What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-29 compared with 2020-10-30 · 118 added, 122 removed, 136 unchanged (64% of the section changed)

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Forward-looking statements are typically included, for example, in discussions regarding the manufactured housing and site-built housing industries;

the Company's financial performance and operating results;

the expected effect of certain risks and uncertainties on the Company's business, financial condition and results of operations;

our financial performance and operating results;

the expected effect of certain risks and uncertainties on our business, financial condition and results of operations;

economic conditions and consumer confidence;

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the availability of favorable consumer and wholesale manufactured home financing;

market interest rates and Company investments and the ultimate outcome of the Company's commitments and contingencies.

market interest rates and Company investments and the ultimate outcome of our commitments and contingencies.

Forward-looking statements contained in this Report on Form 10-Q speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document.

The Company does not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q 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.

Forward-looking statements involve risks, uncertainties and other factors that may cause the Company's 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 the Company's assumptions and expectations differ from actual results, the Company's 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 the Company's results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed in Risk Factors in Part I, Item 1A of the Company's 2020 Annual Report on Form 10-K ("Form 10-K"), which Risk Factors are incorporated herein.

We do not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q 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.

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 in Risk Factors in Part I, Item 1A of our 2020 Annual Report on Form 10-K ("Form 10-K").

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

and its subsidiaries' (collectively, the "Company" or "Cavco") Consolidated Financial Statements and the related Notes that appear in Item 1 of this Report.

References to "Note" or "Notes" pertain to the Notes to the Company's Consolidated Financial Statements.

and its subsidiaries' (collectively, "we," "us," "our," the "Company" or "Cavco") Consolidated Financial Statements and the related Notes that appear in 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, the Company designs and produces factory-built homes primarily distributed through a network of independent and Company-owned retailers, planned community operators and residential developers.

The Company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny.

The Company is also one of the leading producers of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand.

Cavco's finance subsidiary, CountryPlace Acceptance Corp.

Headquartered in Phoenix, Arizona, we design and produce factory-built housing products 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, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny.

We are also one of the leading producers of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand.

Our finance subsidiary, CountryPlace Acceptance Corp.

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

Cavco's insurance subsidiary, Standard Casualty Co., provides property and casualty insurance to owners of manufactured homes.

The Company operates 20 homebuilding production lines located in Millersburg and Woodburn, Oregon;

Our insurance subsidiary, Standard Casualty Co., provides property and casualty insurance to owners of manufactured homes.

We operate 20 homebuilding production lines located in Millersburg and Woodburn, Oregon;

Nampa, Idaho;

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The majority of the homes produced are sold to, and distributed by, independently owned and controlled retail operations located throughout the United States and Canada.

In addition, the Company's homes are sold through 40 Company-owned U.S.

In addition, our homes are sold through 40 Company-owned U.S.

retail locations.

In April 2020, the Company shut down production and closed its Lexington, Mississippi manufacturing facility, finalizing production in June 2020.

However, the Company remains available to serve wholesale customers previously served by the Lexington facility from its other production lines in the southeast.

However, we remain available to serve wholesale customers previously served by the Lexington facility from our other production lines in the southeast.

The production facility has been placed on the market for sale.

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According to data reported by the Manufactured Housing Institute, industry home shipments decreased 1.3% for the first 11 months of calendar year 2020 compared to the same period in the prior year.

The industry offers solutions to the affordable housing crisis.

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

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

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

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

With respect to the general rise in demand for rental housing, during fiscal year 2020, the Company realized a larger proportion of orders and interest from developers and community owners for new manufactured homes intended for use as rental homes, alternative dwelling units and seasonal living.

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

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

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Consumer confidence, as an indicator of retirement security, is especially important among manufactured home buyers interested in our products for seasonal or retirement living.

The Company seeks out niche market opportunities where its diverse product lines and custom building capabilities provide a competitive advantage.

We seek out niche market opportunities where our diverse product lines and custom building capabilities provide a competitive advantage.

Our green building initiatives involve the creation of an energy efficient envelope and higher utilization of renewable materials.

These homes provide environmentally-friendly maintenance requirements, typically lower utility costs and sustainability.

The Company maintains a conservative cost structure in an effort to build added value into its homes and has worked diligently to maintain a solid financial position.

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

The Company continues to make certain commercial loan programs available to members of the Company's independent wholesale distribution chain.

Under these programs, the Company provides a significant amount of the funds that independent financiers then lend to distributors to finance retail inventories of its products.

