NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In 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 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. 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 31st 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 31st. 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 owners and developers and through our 45 Company-owned retail stores. The financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Company ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("GNMA") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.
On September 24, 2021, we acquired the business and certain assets and liabilities of The Commodore Corporation ("Commodore"), including its six manufacturing facilities and two wholly-owned retail locations. The results of operations are included in our Consolidated Financial Statements from the date of acquisition. See Note 19.
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.
2. Revenue from Contracts with Customers
The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Factory-built housing | | | | | | | |
U.S. Housing and Urban Development code homes | | | | | $ | 507,183 | | | $ | 262,390 | |
Modular homes | | | | | 34,338 | | | 26,617 | |
Park model RVs | | | | | 13,755 | | | 9,671 | |
Other | | | | | 17,321 | | | 13,605 | |
| | | | | 572,597 | | | 312,283 | |
Financial services | | | | | | | |
Insurance agency commissions received from third-party insurance companies | | | | | 1,397 | | | 873 | |
All other sources | | | | | 14,344 | | | 17,266 | |
| | | | | 15,741 | | | 18,139 | |
| | | | | $ | 588,338 | | | $ | 330,422 | |
3. Restricted Cash
Restricted cash consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Cash related to CountryPlace customer payments to be remitted to third parties | $ | 13,562 | | | $ | 13,857 | |
Other restricted cash | 1,328 | | | 1,327 | |
| 14,890 | | | 15,184 | |
Current portion | (14,555) | | | (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):
| | | | | | | | | | | |
| July 2, 2022 | | July 3, 2021 |
Cash and cash equivalents | $ | 238,072 | | | $ | 329,753 | |
Restricted cash | 14,890 | | | 17,063 | |
| $ | 252,962 | | | $ | 346,816 | |
4. Investments
Investments consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Available-for-sale debt securities | $ | 17,278 | | | $ | 17,760 | |
Marketable equity securities | 14,583 | | | 16,780 | |
Non-marketable equity investments | 20,818 | | | 20,479 | |
| 52,679 | | | 55,019 | |
Less short-term investments | (15,864) | | | (20,086) | |
| $ | 36,815 | | | $ | 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 distribution operations.
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 2, 2022 | | April 2, 2022 |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Residential mortgage-backed securities | $ | 1,574 | | | $ | 1,504 | | | $ | 1,668 | | | $ | 1,613 | |
State and political subdivision debt securities | 7,480 | | | 7,232 | | | 10,100 | | | 9,906 | |
Corporate debt securities | 8,876 | | | 8,542 | | | 6,502 | | | 6,241 | |
| $ | 17,930 | | | $ | 17,278 | | | $ | 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.
| | | | | | | | | | | |
| July 2, 2022 |
| Amortized Cost | | Fair Value |
Due in less than one year | $ | 1,295 | | | $ | 1,281 | |
Due after one year through five years | 13,158 | | | 12,566 | |
Due after five years through ten years | 1,258 | | | 1,269 | |
Due after ten years | 645 | | | 658 | |
Mortgage-backed securities | 1,574 | | | 1,504 | |
| $ | 17,930 | | | $ | 17,278 | |
There were no gross gains or losses realized on the sale of available-for-sale debt securities during the three months ended July 2, 2022 or July 3, 2021.
