CAVCO INDUSTRIES INC

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 (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 (expense) 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. 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 2023 Annual Report on Form 10-K for the year ended April 1, 2023, 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 March 30, 2024 and will include 52 weeks.

We operate intwo 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 29 homebuilding production lines located throughout the United States andtwo production lines in Mexico. We distribute our homes through a large network of independent distribution points in 48 states and Canada as well as 73 Company-owned U.S. retail stores, of which 43 are located in Texas. 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.

During fiscal 2023, we completed the acquisition of Solitaire Inc. and other related entities (collectively "Solitaire Homes"), including their four manufacturing facilities and twenty-two retail locations by acquiring 100% of the outstanding stock of Solitaire Homes. The results of operations are included in our Consolidated Financial Statements from the date of acquisition. See Note 21, Acquisition.

At December 30, 2023 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 (the "Agreement") for Craftsman to acquire the remaining 30% interest in Craftsman for cash on December 31, 2023. An additional amendment was signed in December 2023 to move the acquisition date to January 1, 2024. As the entire 30% is mandatorily redeemable, the value attributed to this noncontrolling interest at December 30, 2023 is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets at fair value. On January 1, 2024 we acquired the remaining 30% interest in Craftsman for cash.

On November 15, 2023, the Company acquired certain assets and liabilities of Kentucky Dream Homes, LLC, a manufactured home retailer with locations in Kentucky and Florida. The results of operations are included in our Consolidated Financial Statements from the date of acquisition. See Note 21, Acquisition

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 Net revenue disaggregated by reportable segment and source (in thousands):

3. Cash and Cash Equivalents and Restricted Cash

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):

4. Investments

Investments consisted of the following (in thousands):

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 other retail distribution operations and community-based initiatives.

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):

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.

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

5. Inventories

Inventories consisted of the following (in thousands):

6. Consumer Loans Receivable

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

The consumer loans held for investment had the following characteristics:

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

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

As of December 30, 2023,42% 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 state had concentrations in excess of 10% of the outstanding principal balance of the consumer loans receivable as of December 30, 2023 or April 1, 2023.

Repossessed homes totaled approximately $0.8 million and $1.1 million as of December 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$0.4 million and$0.5 million as of December 30, 2023 and April 1, 2023, 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, net consisted of the following (in thousands):

The commercial loans receivable balance had the following characteristics:

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 December 30, 2023 and April 1, 2023, there wereno commercial loans considered nonperforming. The following table disaggregates the outstanding principal balance of our commercial loans receivable by fiscal year of origination (in thousands):

As of December 30, 2023 and April 1, 2023, there wereno 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 December 30, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 15% and California of 16%. 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 December 30, 2023 or April 1, 2023.

As of December 30, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 14% and 12%, 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):

Depreciation expense for the three and nine months ended December 30, 2023 was $4.2 million and $12.7 million, respectively. Depreciation expense for the three and nine months ended December 31, 2022 was $3.4 million and $10.7 million, respectively.

9. Leases

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 December 30, 2023 and April 1, 2023 (in thousands):

(1) Recorded net of accumulated amortization of $0.4 million and $0.3 million as of December 30, 2023 and April 1, 2023, respectively.

The present value of future minimum payments under non-cancelable leases as of December 30,

2023 was as follows (in thousands):

10. Goodwill and Other Intangibles, net

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

Changes to Goodwill for the nine months ended December 30, 2023 were as follows (in thousands):

(1) See Note 21, Acquisitions

Amortization expense recognized on intangible assets for the three and nine months ended December 30, 2023 was $0.4 million and $1.2 million, respectively. Amortization expense recognized on intangible assets for the three and nine months ended December 31, 2022 was $0.5 million and $1.5 million, respectively. Customer relationships have a weighted average remaining life of 7.1 years and other finite lived intangibles have a weighted average remaining life of 2.8 years.

Expected future amortization is as follows (in thousands):

11. Accrued Expenses and Other Current Liabilities

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

12. Warranties

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

13. Other Liabilities

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

14. Debt

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.

As of December 30, 2023 and April 1, 2023, there wereno borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants.