In addition, the Company has entered into direct commercial loan arrangements with distributors, communities and developers under which the Company provides funds for financing homes (see Note 7 to the Consolidated Financial Statements).

The Company's involvement in commercial loans helps to increase the availability of manufactured home financing to distributors, communities and developers.

Participation in wholesale financing is helpful to these customers and provides additional opportunity for product exposure to potential home buyers.

These initiatives support the Company's ongoing efforts to expand product distribution.

However, these initiatives do expose the Company to risks associated with the creditworthiness of this customer base and the Company's inventory financing partners.

The Company has included considerations related to the COVID-19 pandemic when assessing its risks of loan loss and setting reserve amounts for its commercial finance portfolio.

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 owners and developers.

In addition, we provide loans to independent floor plan lenders that then lend to distributors to finance their inventory purchases (see Note 7 to the Consolidated Financial Statements).

Our involvement in commercial loans helps to increase the availability of manufactured home financing to distributors, community owners and developers and provides additional opportunity for product exposure to potential home buyers.

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

We have included considerations related to the COVID-19 pandemic when assessing the risks of loan loss and setting reserve amounts for the commercial finance portfolio.

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.

The Company is working directly with other industry participants to develop secondary market opportunities for manufactured home-only loan portfolios and expand lending availability in the industry.

Additionally, the Company continues to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities.

We work directly with other industry participants to develop secondary market opportunities for manufactured home-only loan portfolios and expand lending availability in the industry.

Additionally, we continue to invest in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities.

Our mortgage subsidiary also develops and invests in home-only lending programs to grow sales of homes through traditional distribution points.

The Company believes that growing its investment and participation in home-only lending may provide additional sales growth opportunities for the financial services segment, as well as provide a means that could lead to increased home sales for its factory-built housing operations.

We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our financial services segment, as well as provide a means that could lead to increased home sales for our factory-built housing operations.

COVID-19 Impact and Strategy

In March 2020, the World Health Organization declared COVID-19 a global pandemic.

As the business was considered essential, the Company continued to operate substantially all of its homebuilding and retail sales facilities while working to follow COVID-19 health guidelines.

The Company has worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve its customers.

Operational efficiencies declined from adjusting home production processes to comply with health guidelines, managing higher factory employee absenteeism, limited new-hire availability and certain building material supply shortages.

Accordingly, the Company's total average plant capacity utilization rate was approximately 65% during the second fiscal quarter of 2021, ending the quarter at approximately 70%.

This is lower than pre-pandemic levels of more than 80%.

Sales order activity has continued to improve during the second fiscal quarter of 2021 to the point where home sales order rates were nearly 65% higher than the comparable prior year quarter.

As our business was considered essential, we continued to operate substantially all of our homebuilding and retail sales facilities while working to follow COVID-19 health guidelines.

We have worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve our customers.

Operational efficiencies declined due to managing higher and largely unpredictable factory employee absenteeism, hiring challenges and building material supply shortages.

Accordingly, our total average plant capacity utilization rate was approximately 75% during the third fiscal quarter of 2021, which has improved from approximately 65% during the second fiscal quarter of 2021, but is lower than pre-pandemic levels of more than 80%.

Sales order activity remained exceptionally strong during the third fiscal quarter of 2021 to the point where home sales order rates were nearly 65% higher than the comparable prior year quarter.

Increased order volume is the result of a higher number of well-qualified home buyers making purchase decisions, supported by reduced home loan interest rates.

Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 134% to $321 million at September 26, 2020, compared to $137 million at September 28, 2019 and $157 million at June 27, 2020.

Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 310% to $472 million at December 26, 2020, compared to $115 million at December 28, 2019 and $321 million at September 26, 2020.

The backlog of home orders excludes orders that have been paused or canceled at the request of the customer.

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It is difficult to predict the future impacts of the COVID-19 pandemic on housing demand, employee availability, supply chain and Company performance and operations.

The Company continues to focus on developing order volume growth opportunities by working to improve its production capabilities and adjusting product offerings.

The Company strives to balance the production levels and workforce size with the demand for its product offerings to maximize efficiencies.

The Company continually reviews wage rates of its production employees and has established other monetary incentive programs to ensure competitive compensation.

The Company is also working to more extensively use on-line recruiting tools, update recruitment brochures and improve the appearance and appeal of its manufacturing facilities in order to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates.

We continue to focus on developing order volume growth opportunities by working to improve our production capabilities and adjusting product offerings.

We strive to balance the production levels and workforce size with the demand for our product offerings to maximize efficiencies.