Net investment gains and losses on marketable equity securities were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Marketable equity securities | | | | | | | |
Net (loss) gain recognized during the period | | | | | $ | (2,342) | | | $ | 1,696 | |
Less: Net loss (gain) recognized on securities sold during the period | | | | | 74 | | | (136) | |
Unrealized (loss) gain recognized during the period on securities still held | | | | | $ | (2,268) | | | $ | 1,560 | |
5. Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Raw materials | $ | 97,935 | | | $ | 95,929 | |
Work in process | 30,549 | | | 30,638 | |
Finished goods | 126,238 | | | 117,404 | |
| $ | 254,722 | | | $ | 243,971 | |
6. Consumer Loans Receivable
The following table summarizes consumer loans receivable (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Loans held for investment, previously securitized | $ | 24,732 | | | $ | 26,014 | |
Loans held for investment | 14,670 | | | 14,771 | |
Loans held for sale | 10,909 | | | 8,500 | |
Construction advances | 1,908 | | | 3,547 | |
| 52,219 | | | 52,832 | |
Deferred financing fees and other, net | (727) | | | (833) | |
Allowance for loan losses | (1,905) | | | (2,115) | |
| 49,587 | | | 49,884 | |
Less current portion | (20,888) | | | (20,639) | |
| $ | 28,699 | | | $ | 29,245 | |
The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Allowance for loan losses at beginning of period | | | | | $ | 2,115 | | | $ | 3,188 | |
Change in estimated loan losses, net | | | | | (210) | | | (267) | |
Charge-offs | | | | | (19) | | | (3) | |
Recoveries | | | | | 19 | | | — | |
Allowance for loan losses at end of period | | | | | $ | 1,905 | | | $ | 2,918 | |
The consumer loans held for investment had the following characteristics:
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Weighted average contractual interest rate | 8.3 | % | | 8.3 | % |
Weighted average effective interest rate | 9.3 | % | | 9.2 | % |
Weighted average months to maturity | 151 | | 151 |
The following table is a consolidated summary of the delinquency status of the outstanding consumer loans receivable (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Current | $ | 50,382 | | | $ | 49,546 | |
31 to 60 days | 192 | | | 1,202 | |
61 to 90 days | 348 | | | 41 | |
91+ days | 1,297 | | | 2,043 | |
| $ | 52,219 | | | $ | 52,832 | |
The following tables disaggregate the principal value of consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
Prime- FICO score 680 and greater | $ | 7,796 | | | $ | 3,095 | | | $ | 1,092 | | | $ | 2,300 | | | $ | 1,330 | | | $ | 19,940 | | | $ | 35,553 | |
Near Prime- FICO score 620-679 | 335 | | | 727 | | | 1,389 | | | 1,240 | | | 1,962 | | | 9,304 | | | 14,957 | |
Sub-Prime- FICO score less than 620 | — | | | — | | | 20 | | | 52 | | | — | | | 1,257 | | | 1,329 | |
No FICO score | — | | | — | | | — | | | — | | | 26 | | | 354 | | | 380 | |
| $ | 8,131 | | | $ | 3,822 | | | $ | 2,501 | | | $ | 3,592 | | | $ | 3,318 | | | $ | 30,855 | | | $ | 52,219 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 July 2, 2022 and April 2, 2022, 40% and 39% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas, respectively, and 17% was concentrated in Florida in both periods. Other than Texas and Florida, no state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of July 2, 2022 or April 2, 2022.
Repossessed homes totaled approximately $78,000 and $499,000 as of July 2, 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 $611,000 and $1.1 million as of July 2, 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 owners and developers.
Commercial loans receivable (including from affiliates), net consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Loans receivable | $ | 73,489 | | | $ | 69,693 | |
Allowance for loan losses | (1,054) | | | (1,011) | |
Deferred financing fees, net | (117) | | | (116) | |
| 72,318 | | | 68,566 | |
Less current portion | (33,855) | | | (32,644) | |
| $ | 38,463 | | | $ | 35,922 | |
The commercial loans receivable balance had the following characteristics:
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Weighted average contractual interest rate | 5.9 | % | | 6.4 | % |
Weighted average months outstanding | 9 | | 9 |
The following table represents changes in the estimated allowance for loan losses (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | | | | | $ | 1,011 | | | $ | 816 | |
Change in estimated loan losses, net | | | | | 43 | | | (31) | |
Balance at end of period | | | | | $ | 1,054 | | | $ | 785 | |
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 July 2, 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 2, 2022 | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total | | | | |
Performing | | $ | 26,909 | | | $ | 32,564 | | | $ | 8,326 | | | $ | 3,165 | | | $ | 1,371 | | | $ | 1,154 | | | $ | 73,489 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 July 2, 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 July 2, 2022 and April 2, 2022, we had concentrations of our outstanding commercial loans receivable balance in New York of 20% and 25%, respectively. No other state had concentrations in excess of 10% of the principal balance of the commercial loans receivable as of July 2, 2022 or April 2, 2022.
One independent third-party and its affiliates comprised 14% of the net commercial loans receivable principal balance outstanding, all of which was secured, as of both July 2, 2022 and April 2, 2022.
8. Property, Plant and Equipment, net
Property, plant and equipment, net, consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Property, plant and equipment, at cost | | | |
Land | $ | 36,096 | | | $ | 32,154 | |
Buildings and improvements | 115,708 | | | 100,775 | |
Machinery and equipment | 49,911 | | | 48,638 | |
Construction in progress | 37,010 | | | 29,281 | |
| 238,725 | | | 210,848 | |
Accumulated depreciation | (53,191) | | | (46,832) | |
| $ | 185,534 | | | $ | 164,016 | |
Depreciation expense for the three months ended July 2, 2022 and July 3, 2021 was $3.4 million and $1.4 million, respectively.
9. Goodwill and Other Intangibles
Goodwill and other intangibles, net, consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived | | | | | | | | | | | |
Goodwill | $ | 100,993 | | | $ | — | | | $ | 100,993 | | | $ | 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 | |
| 117,773 | | | — | | | 117,773 | | | 117,773 | | | — | | | 117,773 | |
Finite-lived | | | | | | | | | | | |
Customer relationships | 19,500 | | | (8,866) | | | 10,634 | | | 19,500 | | | (8,392) | | | 11,108 | |
Other | 1,924 | | | (1,387) | | | 537 | | | 1,924 | | | (1,353) | | | 571 | |
| $ | 139,197 | | | $ | (10,253) | | | $ | 128,944 | | | $ | 139,197 | | | $ | (9,745) | | | $ | 129,452 | |
Amortization expense recognized on intangible assets was $508,000 and $173,000 for the three months ended July 2, 2022 and July 3, 2021, respectively.
Expected amortization for future fiscal years is as follows (in thousands): | | | | | |
Remainder of fiscal year | $ | 1,504 | |
2024 | 1,339 | |
2025 | 1,300 | |
2026 | 1,258 | |
2027 | 1,185 | |
2028 | 1,079 | |
Thereafter | 3,506 | |
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Customer deposits | $ | 54,161 | | | $ | 56,318 | |
Salaries, wages and benefits | 52,899 | | | 54,172 | |
Estimated warranties | 28,802 | | | 26,250 | |
Unearned insurance premiums | 26,207 | | | 24,917 | |
Accrued volume rebates | 22,532 | | | 18,641 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other | 75,177 | | | 70,790 | |
| $ | 259,778 | | | $ | 251,088 | |
11. Warranties
Activity in the liability for estimated warranties was as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | | | | | $ | 26,250 | | | $ | 18,032 | |
Charged to costs and expenses | | | | | 15,004 | | | 9,125 | |
Payments and deductions | | | | | (12,452) | | | (7,813) | |
Balance at end of period | | | | | $ | 28,802 | | | $ | 19,344 | |
12. Other Liabilities
The following table summarizes the non-current portion of our other liabilities (in thousands):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Finance lease payables | $ | 6,298 | | | $ | 6,316 | |
Other secured financing | 2,791 | | | 2,933 | |
Mandatorily redeemable noncontrolling interest | 2,371 | | | 2,371 | |
| 11,460 | | | 11,620 | |
Less current portion included in Accrued expenses and other current liabilities | (765) | | | (784) | |
| $ | 10,695 | | | $ | 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 |
| July 2, 2022 | | July 3, 2021 |
| Written | | Earned | | Written | | Earned |
Direct premiums | $ | 7,728 | | | $ | 7,050 | | | $ | 6,839 | | | $ | 5,996 | |
Assumed premiums—nonaffiliated | 9,028 | | | 7,957 | | | 8,574 | | | 7,378 | |
Ceded premiums—nonaffiliated | (4,229) | | | (4,229) | | | (3,647) | | | (3,647) | |