15. 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):

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. Therefore, our risk of loss is limited to $0.2 million 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 $3.0 million per occurrence, up to a maximum of $100 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. The following details the activity in the reservefor the three and nine months ended December 30, 2023 and December 31, 2022 (in thousands):

16. Commitments and Contingencies

Repurchase Contingencies. Themaximum 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 $116 million and $178 million at December 30, 2023 and April 1, 2023, respectively, without reduction for the estimated resale value of the homes. During the third quarter of fiscal 2024, we receivedone repurchase demand notice for three homes. During the nine months ended December 30, 2023, we received three repurchase demand notices covering nine homes, of which six homes had been repurchased by period end. In all cases, the estimated fair value exceeded the repurchase price so no loss reserve was deemed necessary. Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $2.7 million at December 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):

Representations and Warranties of Mortgages Sold. Thereserve for contingent repurchases and indemnification obliga tions was $0.6 million as of December 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 wereno claim requests that resulted in the repurchase of any loans during the nine months ended December 30, 2023 or December 31, 2022.

Interest Rate Lock Commitments ("IRLCs"). As of December 30, 2023 and April 1, 2023, we had outstanding IRLCs with a notional amount of $24.1 million and $64.9 million, respectively. For the three and nine months ended December 30, 2023, we recognized insignificant non-cash gains and losses, respectively, on outstanding IRLCs. For the three and nine months ended December 31, 2022, we recognized insignificant non-cash gains on outstanding IRLCs.

Forward Sales Commitments. As of December 30, 2023 and April 1, 2023, we had $0.8 million and $1.6 million in outstanding forward sales commitments ("Commitments"), respectively. During the three and nine months ended December 30, 2023, we recognized insignificant non-cash losses. During the three and nine months ended December 31, 2022, we recognized non-cash losses of $0.2 million and $0.3 million, respectively, relating to our Commitments.

Legal Matters. We are party to certain 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.

17. 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 nine months ended December 30, 2023 (dollars in thousands):

The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the nine months ended December 31, 2022 (dollars in thousands):

18. Earnings Per Share

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

19. Fair Value Measurements

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

See Note 20, 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 recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

20. 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 and nine months ended December 30, 2023, the total amount of sales to related parties was $11.6 million and $42.6 million, respectively. For the three and nine months ended December 31, 2022, the total amount of sales to related parties was $18.7 million and $56.0 million, respectively. As of December 30, 2023, receivables from related parties included $6.5 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.

21. Acquisitions

Solitaire Acquisition

On January 3, 2023 (the "Acquisition Date"), we completed the acquisition of Solitaire Homes, including their four manufacturing facilities and 22 retail locations, by acquiring 100% of the outstanding stock of Solitaire Homes for $110.8 million.

Our estimates of the fair values of the assets that we acquired and the liabilities that we assumed were based on the information that was available as of the Acquisition Date. During the nine months ended December 30, 2023, we made certain adjustments to the assets and liabilities based on information that became available.

The following table presents the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date as of December 30, 2023(in thousands):

Pro Forma Impact of Solitaire 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):

Kentucky Dream Homes Acquisition

On November 15, 2023, the Company acquired certain assets and assumed certain liabilities of Kentucky Dream Homes, LLC ("KDH"), a manufactured home retailer with locations in Kentucky and Florida for total consideration of $23.8 million, which includes $5.4 million non-cash commercial loan forgiveness. The remaining $18.4 million was paid with cash on hand. The final purchase price is subject to customary adjustments. The business is included in the Factory-built housing reportable business segment. The fair value of the assets acquired and liabilities assumed are included in the Consolidated Balance Sheet as of December 30, 2023, including $4.6 million allocated to goodwill. The purchase accounting is subject to final adjustment, primarily for the working capital and amounts allocated to goodwill. We have included the financial results in our unaudited Consolidated Financial Statements from the date of acquisition. Pro forma historical results of operations related to this acquisition have not been presented because they are not significant to our unaudited Consolidated Financial Statements for the periods presented.

22. Business Segment Information

We operate principally intwo 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):