the following (in thousands):

September 30,

2023 April 1,

Customer deposits $ 46,122 $ 45,193

Salaries, wages and benefits $ 45,250 $ 47,100

Customer deposits 43,477 45,193

Estimated warranties 33,015 31,368

4 unchanged sentences

Activity in the liability for estimated warranties was as follows (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Balance at beginning of period $ 32,401 $ 28,802 $ 31,368 $ 26,250

4 unchanged sentences

The following table summarizes secured financings and other obligations (in thousands):

September 30,

2023 April 1,

Finance lease payables $ 6,205 $ 6,243

Other secured financing 2,184 2,379

Mandatorily redeemable noncontrolling interest 2,442 2,268

Other secured financing 2,067 2,379

10,714 10,890

1 unchanged sentence

$ 7,792 $ 7,820

We are party to a Credit Agreement that expires in 2027 with Bank of America, N.A., providing for a $ 50 million revolving credit facility (the "Revolving Credit Facility"), which may be increased up to an aggregate amount of $100 million.

We are party to a Credit Agreement (the "Credit Agreement") that expires in 2027 with Bank of America, N.A., providing for a $ 50 million revolving credit facility (the "Revolving Credit Facility"), which may be increased up to an aggregate amount of $ 100 million.

Borrowings under the Revolving Credit Facility generally bear interest at the Secured Overnight Financing Rate plus a credit spread and a margin based on our Consolidated Total Leverage Ratio .

As of July 1, 2023 and April 1, 2023, there were no borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants.

The Credit Agreement includes the following financial covenants:

(i) as of the end of any fiscal quarter, the Consolidated Total Leverage Ratio (as defined in the Credit Agreement) cannot exceed 3.25 to 1.00 and (ii) a requirement to maintain Consolidated EBITDA (as defined in the Credit Agreement) for any period of four fiscal quarters of at least $75 million.

The Credit Agreement also contains customary representations and warranties, and affirmative negative covenants.

As of September 30, 2023 and April 1, 2023, there were no borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants.

Reinsurance and Insurance Loss Reserves

3 unchanged sentences

Three Months Ended

July 1, 2023 July 2, 2022

September 30, 2023 October 1, 2022

Written Earned Written Earned

6 unchanged sentences

$ 13,134 $ 11,784 $ 11,572 $ 11,135

Six Months Ended

September 30, 2023 October 1, 2022

Written Earned Written Earned

Direct premiums

$ 20,446 $ 18,047 $ 14,896 $ 14,388

Assumed premiums—nonaffiliated

19,305 17,421 17,846 16,168

Ceded premiums—nonaffiliated

( 12,565 ) ( 12,565 ) ( 8,643 ) ( 8,643 )

$ 27,186 $ 22,903 $ 24,099 $ 21,913

Typical insurance policies written or assumed have a maximum coverage of $ 0.4 million per claim, of which we cede $ 0.2 million of the risk of loss per reinsurance.

3 unchanged sentences

Reserves for claims are included in the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets and claims expenses are recorded in Cost of sales on the Consolidated Statements of Comprehensive Income.

The following details the activity in the reserve for the three months ended July 1, 2023 and July 2, 2022 (in thousands):

Three Months Ended

The following details the activity in the reserve for the three and six months ended September 30, 2023 and October 1, 2022 (in thousands):

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Balance at beginning of period $ 13,001 $ 8,574 $ 10,939 $ 8,149

4 unchanged sentences

Repurchase Contingencies .

The maximum amount for which the Company was liable under the terms of repurchase agreements with financial institutions that provide inventory financing to independent distributors of our products approximated $ 157 million and $ 178 million at July 1, 2023 and April 1, 2023, respectively, without reduction for the resale value of the homes.

During the fourth quarter of fiscal 2023, we received one repurchase demand notice and the inventory was acquired during the current quarter.

Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $ 3.9 million at July 1, 2023 and $ 5.2 million at April 1, 2023 .

The maximum amount for which the Company was liable under the terms of repurchase agreements with financial institutions that provide inventory financing to independent distributors of our products approximated $ 157 million and $ 178 million at September 30, 2023 and April 1, 2023, respectively, without reduction for the resale value of the homes.

During the second quarter of fiscal 2024, we received one repurchase demand notice and the inventory was obtained shortly after period end.

As the fair value of the inventory exceeded its carrying value, no reserve was deemed necessary.

During the fourth quarter of fiscal 2023, we received one repurchase demand notice and the inventory was acquired during the first quarter of fiscal 2024.

Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $ 3.7 million at September 30, 2023 and $ 5.2 million at April 1, 2023 .

Construction-Period Mortgages.

Loan contracts with off-balance sheet commitments are summarized below (in thousands):

September 30,

2023 April 1,

3 unchanged sentences

Representations and Warranties of Mortgages Sold .

The reserve for contingent repurchases and indemnification obliga tions was $ 0.7 million as of July 1, 2023 and April 1, 2023, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

There were no claim requests that resulted in the repurchase of any loans during the three months ended July 1, 2023.

Interest Rate Lock Commitments .

As of July 1, 2023, we had outstanding IRLCs with a notional amount of $ 31.1 million.

For the three months ended July 1, 2023 and July 2, 2022, we recognized insignificant non-cash gains on outstanding IRLCs.

The reserve for contingent repurchases and indemnification obliga tions was $ 0.6 million as of September 30, 2023 and $ 0.7 million as of April 1, 2023, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

There were no claim requests that resulted in the repurchase of any loans during the six months ended September 30, 2023 or October 1, 2022 .

Interest Rate Lock Commitments ("IRLCs") .

As of September 30, 2023, w e had outstanding IRLCs with a notional amount of $ 31.6 million.

For the three and six months ended September 30, 2023, we recognized insignificant non-cash losses on outstanding IRLCs.

For the three and six months ended October 1, 2022, we recognized insignificant non-cash losses and gains, respectively, on outstanding IRLCs.

Forward Sales Commitments .

As of July 1, 2023, we had $ 1.1 million in outstanding forward sales commitments ("Commitments").

During the three months ended July 1, 2023, we recognized an insignificant gain and during the three months ended July 2, 2022, we recognized a non-cash loss of $ 0.3 million relating to our Commitments.

As of September 30, 2023, we had $ 1.5 million in outstanding forward sales commitments ("Commitments").

During the three and six months ended September 30, 2023, we recognized insignificant non-cash gains.

During the three and six months ended October 1, 2022, we recognized non-cash gains and losses of $ 0.2 million and $ 0.1 million, respectively, relating to our Commitments.

Legal Matters.

3 unchanged sentences

Stockholders' Equity and Redeemable Noncontrolling Interest

The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 1, 2023 (dollars in thousands):

The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the six months ended September 30, 2023 (dollars in thousands):

Equity Attributable to Cavco Stockholders

9 unchanged sentences

Balance, July 1, 2023 9,347,220 93 ( 164,452 ) 272,175 915,667 ( 657 ) 1,022,826 1,120

Net income — — — — 41,539 — 41,539 34

Other comprehensive income, net — — — — — 54 54 —

Issuance of common stock under stock incentive plans, net 9,201 1 — 478 — — 479 —

Stock-based compensation — — — 1,551 — — 1,551 —

Common stock repurchases — — ( 47,194 ) — — — ( 47,194 ) —

Distributions — — — — — — — ( 180 )

Conversion to mandatorily redeemable noncontrolling interest — — — — — — — ( 974 )

Balance, September 30, 2023 9,356,421 $ 94 $ ( 211,646 ) $ 274,204 $ 957,206 $ ( 603 ) $ 1,019,255 $ —

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

9 unchanged sentences

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 )

Valuation adjustment — — — — — — — 407

Balance, October 1, 2022 9,314,152 $ 93 $ ( 100,000 ) $ 267,183 $ 762,474 $ ( 818 ) $ 928,932 $ 926

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Net income attributable to Cavco common stockholders $ 41,539 $ 74,116 $ 87,896 $ 133,718

9 unchanged sentences

The book value and estimated fair value of our financial instruments were as follows (in thousands):

July 1, 2023 April 1, 2023

September 30, 2023 April 1, 2023

Value Estimated

14 unchanged sentences

Mortgage Servicing Rights ("MSRs") are recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

September 30,

2023 April 1,

8 unchanged sentences

In the ordinary course of business, we sell homes and lend to certain of these operations through our commercial lending programs.

For the three months ended July 1, 2023 and July 2, 2022, the total amount of sales to related parties was $ 15.1 million and $ 17.2 million, respectively.

As of July 1, 2023, receivables from related parties included $ 6.5 million of accounts receivable and $ 5.1 million of commercial loans outstanding.

For the three and six months ended September 30, 2023, the total amount of sales to related parties was $ 16.0 million and $ 31.0 million, respectively.

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.

As of September 30, 2023, receivables from related parties included $ 6.0 million of accounts receivable and $ 4.9 million of commercial loans outstanding.