We continually review wage rates of our production employees and have established other monetary incentive programs to ensure competitive compensation.

We are also working to more extensively use online recruiting tools, update recruitment brochures and improve the appearance and appeal of our manufacturing facilities in order to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates.

Maintaining an appropriately sized and well-trained workfor ce is key to increasing production to meet increased demand.

The Company faces a major challenge in overcoming labor-related difficulties in the COVID-19 environment to increase home production.

We face a major challenge in overcoming labor-related difficulties in the COVID-19 environment to increase home production.

Results of Operations

Three Months Ended

($ in thousands, except homes sold and revenue per home sold) September 26,

2020 September 28,

2019 Change % Change

($ in thousands, except revenue per home sold) December 26,

2020 December 28,

Factory-built housing $ 270,822 $ 257,106 $ 13,716 5.3 %

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Net factory-built housing revenue per home sold $ 75,166 $ 66,522 $ 8,644 13.0 %

Six Months Ended

($ in thousands, except homes sold and revenue per home sold) September 26,

2020 September 28,

2019 Change % Change

Nine Months Ended

($ in thousands, except revenue per home sold) December 26,

2020 December 28,

Factory-built housing $ 749,879 $ 758,564 $ (8,685) (1.1) %

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Net factory-built housing revenue per home sold $ 72,250 $ 66,233 $ 6,017 9.1 %

In the factory-built housing segment, the decrease in Net revenue was primarily due to 9% and 11% lower home sales volume during the three and six months ended September 26, 2020, respectively.

These declines were partially offset by higher home selling prices compared to the same periods last year.

In the factory-built housing segment, the increase in Net revenue for the three months ended December 26, 2020 was primarily due to higher home selling prices resulting from pricing increases implemented because of rising input costs.

These gains were partially offset by lower home sales volume during the third fiscal quarter, as production inefficiencies from challenges related to the COVID-19 pandemic continue to limit factory delivery volume.

The decrease for the nine months ended December 26, 2020 was primarily from lower home sales volume related to the production inefficiencies previously discussed, partially offset by higher home selling prices compared to last year.

Note that Destiny Homes was purchased in August 2019 and Lexington Homes was closed in June 2020.

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 ("Wholesale") and sales of homes to consumers by Company-owned retail centers ("Retail").

A primary factor is the price disparity between sales of homes to independent distributors, builders, community owners and developers ("Wholesale") and sales of homes to consumers by Company-owned retail centers ("Retail").

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

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As discussed above, changes to the proportion of home sales among the distribution channels between reporting periods impact the overall net revenue per home sold.

For the three and six months ended September 26, 2020, the Company sold 2,664 and 5,261 homes W holesale, respectively, and 763 and 1,515 homes Re tail, respectively.

For the three and six months ended September 28, 2019, the Company sold 3,006 and 6,064 homes Wholesale, respectively, and 775 and 1,524 homes Retail, respectively.

Financial services segment revenue increased due to higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year.

Also, the three and six months ended September 26, 2020 include $0.7 million and $1.7 million, respectively, of unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, compared to $0.2 million in unrealized gains in each of the prior year periods.

For the three and nine months ended December 26, 2020, we sold 2,835 and 8,096 homes W holesale, respectively, and 768 and 2,283 homes Re tail, respectively.

For the three and nine months ended December 28, 2019, we sold 3,158 and 9,222 homes Wholesale, respectively, and 707 and 2,231 homes Retail, respectively.

Financial services segment revenue increased primarily due to unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, which were $1.0 million and $2.7 million for the three and nine months ended December 26, 2020, respectively, compared to $0.3 million and $0.6 million in unrealized gains in the comparable prior year periods, respectively.

In addition, higher volume in home loan sales and more insurance policies in force in the current year compared to the prior year were positive contributors.

These overall increases were partially offset by lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

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Three Months Ended

($ in thousands) September 26,

2020 September 28,

2019 $ Change % Change

($ in thousands) December 26,

2020 December 28,

Gross profit:

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Financial services 68.0 % 66.6 % N/A 1.4 %

Six Months Ended

($ in thousands) September 26,

2020 September 28,

2019 $ Change % Change

Nine Months Ended

($ in thousands) December 26,

2020 December 28,

Gross profit:

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Financial services 54.0 % 60.7 % N/A (6.7) %

Factory-built housing Gross profit as a percentage of Net revenue for the three month period was flat as compared to the same period last year, and decreased for the six months ended September 26, 2020, primarily due to lower sales volume and production inefficiencies caused by the COVID-19 pandemic.