| $ | 12,527 | | | $ | 10,778 | | | $ | 11,766 | | | $ | 9,727 | |
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 three months ended July 2, 2022 and July 3, 2021 (in thousands): | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Balance at beginning of period | | | | | $ | 8,149 | | | $ | 7,451 | |
Net incurred losses during the year | | | | | 8,777 | | | 7,975 | |
Net claim payments during the year | | | | | (8,352) | | | (7,078) | |
Balance at end of period | | | | | $ | 8,574 | | | $ | 8,348 | |
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 $167.2 million and $141.0 million at July 2, 2022 and April 2, 2022, respectively, without reduction for the resale value of the homes. We had a reserve for repurchase commitments of $4.4 million at July 2, 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):
| | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Construction loan contract amount | $ | 5,447 | | | $ | 9,330 | |
Cumulative advances | (1,908) | | | (3,547) | |
| $ | 3,539 | | | $ | 5,783 | |
Representations and Warranties of Mortgages Sold. We sell loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers and finance certain loans with long-term credit facilities secured by the respective loans. In connection with these activities, we provide to GSEs and whole-loan purchasers and lenders representations and warranties related to the loans sold or financed. Upon a breach of a representation, we may be required to repurchase the loan or to indemnify a party for incurred losses. We maintain a reserve for these contingent repurchase and indemnification obligations. This reserve of $1.0 million as of July 2, 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 three months ended July 2, 2022.
Interest Rate Lock Commitments. In originating loans for sale, we issue interest rate lock commitments ("IRLCs") to prospective borrowers. These IRLCs bind us to fund the approved loan at the specified rate regardless of whether interest rates or market prices for similar loans have changed between the commitment date and the closing date. As of July 2, 2022, we had outstanding IRLCs with a notional amount of $49.9 million and recognized a gain of $40,000 in the fiscal 2023 first quarter and a gain of $47,000 in the fiscal 2022 first quarter.
Forward Sales Commitments. We manage the risk profiles of a portion of the outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities ("MBS") and whole loan sale commitments (collectively "Commitments"). As of July 2, 2022, we had $10.2 million in outstanding Commitments and recognized a non-cash loss of $262,000 in the fiscal 2023 first quarter and a non-cash loss of $347,000 in the fiscal 2022 first quarter.
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 ("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 based on trading in the shares of another company directed by the former CEO that resulted in an unrealized gain of approximately $260,000. In the prior year, the Company recorded an accrual relating to this loss contingency. The Company has reached a settlement in principle with the SEC staff regarding the pending litigation. The settlement is subject to SEC approval that is expected within the next 60 days. A related notice has been filed with the Court in that action. We do not believe that the settlement will have a material impact on our results of operations or financial position.
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.
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 three months ended July 2, 2022 (dollars in thousands):
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| 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 | 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 | |
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The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 3, 2021 (dollars in thousands):
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| 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 | 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 | | | $ | — | | | | |
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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):
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| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Net income attributable to Cavco common stockholders | | | | | $ | 59,602 | | | $ | 27,046 | |
Weighted average shares outstanding | | | | | | | |
Basic | | | | | 8,918,280 | | | 9,198,229 | |
Effect of dilutive securities | | | | | 70,649 | | | 78,300 | |
Diluted | | | | | 8,988,929 | | | 9,276,529 | |
Net income per share attributable to Cavco common stockholders | | | | | | | |
Basic | | | | | $ | 6.68 | | | $ | 2.94 | |
Diluted | | | | | $ | 6.63 | | | $ | 2.92 | |
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Anti-dilutive common stock equivalents excluded | | | | | 1,617 | | | 8,366 | |
17. Fair Value Measurements
The book value and estimated fair value of our financial instruments were as follows (in thousands):
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| July 2, 2022 | | April 2, 2022 |
| Book Value | | Estimated Fair Value | | Book Value | | Estimated Fair Value |
Available-for-sale debt securities | $ | 17,278 | | | $ | 17,278 | | | $ | 17,760 | | | $ | 17,760 | |
Marketable equity securities | 14,583 | | | 14,583 | | | 16,780 | | | 16,780 | |
Non-marketable equity investments | 20,818 | | | 20,818 | | | 20,479 | | | 20,479 | |
Consumer loans receivable | 49,587 | | | 52,208 | | | 49,884 | | | 53,354 | |
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Commercial loans receivable | 72,318 | | | 69,509 | | | 68,566 | | | 65,942 | |
Other secured financing | (2,791) | | | (2,781) | | | (2,933) | | | (3,119) | |
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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. | | | | | | | | | | | |
| July 2, 2022 | | April 2, 2022 |
Number of loans serviced with MSRs | 4,216 | | | 4,346 | |
Weighted average servicing fee (basis points) | 34.70 | | | 34.76 | |
Capitalized servicing multiple | 101.5 | % | | 85.07 | % |
Capitalized servicing rate (basis points) | 35.22 | | | 29.57 | |
Serviced portfolio with MSRs (in thousands) | $ | 543,871 | | | $ | 560,178 | |
MSRs (in thousands) | $ | 1,915 | | | $ | 1,656 | |
18. Related Party Transactions
We have non-marketable equity investments in other distribution operations outside of Company-owned retail stores. In the ordinary course of business, we sell homes and lend to certain of these operations through our commercial lending programs. For the three months ended July 2, 2022 and July 3, 2021, the total amount of sales to related parties was $17.2 million and $14.8 million, respectively. As of July 2, 2022, receivables from related parties included $5.3 million of accounts receivable and $1.8 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. Acquisitions
On July 4, 2021, we obtained an additional 20% ownership interest in Craftsman Homes, LLC and Craftsman Homes Development, LLC (“the Entities”) which gave us a controlling interest. Accordingly, we now consolidate the Entities and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of acquisition.
On September 24, 2021, we purchased certain manufactured housing assets and assumed certain liabilities of Commodore, including its six manufacturing facilities and two wholly-owned retail locations. In addition to manufacturing, Commodore also participates in commercial lending operations with its dealers. The transaction was accounted for as a business combination and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of acquisition.
Pro Forma Impact of Acquisitions (unaudited). The following table presents supplemental pro forma information as if the acquisitions occurred on April 4, 2021 (in thousands, except per share data):
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| | | | | Three Months Ended |
| | | | | | | July 3, 2021 |
Net revenue | | | | | | | $ | 411,752 | |
Net income attributable to Cavco common stockholders | | | | | | | 28,022 | |
Diluted net income per share | | | | | | | 3.02 | |
20. 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):
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| | | Three Months Ended |
| | | | | July 2, 2022 | | July 3, 2021 |
Net revenue | | | | | | | |
Factory-built housing | | | | | $ | 572,597 | | | $ | 312,283 | |
Financial services | | | | | 15,741 | | | 18,139 | |
| | | | | $ | 588,338 | | | $ | 330,422 | |
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Income (loss) before income taxes | | | | | | | |
Factory-built housing | | | | | $ | 79,772 | | | $ | 33,559 | |
Financial services | | | | | (462) | | | 1,919 | |
| | | | | $ | 79,310 | | | $ | 35,478 | |
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| July 2, 2022 | | April 2, 2022 |
Total assets: | | | |
Factory-built housing | $ | 962,704 | | | $ | 929,535 | |
Financial services | 221,096 | | | 225,437 | |
| $ | 1,183,800 | | | $ | 1,154,972 | |