As of April 1, 2023, receivables from related parties included $ 5.7 million of accounts receivable and $ 4.7 million of commercial loans outstanding.

3 unchanged sentences

Accordingly, these provisional estimates are subject to change during the measurement period, which is up to one year from the Acquisition Date.

During the first quarter of fiscal 2024, we made certain adjustments to the assets and liabilities based on information that became available.

The following table presents our provisional estimates of the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date as of the end of the 2024 first quarter (in thousands):

During the six months ended September 30, 2023, we made certain adjustments to the assets and liabilities based on information that became available.

2023 Adjustments January 3, 2023

(as Adjusted at July 1, 2023)

(as Adjusted at September 30, 2023)

Cash $ 5,119 $ ( 77 ) $ 5,042

5 unchanged sentences

Intangible assets 3,400 — 3,400

3,400 — 3,400

Total identifiable assets acquired 108,062 ( 979 ) 107,083

1 unchanged sentence

Net identifiable assets acquired 96,811 ( 1,000 ) 95,811

13,970 951 14,921

Goodwill 13,970 1,000 14,970

Net assets acquired $ 110,781 $ — $ 110,781

(1) Includes $ 1.3 million assigned to trade names, which are considered indefinite lived intangible assets and are not subject to amortization, $ 1.9 million assigned to customer-related intangibles, subject to a useful life of 10 years amortized on a straight-line basis, and $ 0.2 million for covenants not to compete from the sellers amortized on a straight-line basis over the term of 5 years.

(2) Attributable to the Factory-built housing segment, all of which will be deductible for income tax purposes.

Pro Forma Impact of Acquisition (Unaudited) .

The following table presents supplemental pro forma information as if the above acquisition had occurred on April 3, 2022 (in thousands, except per share data):

Three Months Ended

October 1, 2022

Three Months Ended Six Months Ended

Net revenue $ 613,566 $ 1,238,077

5 unchanged sentences

The following table provides selected financial data by segment (in thousands):

Three Months Ended

Three Months Ended Six Months Ended

September 30,

2023 October 1,

2022 September 30,

2023 October 1,

Factory-built housing $ 434,066 $ 559,602 $ 891,175 $ 1,132,199

1 unchanged sentence

$ 452,030 $ 577,392 $ 927,905 $ 1,165,730

Income (loss) before income taxes:

Income before income taxes:

Factory-built housing $ 50,226 $ 90,374 $ 112,051 $ 170,146

1 unchanged sentence

$ 51,661 $ 92,811 $ 112,338 $ 172,121

September 30,

2023 April 1,

5 unchanged sentences

$ 1,368,791 $ 1,307,975

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements in this Report on Form 10-Q ("Report") 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.

Forward-looking statements include, for example, discussions regarding the manufactured housing and site-built housing industries;

our financial performance and operating results;

our strategy;

our liquidity and financial resources;

our outlook with respect to Cavco Industries, Inc.

and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") 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, including concerns of a possible recession, and consumer confidence;

trends in interest rates and inflation;

potential acquisitions, strategic investments and other expansions;

the sufficiency of our liquidity;

that we may seek alternative sources of financing in the future;

operational and legal risks;

how we may be affected by any pandemic or outbreak;

geopolitical conditions (including the continuing Russia-Ukraine conflict);

the cost and availability of labor and 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.

Forward-looking statements contained in this Report speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document.

We do not intend to publicly update or revise any forward-looking statement contained in this Report or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by law.

Forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, many of which are beyond our control.

To the extent that our assumptions and expectations differ from actual results, our ability to meet such forward-looking statements, including the ability to generate positive cash flow from operations, may be significantly hindered.

Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed under Risk Factors in Part I, Item 1A of our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Form 10-K").

The following should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes that appear in Part I, Item 1 of this Report.

References to "Note" or "Notes" pertain to the Notes to our Consolidated Financial Statements.

Company Overview

Headquartered in Phoenix, Arizona, we design and produce factory-built homes 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.

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, MidCountry and Solitaire.

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 ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer, and a Government National Mortgage Association ("GNMA" or "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 primarily to owners of manufactured homes.

We operate a total of 31 homebuilding production lines in Millersburg and Woodburn, Oregon;

Riverside, California;

Nampa, Idaho;

Phoenix, Glendale and Goodyear, Arizona;

Deming, New Mexico;

Duncan, Oklahoma;

Austin, Fort Worth, Seguin and Waco, Texas;

Montevideo, Minnesota;

Dorchester, Wisconsin;

Nappanee and Goshen, Indiana;

Lafayette, Tennessee;

Douglas and Moultrie, Georgia;

Shippenville and Emlenton, Pennsylvania;

Martinsville and Rocky Mount, Virginia;

Crouse and Hamlet, North Carolina;

Ocala and Plant City, Florida;

and two in Ojinaga, Mexico.