In the financial services segment, Gross profit as a percentage of Net revenue decreased as a result of higher weather-related claims volume at our insurance subsidiary and lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

Factory-built housing Gross profit as a percentage of Net revenue decreased for the three and nine months ended December 26, 2020 primarily due to higher material costs and lower sales volume resulting from the production inefficiencies caused by the COVID-19 pandemic.

In the financial services segment, Gross profit as a percentage of Net revenue increased for the three months ended December 26, 2020 due to lower weather-related claims volume and higher unrealized gains on marketable equity securities.

However, for the nine months ended December 26, 2020, Gross profit as a percentage of Net revenue decreased as a result of higher weather-related claims volume at our insurance subsidiary and lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

Selling, General and Administrative Expenses.

Three Months Ended

($ in thousands) September 26,

2020 September 28,

2019 $ Change % Change

($ in thousands) December 26,

2020 December 28,

Selling, general and administrative expenses:

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12.3 % 13.5 % N/A (1.2) %

Six Months Ended

($ in thousands) September 26,

2020 September 28,

2019 $ Change % Change

Nine Months Ended

($ in thousands) December 26,

2020 December 28,

Selling, general and administrative expenses:

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13.2 % 13.4 % N/A (0.2) %

Selling, general and administrative expenses related to factory-built housing decreased between periods primarily from a reduction in legal expenses, partially offset by increased corporate-related expenses.

During the three months ended September 26, 2020, the Company incurred $0.5 million in expenses related to the SEC inquiry.

However, the Company also received a $0.8 million insurance recovery of prior expenses, resulting in a net benefit of $0.3 million during the period compared to $0.8 million in expense in the second quarter of fiscal year 2020.

For the six months ended September 26, 2020, the Company recorded a net benefit of $0.2 million for SEC inquiry related expenses compared to $1.6 million in expense in the comparable prior year period.

Selling, general and administrative expenses related to financial services increased due to increases in salaries and employee related expenses.

Selling, general and administrative expenses related to factory-built housing decreased between periods primarily from a reduction in legal expenses and the amortization of the additional director and officer ("D&O") insurance premium, partially offset by increased corporate-related expenses.

During the three months ended December 26, 2020, we incurred $0.7 million in expenses related to the SEC inquiry, but also received a $0.4 million insurance recovery of prior expenses, resulting in a net expense of $0.3 million during the period compared to $0.9 million in expense in the third quarter of fiscal year 2020.

For the nine months ended December 26, 2020, we recorded a net expense of $0.1 million for SEC inquiry related expenses compared to $2.5 million in expense in the comparable prior year period.

As the amortization of the additional D&O insurance premium has now been completed, the three months ended December 26, 2020 contains no related expense while the prior year period included a $2.1 million charge.

For the nine months ended December 26, 2020, additional D&O insurance premium amortization was $4.2 million versus $6.3 million in the prior year period.

In Financial services, Selling, general and administrative expenses increased for the three and nine months ended December 26, 2020 primarily from higher salary and incentive-based compensation expense.

Interest Expense.

Interest expense was $0.2 million and $0.3 million for the three months ended September 26, 2020 and September 28, 2019, respectively.

For the six months ended September 26, 2020 and September 28, 2019, Interest expense was $0.4 million and $0.8 million, respectively.

Interest expense consists primarily of debt service on the CountryPlace financings of manufactured home-only loans and interest related to finance leases.

The decrease is primarily the result of a reduction in securitized bond interest expense, as the Company exercised its right to repurchase the 2007-1 securitized loan portfolio in August 2019, thereby eliminating the related interest expense.

Interest expense was $0.2 million and $0.5 million for the three months ended December 26, 2020 and December 28, 2019, respectively.

For the nine months ended December 26, 2020 and December 28, 2019, Interest expense was $0.6 million and $1.3 million, respectively.

Interest expense consists primarily of debt service on CountryPlace's financings of manufactured home-only loans and interest related to finance leases.

The decrease is primarily the result of a reduction in securitized bond interest expense, as we exercised our right to repurchase the 2007-1 securitized loan portfolio in August 2019, thereby eliminating the related interest expense.

This decrease is partially offset by increases in interest expense from secured credit facilities at CountryPlace.

Other Income, net.

Other income, net was $1.7 million and $5.2 million for the three months ended September 26, 2020 and September 28, 2019, respectively.

For the six months ended September 26, 2020 and September 28, 2019, Other income, net was $3.6 million and $8.0 million , respectively.

Other income primarily consists of realized and unrealized gains and losses on corporate marketable equity investments, interest income related to commercial loans receivable balances, interest income earned on cash balances and gains and losses from the sale of property, plant and equipment.

Other income, net, declined primarily due to a $3.4 million net gain on the sale of idle land that was recorded in the prior year period, as well as a reduction in interest earned in the current periods on cash and commercial loan receivables, given the lower interest rate environment.

Other income, net was $2.2 million for each of the three month periods ended December 26, 2020 and December 28, 2019.

For the nine months ended December 26, 2020 and December 28, 2019, Other income, net was $5.8 million and $10.2 million , respectively.

The decline was primarily due to a $3.4 million net gain on the sale of idle land that was recorded in the prior year period, as well as a reduction in interest earned in the current periods on cash and commercial loan receivables, given the lower interest rate environment.

These declines were partially offset by increases in unrealized gains on corporate marketable equity securities.

Income tax expense.

Income tax expense w as $4.5 million and $6.4 million for the three months ended September 26, 2020 and September 28, 2019, respectively, for an effective income tax rate of 23.2% and 23.4%, respectively.

Income tax expense for the six months ended September 26, 2020 and September 28, 2019 was $9.6 million and $12.5 million , respectively, for an effective income tax rate of 23.1% compared to an effective tax rate of 22.8% for the same period la st year.

The higher effective tax rate for the six month period was primarily due to lower tax benefits from the exercise of stock options, which provided a benefit of $0.7 million compared to the $0.9 million in the same period last year.

Income tax expense w as $6.2 million and $3.8 million for the three months ended December 26, 2020 and December 28, 2019, respectively, for an effective income tax rate of 23.9% and 15.5%, respectively.

Income tax expense for the nine months ended December 26, 2020 and December 28, 2019 was $15.7 million and $16.3 million , respectively, for effective income tax rates of 23.4% and 20.5%, respectively .

The lower effective tax rates for prior year periods were primarily due to tax benefits from the exercise of stock options, which provided a benefit of $0.5 million in the nine months ended December 26, 2020 compared to the $1.3 million in the same period last year, and a catch up of tax credits that were enacted as part of the 2020 Appropriations Bill.

Certain of these credits were extended as part of the 2021 Consolidated Appropriations Act that was signed into law after quarter end on December 27, 2020.

We are currently evaluating the impact this will have in future periods.

Liquidity and Capital Resources

The Company believes that cash and cash equivalents at September 26, 2020, together with cash flow from operations, will be sufficient to fund its operations and provide for growth for the next 12 months and into the foreseeable future.

The Company maintains cash in U.S.

We believe that cash and cash equivalents at December 26, 2020, together with cash flow from operations, will be sufficient to fund our operations and provide for growth for the next 12 months and into the foreseeable future.

We maintain cash in U.S.

Treasury and other money market funds, some of which are in excess of federally insured limits.

The Company expects 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 the Company's liquidity and capital resources.

Because of the Company's sufficient cash position, the Company has not historically sought external sources of liquidity, with the exception of certain credit facilities for its home-only lending programs.

However, depending on the Company's operating results and strategic opportunities, it may need to seek additional or alternative sources of financing.

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.

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

However, depending on our operating results and strategic opportunities, we may need to seek additional or alternative sources of financing.

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 the Company to reevaluate its long-term operating plans to make more efficient use of its existing capital resources.

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

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.

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

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

The Company believes that stockholders' equity at its insurance subsidiary remains sufficient and does not believe that its ability to pay ordinary dividends to Cavco will be restricted per state regulations.

The following is a summary of the Company's cash flows for the six months ended September 26, 2020 and September 28, 2019, respectively:

Six Months Ended

($ in thousands) September 26,

2020 September 28,

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

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

The following is a summary of cash flows for the nine months ended December 26, 2020 and December 28, 2019, respectively:

Nine Months Ended

(in thousands) December 26,

2020 December 28,

2019 $ Change

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Cash, cash equivalents and restricted cash at end of the period $ 340,624 $ 230,258 $ 110,366

Net cash provided by operating activities increased during the six months ended September 26, 2020 compared to the six months ended September 28, 2019 primarily due to more customer deposits received as a result of higher order rates, higher collections on accounts receivables and commercial loans receivables and the timing of payments on Accounts payable and Accrued expenses and other current liabilities.

Consumer loan originations increased by $2.1 million to $82.4 million for the six months ended September 26, 2020 from $80.3 million for the six months ended September 28, 2019.