We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S.

retail stores, of which 41 are located in Texas.

Company and Industry Outlook

According to data reported by the Manufactured Housing Institute, industry home shipments for the calendar year through May 2023 were 35,714, a decrease of 29.0% compared to 50,278 shipments in the same calendar period last year.

Higher interest rates and continued inflationary pressures have tempered industry demand.

However, the manufactured housing industry offers solutions to the housing crisis with lower average price per square foot than a site-built home and the comparatively low cost associated with manufactured home ownership remains competitive with rental housing.

The two largest manufactured housing consumer demographics, young adults and those who are age 55 and older, are both growing.

" First-time" and "move-up" buyers of affordable homes are historically among the largest segments of new manufactured home purchasers.

Included in this group are lower-income households that are particularly affected by periods of low employment rates and underemployment.

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

We employ a concerted effort to identify niche market opportunities where our diverse product lines and flexible 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 resulting in lower utility costs, as well as the higher utilization of renewable materials in our manufacturing process.

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

We maintain a conservative cost structure in an effort to build added value into our homes and we work diligently to maintain a solid financial position.

Our balance sheet strength, including the position in cash and cash equivalents, helps avoid liquidity problems and enables us to act effectively as market opportunities or challenges present themselves.

We continue to make certain commercial loan programs available to members of our wholesale distribution chain.

Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community operators and residential developers (see Note 7 to the Consolidated Financial Statements).

Our involvement in commercial lending helps to increase the availability of manufactured home financing to distributors, community operators and residential developers and provides additional opportunities for product exposure to potential home buyers.

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

The lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans results in higher borrowing costs for home-only loans and continues to constrain industry growth.

We work 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 factory-built housing operations and reduce our exposure to the actions of independent lenders.

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 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.

Our backlog at July 1, 2023 was $177 million compared to $244 million at April 1, 2023, a decrease of $67 million and down $823 million c ompared to $1.0 billion at July 2, 2022.

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 meeting demand.

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 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.

Results of Operations

Three Months Ended

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

Factory-built housing $ 457,109 $ 572,597 $ (115,488) (20.2) %

Financial services 18,766 15,741 3,025 19.2 %

$ 475,875 $ 588,338 $ (112,463) (19.1) %

Factory-built homes sold

by Company-owned retail sales centers 959 873 86 9.9 %

to independent retailers, builders, communities and developers 3,623 4,473 (850) (19.0) %

4,582 5,346 (764) (14.3) %

Net factory-built housing revenue per home sold $ 99,762 $ 107,108 $ (7,346) (6.9) %

In factory-built housing, Net revenue decreased compared to the respective period in the prior year due to lower home sales volume and lower home selling prices, partially offset by the addition of Solitaire Homes.

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

A primary factor is the price disparity between sales of homes to independent distributors, builders, communities and developers and sales of homes to consumers by Company-owned retail stores.

Wholesale sales prices are primarily comprised of the home and the cost to ship the home from a homebuilding facility to the home-site.

Retail home prices include these items and retail markup, as well as items that are largely subject to home buyer discretion, including, but not limited to, installation, utility connections, site improvements, landscaping and additional services.

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

Changes in the number of modules per home, the selection of different home types/models and optional home upgrades create changes in product mix, also causing fluctuations in this metric.

For the three months ended July 1, 2023, Net revenue in Financial Services increased 19.2% primarily due to realized and unrealized gains on marketable equity securities in the insurance subsidiary's portfolio compared to losses during the prior year period and more insurance policies in force in the current period compared to the prior period.

This was partially offset by lower interest income earned on the acquired consumer loan portfolios.

Three Months Ended

($ in thousands) July 1,

Factory-built housing $ 113,368 $ 139,586 $ (26,218) (18.8) %

Financial services 4,511 5,138 (627) (12.2) %

$ 117,879 $ 144,724 $ (26,845) (18.5) %

Gross profit as % of Net revenue

Consolidated 24.8 % 24.6 % N/A 0.2 %

Factory-built housing 24.8 % 24.4 % N/A 0.4 %

Financial services 24.0 % 32.6 % N/A (8.6) %

Factory-built housing Gross profit percentage increased primarily due to favorable material costs.

In Financial services, Gross profit and Gross profit percentage decreased primarily due to higher insurance claims from Arizona and Texas weather related events partially offset by greater realized and unrealized gains on marketable equity securities in the current period compared to the same period last year.

Selling, General and Administrative Expenses

Three Months Ended

($ in thousands) July 1,

Factory-built housing $ 56,021 $ 60,923 $ (4,902) (8.0) %

Financial services 5,659 5,213 446 8.6 %

$ 61,680 $ 66,136 $ (4,456) (6.7) %

Selling, general and administrative expenses as % of Net revenue 13.0 % 11.2 % N/A 1.8 %

Selling, general and administrative expenses decreased primarily from lower legal expenses, professional fees and incentive compensation expense, partially offset by higher expenses reflecting the addition of Solitaire Homes.

Other Components of Net Income

Three Months Ended

($ in thousands) July 1,

Interest income $ 4,618 $ 1,314 $ 3,304 251.4 %

Interest expense (266) (161) (105) 65.2 %

Other income (expense), net 126 (431) 557 N/M

Income tax expense (14,266) (19,616) (5,350) (27.3) %

Effective tax rate 23.5 % 24.7 % N/A (1.20) %

Interest income consists primarily of interest earned on cash balances held in money market accounts, and interest earned on commercial floorplan lending.

Interest expense consists primarily of interest related to finance leases.

Other income (expense), net primarily consists of realized and unrealized gains and losses on corporate investments and gains and losses from the sale of property, plant and equipment.

For the three months ended July 1, 2023, we recognized a $0.1 million gain on corporate marketable investments compared to a $1.1 million loss in the prior year.

Liquidity and Capital Resources

We believe that cash and cash equivalents at July 1, 2023, together with cash flow from operations, will be sufficient to fund our operations, cover our obligations and provide for growth for the next 12 months and into the foreseeable future.

We maintain cash in U.S.

Treasury and other money market funds, some of which are in excess of federally insured limits, but we have not experienced any losses with regards to such excesses.

We expect to continue to evaluate potential acquisitions of, or strategic investments in, businesses that are complementary to the Company, as well as other expansion opportunities.

Such transactions may require the use of cash and have other impacts on our liquidity and capital resources.

We have sufficient liquid resources including our recently implemented $50.0 million Revolving Credit Facility, of which no amounts were outstanding at July 1, 2023.

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 at such time.

The exact nature of any changes to our plans that would be considered depends on various factors, such as conditions in the factory-built housing industry and general economic conditions outside of our control.

State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies.

As a result, the assets owned by our insurance subsidiary are generally not available to satisfy the claims of Cavco or its subsidiaries.

We believe that stockholders' equity at the insurance subsidiary remains sufficient and do not believe that the ability to pay ordinary dividends to Cavco at anticipated levels will be restricted per state regulations.

The following is a summary of the Company's cash flows for the three months ended July 1, 2023 and July 2, 2022, respectively:

Three Months Ended

(in thousands) July 1,

2022 $ Change

Cash, cash equivalents and restricted cash at beginning of the fiscal year $ 283,490 $ 259,334 $ 24,156

Net cash provided by operating activities 82,293 58,240 24,053

Net cash provided (used) by investing activities 2,086 (24,399) 26,485

Net cash used in financing activities (1,490) (40,213) 38,723

Cash, cash equivalents and restricted cash at end of the period $ 366,379 $ 252,962 $ 113,417

Net cash provided by operating activities increased primarily from reductions in accounts receivable, inventories and prepaid expenses and other current assets.

These increases were partially offset by lower net income, adjusted for non-cash items.

Consumer loan originations decreased $10.8 million to $36.7 million for the three months ended July 1, 2023 from $47.5 million for the three months ended July 2, 2022, and proceeds from sales of consumer loans decreased $5.5 million .

Commercial loan originations increased $5.9 million to $28.7 million for the three months ended July 1, 2023 from $22.8 million for the three months ended July 2, 2022.

Proceeds from the collection on commercial loans provided $25.2 million this year, compared to $19.0 million in the prior year, a net increase of $6.2 million.

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

Cash used in the prior year period reflects the purchase of our plant facilities in Hamlet, North Carolina.

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

See Note 15 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 the Form 10-K.

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the three months ended July 1, 2023, as compared to those disclosed in Part II, Item 7 of the Form 10-K, under the heading "Critical Accounting Estimates," which provides a discussion of the critical accounting estimates that management believes are critical to the Company's operating results or may affect significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K.

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 1. Financial Statements