Net cash provided by operating activities increased during the nine months ended December 26, 2020 compared to the nine months ended December 28, 2019 primarily due to more customer deposits received as a result of higher order rates, higher collections on commercial loans receivables and the timing of payments on Accounts payable and Accrued expenses and other current liabilities.

Consumer loan originations increased by $2.5 million to $124.1 million for the nine months ended December 26, 2020 from $121.6 million for the nine months ended December 28, 2019.

Proceeds from sales of consumer loans provided $122.6 million in cash compared to $117.1 million in the previous year.

Cavco has entered into commercial loan arrangements with certain distributors of its products under which the Company provides funds for Wholesale purchases.

In addition, the Company has entered into direct commercial loan arrangements with distributors, communities and developers under which the Company provides funds for financing homes.

The Company has also invested in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities.

We have entered into commercial loan arrangements with certain distributors of our products under which we provide funds for Wholesale purchases.

In addition, we have entered into direct commercial loan arrangements with distributors, community owners and developers under which we provide funds for financing homes.

We have also invested in community-based lending initiatives that provide home-only financing to new residents of certain manufactured home communities.

For additional information regarding our commercial loans receivable, see Note 7 to the Consolidated Financial Statements.

Further, the Company has invested in and developed home-only loan pools and lending programs to attract third party financier interest in order to grow sales of new homes through traditional distribution points.

Investing activities consist of buying and selling bonds and marketable equity securities in our Financial Services segment and funding strategic growth acquisitions.

The Company received $2.1 million more in net proceeds from investments for the six months ended September 26, 2020 compared to the same period last year, and Net cash for investing activities in the prior year was primarily used to fund the acquisition of Destiny Homes.

Financing activities used $18.5 million less cash during the period compared to the same period last year as the Company repurchased the 2007-1 securitized loan portfolio in August 2019.

The Company's finance subsidiary entered into secured credit facilities with independent third-party banks.

Further, we have invested in and developed home-only loan pools and lending programs to attract third party financier interest in order to grow sales of new homes through traditional distribution points.

Investing activities consist of buying and selling debt and marketable equity securities in our Financial Services segment, p urchases of property, plant and equipment and funding strategic growth acquisitions.

Net cash for investing activities in the prior year was primarily used to fund the acquisition of Destiny Homes.

Financing activities used $17.6 million less cash during the period compared to the same period last year as we repurchased the 2007-1 securitized loan portfolio in August 2019.

CountryPlace entered into secured credit facilities with independent third-party banks.

The proceeds were used to facilitate the origination of consumer home-only loans to be held for investment, secured by the manufactured homes which were subsequently pledged as collateral to the facilities.

Upon completion of the draw down periods, these facilities were converted into an amortizing loan based on a 20-year amortization period with a balloon payment due upon maturity.

As of September 26, 2020, the outstanding balance of the converted loans was $9.8 million at a weighted average interest rate o f 4.91% .

As of December 26, 2020, the outstanding balance of the converted loans was $8.8 million with a weighted average interest rate o f 4.91% .

Contractual Commitments and Contingencies.

There were no material changes to the contractual obligations as set forth in the Company's Annual Report on Form 10-K.

There were no material changes to the contractual obligations as set forth in our Annual Report on Form 10-K.

Critical Accounting Policies

On March 29, 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

On March 29, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments.

The Company adopted the standard by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings.

We adopted the standard by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings.

Refer to Note 1 to the Consolidated Financial Statements for additional discussion.

There have been no other significant changes to the Company's critical accounting policies during the six months ended September 26, 2020, as compared to those disclosed in Part II, Item 7 of the Company's Form 10-K, under the heading "Critical Accounting Policies," which provides a discussion of the critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.

There have been no other significant changes to our critical accounting policies during the nine months ended December 26, 2020, as compared to those disclosed in Part II, Item 7 of our Form 10-K, under the heading "Critical Accounting Policies," which provides a discussion of the critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.

Recent Accounting Pronouncements

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Related Party Transactions.

See Note 19 to the Consolidated Financial Statements for a discussion of the Company's related party transactions.

See Note 19 to the Consolidated Financial Statements for a discussion of our related party transactions.

Off Balance Sheet Arrangements

See Note 15 to the Consolidated Financial Statements for a discussion of the Company's off-balance sheet commitments, which discussion is incorporated herein by reference.

See Note 15 to the Consolidated Financial Statements for a discussion of our off-balance sheet commitments, which discussion is incorporated herein by reference.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis