What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-01-29 · 174 added, 416 removed, 394 unchanged (60% of the section changed)

3 unchanged sentences

(Dollars in thousands, except per share amounts)

2020 March 28,

2021 April 3,

Current assets

38 unchanged sentences

210,190 203,133

Current portion of secured credit facilities and other

Current portion of secured financings and other 1,822 1,851

Total current liabilities

2 unchanged sentences

13,085 13,361

Secured credit facilities and other

10,847 12,705

Secured financings and other 9,927 10,335

Deferred income taxes

5 unchanged sentences

40,000,000 shares authorized;

Outstanding 9,192,237 and 9,173,242 shares, respectively

Issued 9,245,721 and 9,241,256 shares, respectively

Treasury stock, at cost;

67,901 and 6,600 shares, respectively

( 14,283 ) ( 1,441 )

Additional paid-in capital

11 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

$ 330,422 $ 254,801

9 unchanged sentences

Other income, net

2,243 2,211 5,821 10,198

Income before income taxes

5 unchanged sentences

$ 27,046 $ 16,674

Reclassification adjustment for securities sold or matured

( 13 ) 15 20 17

Reclassification adjustment for securities sold 1 26

Applicable income taxes

3 ( 3 ) ( 4 ) ( 4 )

Net change in unrealized position of investments held

( 6 ) ( 14 ) 56 126

Applicable income taxes

$ 27,033 $ 16,742

Comprehensive income

$ 19,686 $ 20,899 $ 51,484 $ 63,178

Net income per share

8 unchanged sentences

(Dollars in thousands)

Nine Months Ended

2020 December 28,

Three Months Ended

2021 June 27,

OPERATING ACTIVITIES

6 unchanged sentences

Non-cash interest income, net ( 394 ) ( 2,186 )

Loss (gain) on sale or retirement of property, plant and equipment, net 220 ( 3,416 )

Gain (loss) on sale or retirement of property, plant and equipment, net ( 35 ) 289

Gain on investments and sale of loans, net ( 5,579 ) ( 4,982 )

11 unchanged sentences

Purchases of property, plant and equipment ( 2,593 ) ( 1,856 )

Payments for acquisition, net — ( 15,937 )

Proceeds from sale of property, plant and equipment 38 5

1 unchanged sentence

Proceeds from sale of investments 3,368 3,116

Net cash used in investing activities ( 5,098 ) ( 18,873 )

Net cash (used in) provided by investing activities ( 3,616 ) 105

FINANCING ACTIVITIES

Proceeds from exercise of stock options 469 226

Proceeds from (payments for) exercise of stock options 136 ( 533 )

Proceeds from secured financings and other — 64

Payments on securitized financings and other ( 1,984 ) ( 19,360 )

Payments on secured financings and other ( 444 ) ( 453 )

Payments for common stock repurchases ( 12,842 ) —

Net cash used in financing activities ( 13,150 ) ( 922 )

6 unchanged sentences

Supplemental disclosures of noncash activity

GNMA loans eligible for repurchase $ 21,366 $ 2,442

Right-of-use assets recognized $ 5,692 $ 14,322

Operating lease obligations incurred $ 5,692 $ 14,347

Change in GNMA loans eligible for repurchase $ ( 6,607 ) $ 1,242

Right-of-use assets recognized and operating lease obligations incurred $ 708 $ 5,559

See accompanying Notes to Consolidated Financial Statements

7 unchanged sentences

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 subsequent events requiring disclosure.

These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K for the year ended March 28, 2020 filed with the SEC on May 27, 2020 ("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 the accompanying Notes to the Consolidated Financial Statements ("Notes").

The uncertainty created by the novel coronavirus COVID-19 ("COVID-19") has made such estimates more difficult and subjective.

We have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC;

and except for the events set forth in Note 20 of the Notes to Consolidated Financial Statements ("Notes") of the Company's Quarterly Report on Form 10-Q for the period ended July 3, 2021, there were no subsequent events requiring disclosure.

These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our 2021 Annual Report on Form 10-K for the year ended April 3, 2021, filed with the SEC ("Form 10-K").

The uncertainty created by the novel coronavirus COVID-19 pandemic ("COVID-19") has made such estimates more difficult and subjective.

Due to that and other uncertainties, actual results could differ from those estimates.

3 unchanged sentences

The current fiscal year will end on April 2, 2022 and will include 52 weeks.

We operate principally in two segments:

(1) factory-built housing, which includes wholesale and retail systems-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance.

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 20 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through our 40 Company-owned retail stores.

The financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp.

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

("Standard Casualty").

("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.

Recently Issued or Adopted Accounting Standards.

On March 29, 2020, we adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments and requires a forward-looking impairment model based on expected losses rather than incurred losses.

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.

The comparative information has not been restated and continues to be reported under the accounting standard in effect for the applicable prior periods.

The cumulative effect of the changes made to our consolidated balance sheet at March 29, 2020 for the adoption of ASU 2016-13 was $ 733,000 , net of taxes.

The application of ASU 2016-13 increased our allowance for loan losses by $ 435,000 for commercial loans receivable and $ 528,000 for non-acquired consumer loans receivable.

It had an insignificant impact to our allowance for credit losses for Accounts receivable, net.

ASU 2016-13 was adopted using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30").

We determined that $ 1.7 million of the existing purchase discount for acquired consumer loans was related to credit factors and was reclassified to the allowance for loan loss upon adoption.

The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accreted into interest income over the life of the loans.

For a description of other 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.

For a description of significant accounting policies we used in the preparation of our Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K.

Revenue from Contracts with Customers

The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands):

Three Months Ended Nine Months Ended

December 26, 2020 December 28, 2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

Factory-built housing

4 unchanged sentences

Park model RVs

8,296 10,219 31,045 34,831

Other 13,605 14,139

Net revenue from factory-built housing

312,283 238,090

1 unchanged sentence

Insurance agency commissions received from third-party insurance companies

840 783 2,387 2,212

Other 17,266 15,941

Net revenue from financial services

18,139 16,711

Total Net revenue

$ 330,422 $ 254,801

1 unchanged sentence

Restricted cash consisted of the following (in thousands):

2020 March 28,

2021 April 3,

Cash related to CountryPlace customer payments to be remitted to third parties $ 15,928 $ 16,049

1 unchanged sentence

17,063 17,028

Less current portion ( 16,728 ) ( 16,693 )

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 on the Consolidated Statements of Cash Flows (in thousands):

2020 March 28,

2020 December 28,

2019 March 30,

2021 April 3,

Cash and cash equivalents $ 329,753 $ 322,279

Restricted cash, current

12,802 13,446 13,026 12,148

Restricted cash 17,063 17,028

Cash, cash equivalents and restricted cash per statement of cash flows $ 340,624 $ 255,607 $ 230,258 $ 199,869

$ 346,816 $ 339,307

Investments consisted of the following (in thousands):

2020 March 28,

2021 April 3,

Available-for-sale debt securities $ 17,962 $ 14,946

Marketable equity securities

17,550 17,600

Non-marketable equity investments

4 unchanged sentences

Investments in marketable equity securities consist of investments in the common stock of industrial and other companies.

As of December 26, 2020 and March 28, 2020, non-marketable equity investments included contributions of $ 15.0 million t o equity-method investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities.

As of July 3, 2021 and April 3, 2021, non-marketable equity investments included contributions of $ 15.0 million t o equity-method investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities.

Other non-marketable equity investments included investments in other distribution operations.

The following tables summarize our available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment category (in thousands):

December 26, 2020

Residential mortgage-backed securities

5 unchanged sentences

$ 17,856 $ 147 $ ( 41 ) $ 17,962

March 28, 2020

Residential mortgage-backed securities

$ 5,400 $ 69 $ ( 26 ) $ 5,443

State and political subdivision debt securities

4,239 134 ( 3 ) 4,370

Corporate debt securities

5,021 5 ( 65 ) 4,961

$ 14,660 $ 208 $ ( 94 ) $ 14,774

The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position (in thousands):

December 26, 2020

Less than 12 Months 12 Months or Longer Total

Value Unrealized

Residential mortgage-backed securities

$ 342 $ ( 9 ) $ 460 $ ( 8 ) $ 802 $ ( 17 )

State and political subdivision debt securities

321 ( 1 ) — — 321 ( 1 )

Corporate debt securities

805 ( 2 ) — — 805 ( 2 )

$ 1,468 $ ( 12 ) $ 460 $ ( 8 ) $ 1,928 $ ( 20 )

March 28, 2020

Less than 12 Months 12 Months or Longer Total

Value Unrealized

April 3, 2021

Residential mortgage-backed securities

5 unchanged sentences

$ 14,823 $ 166 $ ( 43 ) $ 14,946

We are not aware of any changes to the securities or issuers that would indicate the losses above are indicative of credit impairment as of December 26, 2020.

We are not aware of any changes to the securities or issuers that would indicate the losses above are indicative of credit impairment as of July 3, 2021.

Further, we do not intend to sell the investments, and it is more likely than not that we will not be required to sell the investments, before recovery of their amortized cost.

1 unchanged sentence

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

December 26, 2020

Due in less than one year $ 1,518 $ 1,519

4 unchanged sentences

$ 17,856 $ 17,962

We recognize investment gains and losses on available-for-sale debt securities when we sell or otherwise dispose of securities using the specific identification method.

For the three and nine months ended December 26, 2020, there were no gross gains realized on the sale of available-for-sale debt securities and g ross losses realized were $ 1,000 and $ 6,000 , respectively.

There were no gross gains or losses realized on the sale of available-for-sale debt securities during the three and nine months ended December 28, 2019.

We recognize unrealized gains and losses on marketable equity securities from changes in market prices during the period as a component of earnings in the Consolidated Statements of Comprehensive Income.

There were no gross gains or losses realized on the sale of available-for-sale debt securities during t he three months ended July 3, 2021 or June 27, 2020.

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

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

Marketable equity securities

Net gains on securities held $ 1,857 $ 764 $ 5,132 $ 2,066

Net gains on securities sold 151 13 157 11

$ 2,008 $ 777 $ 5,289 $ 2,077

Net gain recognized during the period $ 1,696 $ 2,030

Net gains recognized on securities sold during the period ( 136 ) ( 33 )

Unrealized gains recognized during the period on securities still held $ 1,560 $ 1,997

Inventories consisted of the following (in thousands):

2020 March 28,

2021 April 3,

Raw materials $ 69,123 $ 54,336

4 unchanged sentences

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

2020 March 28,

Loans held for investment (at Acquisition Date, defined below) $ 33,726 $ 37,779

Loans held for investment (originated after Acquisition Date) 17,873 20,140

2021 April 3,

Loans held for investment, previously securitized $ 30,384 $ 31,949

Loans held for investment 17,565 18,690

Loans held for sale 13,542 15,587

6 unchanged sentences

$ 35,095 $ 37,108

The Company acquired consumer loans receivable as part of the acquisition of Palm Harbor Homes, Inc.

in April 2011 ("Acquisition Date").

The allowance for loan losses reflects our judgment of the probable loss exposure on loans held for investment.

On March 29, 2020 we adopted ASU 2016-13 using the prospective transition approach for acquired consumer loans receivable assets that were previously accounted for under ASC 310-30.

We determined th at $ 1.7 million o f the existing purchase discount for such consumer loans was related to credit factors and was reclassified to the allowance for loan losses upon adoption.

The remaining discount on the acquired consumer loans was determined to be related to non-credit factors and will be accreted into interest income over the life of the loans.

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 Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

Allowance for loan losses at beginning of period $ 3,188 $ 1,767

Impact of adoption of ASU 2016-13 — — 2,276 —

Impact of adoption of Financial Accounting Standards Board's Accounting Standards Update 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13")

Change in estimated loan losses, net ( 267 ) 161

Charge-offs ( 3 ) ( 192 )

Recoveries — — — —

Allowance for loan losses at end of period $ 2,918 $ 4,012

The consumer loans held for investment had the following characteristics:

2020 March 28,

2021 April 3,

Weighted average contractual interest rate 8.2 % 8.3 %

2 unchanged sentences

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

2020 March 28,

2021 April 3,

Current $ 68,258 $ 76,378

3 unchanged sentences

$ 71,970 $ 80,027

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

December 26, 2020

2021 2020 2019 2018 2017 Prior Total March 28,

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

2022 2021 2020 2019 2018 Prior Total

Prime- FICO score 680 and greater

7 unchanged sentences

$ 7,530 $ 17,437 $ 5,182 $ 3,281 $ 2,130 $ 36,410 $ 71,970

Loan contracts secured by geographically concentrated collateral could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed.

As of December 26, 2020 , 37 % of the outstanding principal balance of consumer loans receivable portfolio was concentrated in Texas and 20 % was concentrated in Florida.

As of March 28, 2020, 36 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 16 % was concentrated in Florida.

Other than Texas and Florida, no state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of December 26, 2020 or March 28, 2020.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home less the costs to sell.

At repossession, the fair value of the collateral is determined based on the historical recovery rates of previously charged-off loans;

the loan is charged off and the loss is recorded to the allowance for loan losses.

Repossessed homes totaled approximately $ 162,000 and $ 1.5 million as of December 26, 2020 and March 28, 2020, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 606,000 and $ 560,000 as of December 26, 2020 and March 28, 2020, respectively.

April 3, 2021

2021 2020 2019 2018 2017 Prior Total

Prime- FICO score 680 and greater

$ 18,250 $ 3,575 $ 1,718 $ 971 $ 1,959 $ 23,375 $ 49,848

Near Prime- FICO score 620-679

10,227 2,744 1,794 1,364 500 10,401 27,030

Sub-Prime- FICO score less than 620

348 53 — — 84 1,579 2,064

No FICO score

576 — 28 — — 481 1,085

$ 29,401 $ 6,372 $ 3,540 $ 2,335 $ 2,543 $ 35,836 $ 80,027

As of July 3, 2021 and April 3, 2021 , 35 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 20 % was concentrated in Florida.

Other than Texas and Florida, no sta te had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of July 3, 2021 or April 3, 2021.

Repossessed homes totaled approximately $ 493,000 and $ 518,000 as of July 3, 2021 and April 3, 2021, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 1.0 million and $ 1.1 million as of July 3, 2021 and April 3, 2021, respectively.

Commercial Loans Receivable

The commercial loans receivable balance consists of two classes:

(i) direct financing arrangements for the home product needs of our independent distributors, community owners and developers;

and (ii) amounts loaned by us under participation financing programs.

Under the terms of the direct programs, we provide funds for financed home purchases by distributors, community owners and developers.

The notes are secured by the homes as collateral and, in some instances, other security.

Other terms of direct arrangements vary, depending on the needs of the borrower and the opportunity for the Company.

Under the terms of the participation programs, we provide loans to independent floor plan lenders that then lend to distributors to finance their inventory purchases.

The participation commercial loans receivables are unsecured general obligations of the independent floor plan lenders.

Commercial loans receivable, net consisted of the following, by class of financing notes receivable (in thousands):

2020 March 28,

Direct loans receivable $ 40,653 $ 47,058

Participation loans receivable 105 144

The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community owners and developers and amounts loaned by us under participation financing programs.

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

2021 April 3,

Loans receivable $ 45,620 $ 45,377

Allowance for loan losses ( 785 ) ( 816 )

4 unchanged sentences

The commercial loans receivable balance had the following characteristics:

2020 March 28,

2021 April 3,

Weighted average contractual interest rate 6.0 % 6.4 %

Weighted average months to maturity 10 11

The risk of loss is spread over numerous borrowers.

Borrower activity is monitored on a regular basis and contractual arrangements are in place to provide adequate loss mitigation in the event of a default.

Historically, we have been able to sell repossessed homes, thereby mitigating loss exposure.

If a default occurs and collateral is lost, we are exposed to loss of the full value of the home loan.

We evaluate the potential for loss from the commercial loan programs based on the borrower's risk rating, overall financial stability, historical experience and estimates of other economic factors.

We have included considerations related to the COVID-19 pandemic when assessing our risk of loan loss and setting reserve amounts for the commercial finance portfolio as of December 26, 2020.

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 Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

Balance at beginning of period

$ 789 $ 163 $ 393 $ 180

Impact of adoption of ASU 2016-13 — 435

Change in estimated loan losses, net

( 24 ) ( 1 ) ( 63 ) ( 18 )

Loans charged off, net of recoveries

Balance at end of period

$ 765 $ 162 $ 765 $ 162

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

December 26, 2020

2021 2020 2019 2018 2017 Total March 28,

Risk profile based on payment activity:

$ 22,708 $ 10,394 $ 3,954 $ 2,180 $ 1,522 $ 40,758 $ 47,016

— — — — — — 186

Nonperforming

As of July 3, 2021 and April 3, 2021, there were no commercial loans considered watch list or nonperforming.

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

2022 2021 2020 2019 2018 Prior Total

$ 15,150 $ 19,119 $ 5,973 $ 2,689 $ 1,743 $ 946 $ 45,620

April 3, 2021

2021 2020 2019 2018 2017 Prior Total

$ 30,627 $ 8,677 $ 3,206 $ 1,864 $ 1,003 $ — $ 45,377

At December 26, 2020, 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 December 26, 2020, 10.0 % of our outstanding commercial loans receivable principal balance was concentrated in Arizona.

As of March 28, 2020, 11.0 % of the outstanding commercial loans receivable principal balance was concentrated in California.

No other state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of December 26, 2020 or March 28, 2020.

We had concentrations with one independent third-party and its affiliates that equaled 16.8 % and 21.0 % of the net commercial loans receivable principal balance outstanding, all of which was secured, as of December 26, 2020 and March 28, 2020, respectively.

T he risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses.

At July 3, 2021, 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 3, 2021, 14 % of our outstanding commercial loans receivable principal balance was concentrated in Arizona and 13 % was concentrated in California.

As of April 3, 2021, 13 % of our outstanding commercial loans receivable principal balance was concentrated in Arizona.

No other state had concentrations in excess of 10 % of the principal balance of the consumer loans receivable as of July 3, 2021 or April 3, 2021.

We had concentrations with one independent third-party and its affiliates that equaled 18 % of the net commercial loans receivable principal balance outstanding, all of which was secured, as of July 3, 2021 and April 3, 2021 .

Property, Plant and Equipment, net

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

2020 March 28,

2021 April 3,

Property, plant and equipment, at cost

5 unchanged sentences

$ 97,981 $ 96,794

Depreciation expense was $ 1.4 million for each of the three month periods ended December 26, 2020 and December 28, 2019.

Depreciation expense for the nine months ended December 26, 2020 and December 28, 2019 was $ 4.2 million and $ 3.8 million, respectively.

Included in the amounts above are certain assets under finance leases.

See Note 9 of the Notes to the Consolidated Financial Statements included in the Form 10-K for additional information.

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

During the period ended December 26, 2020, we executed various lease renewals, including a five-year extension at one of our active manufacturing facilities, which increased the right of use asset and lease liability.

The present value of minimum payments for future fiscal years under non-cancelable leases as of December 26, 2020 was as follows (in thousands):

Operating Leases Finance Leases Total

Remainder of 2021 $ 1,051 $ 19 $ 1,070

2022 4,182 73 4,255

2023 3,854 73 3,927

2024 3,503 73 3,576

2025 2,706 73 2,779

2026 2,799 49 2,848

Thereafter 2,206 — 2,206

20,301 360 20,661

Less amount representing interest ( 2,392 ) ( 41 ) ( 2,433 )

17,909 319 18,228

Less current portion ( 4,082 ) ( 71 ) ( 4,153 )

$ 13,827 $ 248 $ 14,075

Depreciation expense was $ 1.4 million for each of the three month periods ended July 3, 2021 and June 27, 2020.

Goodwill and Other Intangibles

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

December 26, 2020 March 28, 2020

July 3, 2021 April 3, 2021

Amount Accumulated

9 unchanged sentences

85,090 — 85,090 85,090 — 85,090

Finite-lived:

Customer relationships 11,300 ( 7,255 ) 4,045 11,300 ( 7,097 ) 4,203

1 unchanged sentence

$ 97,814 $ ( 8,534 ) $ 89,280 $ 97,814 $ ( 8,361 ) $ 89,453

Amortization expense recognized on intangible assets was $ 186,000 and $ 188,000 for the three months ended December 26, 2020 and December 28, 2019, respectively.

Amortization expense recognized on intangible assets was $ 560,000 and $ 419,000 for the nine months ended December 26, 2020 and December 28, 2019, respectively.

Amortization expense recognized on intangible assets was $ 173,000 and $ 187,000 for the three months ended July 3, 2021 and June 27, 2020, respectively.

Accrued Expenses and Other Current Liabilities

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

2020 March 28,

2021 April 3,

Customer deposits $ 48,989 $ 41,835

Salaries, wages and benefits 37,176 37,737

Company repurchase options on certain loans sold 29,104 7,444

Unearned insurance premiums 24,125 22,643

Company repurchase options on certain loans sold 19,432 25,938

Estimated warranties 19,344 18,032

Accrued volume rebates 14,097 12,132

Accrued self-insurance 5,661 5,112

Insurance loss reserves 5,351 5,582

Operating lease liabilities 4,082 4,170

Reserve for repurchase commitments 2,281 2,679

Accrued taxes 2,212 1,908

Other 47,027 44,816

1 unchanged sentence

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

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

Balance at beginning of period $ 18,032 $ 18,678

Purchase accounting additions — — — 1,192

Charged to costs and expenses 9,125 6,347

2 unchanged sentences

Debt and Finance Lease Obligations

Debt and finance lease obligations primarily consist of secured credit facilities at our finance subsidiary and lease obligations for which it is expected that we will obtain ownership of the leased assets at the end of their lease term.

Debt and finance lease obligations primarily consist of secured financings at our finance subsidiary and lease obligations for which it is expected that we will obtain ownership of the leased assets at the end of the lease term.

The following table summarizes debt and finance lease obligations (in thousands):

2020 March 28,

Secured credit facilities

$ 8,825 $ 10,474

2021 April 3,

Secured term loan $ 7,980 $ 8,210

Other secured financings

3 unchanged sentences

$ 9,927 $ 10,335

CountryPlace entered into secured credit facilities with independent third-party banks with draw periods from one to fifteen months and maturity dates of ten years after the expiration of the draw periods, which have now expired.

The proceeds were used to originate and hold consumer home-only loans secured by manufactured homes, which are pledged as collateral to the facilities.

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

The maximum advance for loans under this program was 80 % of the outstanding collateral principal balance, with the Company providing the remaining funds.

The outstanding balance of the converted loans was $ 8.8 million as of December 26, 2020 and $ 10.5 million as of March 28, 2020, with a weighted average interest rate of 4.91 %.

See Note 9 of the Notes to the Consolidated Financial Statements included in the Form 10-K for further discussion of the finance lease obligations.

Standard Casualty is primarily a specialty writer of manufactured home physical damage insurance.

We entered into secured credit facilities with independent third-party banks to originate and hold consumer home-only loans secured by manufactured homes, which were pledged as collateral to the facilities.

Those facilities have since been converted into an amortizing loan with maturity dates starting in 2028 and payments based on a 20 or 25-year amortization period, resulting in a balloon payment due upon maturity .

The outstanding balance of the converted loans was $ 8.0 million as of July 3, 2021 and $ 8.2 million as of April 3, 2021 with a weighted average interest rate of 4.9 %.

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.

Standard Casualty remains obligated for amounts ceded in the event that the reinsurers do not meet their obligations.

Substantially all of Standard Casualty's assumed reinsurance is with one entity.

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

December 26, 2020 December 28, 2019

Written Earned Written Earned

Direct premiums

$ 5,420 $ 5,429 $ 4,654 $ 4,756

Assumed premiums—nonaffiliated

6,541 7,195 5,918 6,676

Ceded premiums—nonaffiliated

( 3,146 ) ( 3,146 ) ( 3,071 ) ( 3,071 )

$ 8,815 $ 9,478 $ 7,501 $ 8,361

Nine Months Ended

December 26, 2020 December 28, 2019

July 3, 2021 June 27, 2020

Written Earned Written Earned

6 unchanged sentences

$ 11,766 $ 9,727 $ 10,216 $ 8,773

Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $ 300,000 per claim, of which Standard Casualty cedes $ 150,000 of the risk of loss per reinsurance.

Therefore, Standard Casualty's risk of loss is limited to $ 150,000 per claim on typical policies, subject to the reinsurers meeting their obligations.

After this limit, amounts are recoverable by Standard Casualty through reinsurance for catastrophic losses in excess of $ 2 million per occurrence, up to a maximum of $ 55 million in the aggregate.

Typical insurance policies written or assumed have a maximum coverage of $ 300,000 per claim, of which we cede $ 150,000 of the risk of loss per reinsurance.

Therefore, our risk of loss is limited to $ 150,000 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 $ 55 million in the aggregate for that occurrence.

Standard Casualty establishes reserves for claims and claims expense on reported and unreported claims of non-reinsured losses.

The following details the activity in the reserve for the three months ended July 3, 2021 and June 27, 2020 (in thousands):

Three Months Ended

2021 June 27,

Balance at beginning of period $ 7,451 $ 5,582

Net incurred losses during the year 7,975 5,982

Net claim payments during the year ( 7,078 ) ( 4,834 )

Balance at end of period $ 8,348 $ 6,730

Commitments and Contingencies

Repurchase Contingencies .

The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent distributors of its products.

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 we were liable under such agreements approximated $ 70.8 million and $ 79.3 million at December 26, 2020 and March 28, 2020, respectively, without a reduction for the resale value of the homes.

We apply ASC 460, Guarantees , and ASC 450-20, Loss Contingencies , to account for the repurchase commitment liability.

We had a reserve for repurchase commitments of $ 2.3 million and $ 2.7 million at December 26, 2020 and March 28, 2020, respectively.

Letter of Credit.

To secure certain reinsurance contracts, Standard Casualty maintained an irrevocable letter of credit of $ 11.0 million to provide assurance that Standard Casualty would fulfill its reinsurance obligations.

The letter of credit was released on July 11, 2020.

The maximum amount for which we were liable under such agreements approximated $ 80.9 million and $ 74.2 million at July 3, 2021 and April 3, 2021, respectively, without reduction for the resale value of the homes that are repurchased.

We had a reserve for repurchase commitments of $ 2.3 million at July 3, 2021 and April 3, 2021.

Construction-Period Mortgages.

CountryPlace funds construction-period mortgages through periodic advances during home construction.

At the time of initial funding, CountryPlace commits to fully fund the loan contract in accordance with a predetermined schedule.

Subsequent advances are contingent upon the performance of contractual obligations by the seller of the home and the borrower.

Cumulative advances on construction-period mortgages are carried on the Consolidated Balance Sheets at the amount advanced less a valuation allowance and are included in Consumer loans receivable, net.

The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment of CountryPlace to fund future advances.

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):

2020 March 28,

2021 April 3,

Construction loan contract amount $ 28,204 $ 37,628

2 unchanged sentences

Representations and Warranties of Mortgages Sold .

CountryPlace sells loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers and finances certain loans with long-term credit facilities secured by the respective loans.

In connection with these activities, CountryPlace provides to the GSEs and whole-loan purchasers and lenders representations and warranties related to the loans sold or financed.

Upon a breach of a representation, CountryPlace may be required to repurchase the loan or to indemnify a party for incurred losses.

During the nine months ended December 26, 2020, the Company executed indemnification agreements to cover 20 % of the losses experienced over the next two years related to five loans that were impacted by COVID-19.

We maintain a reserve for these contingent repurchase and indemnification obligations.

This reserve of $ 1.3 million as of December 26, 2020 and $ 1.0 million as of March 28, 2020, included in Accrued expenses and other current liabilities, reflects management's estimate of probable loss.

There were no claim requests that resulted in the repurchase of a loan during the nine months ended December 26, 2020.

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 repurch ase the loan or to indemnify a party for incurred losses.

We maintain a reserve for these contingent repurchase and indemnification obliga tions.

This reserve of $ 1.3 million as of July 3, 2021 and $ 1.2 million as of April 3, 2021, included in Accrued expenses and other current liabilities, reflects management's estimate of probable loss.

There were no claim requests that resulted in the execution of an indemnification agreement or in the repurchase of a loan during the three months ended July 3, 2021.

Interest Rate Lock Commitments .

In originating loans for sale, CountryPlace issues interest rate lock commitments ("IRLCs") to prospective borrowers.

These IRLCs represent an agreement to extend credit to a loan applicant, whereby the interest rate on the loan is set prior to loan closing or sale.

These IRLCs bind CountryPlace 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 December 26, 2020, CountryPlace had outstanding IRLCs with a notional amount of $ 24.5 million, which are recorded at fair value in accordance with ASC 815, Derivatives and Hedging .

During the three months ended December 26, 2020 and December 28, 2019, we recogn ized gains of $ 57,000 and losses of $ 5,000 , respectively, on outstanding IRLCs.

During the nine months ended December 26, 2020 and December 28, 2019, we recognized losses of $ 87,000 and $ 8,000 , respectively, on outstanding IRLCs.

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 3, 2021, we had outstanding IRLCs with a notional amount of $ 32.1 million and recognized a gain of $ 47,000 in the 2022 first quarter and a loss of $ 125,000 in the 2021 first quarter .

Forward Sales Commitments .

CountryPlace manages the risk profiles of a portion of its outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities ("MBS") and whole loan sale commitments.

As of December 26, 2020, CountryPlace had $ 68.9 million in outstanding notional forward sales of MBSs and forward sales commitments.

Commitments for forward sales of whole loans are typically in an amount proportionate with the amount of IRLCs expected to close in particular time frames, assuming no change in mortgage interest rates, for the respective loan products intended for whole loan sale.

The estimated fair values of forward sales of MBS and whole loan sale commitments are based on quoted market values and are recorded within Prepaid expenses and other current assets in the Consolidated Balance Sheets.

During the three months ended December 26, 2020 and December 28, 2019 , we recognized losses of $ 318,000 and gains of $ 79,000 , respectively, on forward sales of MBS and whole loan sale commitments.

During the nine months ended December 26, 2020 and December 28, 2019, we recognized gains of $ 816,000 and $ 163,000 ,respectively, on forward sales of MBS and whole loan sale 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 3, 2021, we had $ 42.9 million in outstanding Commitments and recognized a non-cash loss of $ 347,000 in the 2022 first quarter and gain of $ 1.0 million in the 2021 first quarter .

Legal Matters.

Since 2018, the Company has been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional Office regarding securities trading in personal and Company accounts directed by the Company's former Chief Executive Officer, Joseph Stegmayer.

The Audit Committee of the Board of Directors conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the Audit Committee shared the results of its work with the Company's auditors, listing exchange and the SEC staff.

We have also made documents and personnel available to the SEC staff and we intend to continue cooperating with its investigation.

We have been exploring the possibility of a settlement with the SEC staff but, at this time, we are unable to assess the probability of that outcome or reasonably estimate the amount of a potential loss, if any.

Cavco Industries, Inc.

("Robles"), was filed in the Superior Court for the State of California, Riverside on June 25, 2019 and Malik Griffin v.

Fleetwood Homes, Inc .

("Griffin"), was filed in the Superior Court for the State of California, San Bernardino on September 19, 2019, each seeking recovery on behalf of a putative class of current and former hourly employees for certain alleged wage-and-hour violations including, among other things:

(i) alleged failure to comply with certain wage statement formatting requirements;

(ii) alleged failure to compensate employees for straight-time and overtime hours worked;

and (iii) alleged failure to provide employees with all requisite work breaks.

On November 24, 2020, Robles dismissed his separate action in the Riverside County Superior Court and Griffin filed an amended complaint adding Robles as a named plaintiff to the action in the San Bernardino County Superior Court.

A joint mediation occurred on January 27, 2021 where the Parties failed to reach a settlement or resolution to the matter

The Company is 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 included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Since 2018, we have been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional Office regarding securities trading in personal and Company accounts directed by the Company 's former Chief Executive Officer, Joseph Stegmayer.

As previously disclosed, in November 2020, the SEC staff issued a Wells Notice to Cavco stating that the staff intends to recommend an enforcement action against us in connection with the investigation.

While we cannot predict with certainty the resolution of this matter, we do not expect it to have a material adverse effect on our Consolidated Financial Statements.

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 in 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 .

Stockholders' Equity

The following table represents changes in stockholders' equity for each quarterly period during the nine months ended December 26, 2020 (dollars in thousands):

Additional paid-in capital Retained earnings Accumulated other comprehensive income Total

The following table represents changes in stockholders' equity during the three months ended July 3, 2021 (dollars in thousands):

Treasury Stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Total

Shares Amount

Balance, March 28, 2020 9,173,242 $ 92 $ 252,260 $ 355,144 $ 90 $ 607,586

Cumulative effect of implementing ASU 2016-13, net — — — ( 733 ) — ( 733 )

Net income — — — 16,674 — 16,674

Issuance of common stock under stock incentive plans 3,822 — ( 533 ) — — ( 533 )

Stock-based compensation — — 945 — — 945

Other comprehensive income, net — — — — 68 68

Balance, June 27, 2020 9,177,064 $ 92 $ 252,672 $ 371,085 $ 158 $ 624,007

Balance, April 3, 2021 9,241,256 $ 92 $ ( 1,441 ) $ 253,835 $ 431,057 $ 97 $ 683,640

Net income — — — — 27,046 — 27,046

Issuance of common stock under stock incentive plans 11,098 — 522 — — 522

Stock-based compensation — — 1,103 — — 1,103

Other comprehensive income, net — — — — — ( 13 ) ( 13 )

Balance, September 26, 2020 9,188,162 $ 92 $ 254,297 $ 386,134 $ 165 $ 640,688

Net income — — — 19,701 — 19,701

Issuance of common stock under stock incentive plans 4,465 — — 136 — — 136

Stock-based compensation — — — 1,100 — — 1,100

Other comprehensive loss, net — — — — ( 15 ) ( 15 )

Balance, December 26, 2020 9,192,237 $ 92 $ 255,664 $ 405,835 $ 150 $ 661,741

The following table represents changes in stockholders' equity for each quarterly period during the nine months ended December 28, 2019 (dollars in thousands):

Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total

Common stock repurchases — — ( 12,842 ) — — — ( 12,842 )

Balance, July 3, 2021 9,245,721 $ 92 $ ( 14,283 ) $ 255,071 $ 458,103 $ 84 $ 699,067

The following table represents changes in stockholders' equity during the three months ended June 27, 2020 (dollars in thousands):

Treasury Stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Total

Shares Amount

Balance, March 28, 2020 9,173,242 $ 92 $ — $ 252,260 $ 355,144 $ 90 $ 607,586

Cumulative effect of implementing ASU 2016-13, net — — — — ( 733 ) — ( 733 )

Net income — — — — 16,674 — 16,674

Issuance of common stock under stock incentive plans 13,304 — ( 1,252 ) — — ( 1,252 )

Stock-based compensation — — 630 — — 630

Other comprehensive income, net — — — — — 68 68

Balance, June 29, 2019 9,111,624 $ 91 $ 248,825 $ 301,360 $ 61 $ 550,337

Net income — — — 20,885 — 20,885

Issuance of common stock under stock incentive plans 3,822 — — ( 533 ) — — ( 533 )

Stock-based compensation — — — 945 — — 945

Other comprehensive loss, net — — — — 23 23

Balance, September 28, 2019 9,127,466 $ 91 $ 250,584 $ 322,245 $ 84 $ 573,004

Net income — — — 20,898 — 20,898

Issuance of common stock under stock incentive plans 13,725 — 537 — — 537

Stock-based compensation — — 820 — — 820

Other comprehensive income, net — — — — 1 1

Balance, December 28, 2019 9,141,191 $ 91 $ 251,941 $ 343,143 $ 85 $ 595,260

Balance, June 27, 2020 9,177,064 $ 92 $ — $ 252,672 $ 371,085 $ 158 $ 624,007

Earnings Per Share

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

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Three Months Ended

2021 June 27,

$ 27,046 $ 16,674

7 unchanged sentences

$ 2.92 $ 1.80

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended December 26, 2020 and December 28, 2019 were 26,601 and 14,482 , respectively.

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the nine months ended December 26, 2020 and December 28, 2019 were 26,357 and 29,971 , respectively.

In addition, outstanding restricted share awards excluded from the calculation of diluted earnings per share because the underlying performance criteria had not been met were 14,405 for the three and nine months ended December 26, 2020, and 7,305 for the three and nine months ended December 28, 2019.

There were 8,366 anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three months ended July 3, 2021 and 39,996 for the three months ended June 27, 2020.

Fair Value Measurements

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

December 26, 2020 March 28, 2020

July 3, 2021 April 3, 2021

Value Estimated

8 unchanged sentences

Consumer loans receivable 67,524 76,466 74,798 86,209

81,592 96,313 82,304 97,395

Interest rate lock commitment derivatives

77 77 164 164

Forward loan sale commitment derivatives

( 195 ) ( 195 ) ( 1,011 ) ( 1,011 )

Commercial loans receivable

44,588 42,586 44,314 42,379

Secured financings and other ( 12,987 ) ( 12,493 ) ( 14,953 ) ( 15,592 )

Secured financings other ( 11,749 ) ( 11,810 ) ( 12,186 ) ( 12,340 )

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.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

December 26, 2020

Total Level 1 Level 2 Level 3

Residential mortgage-backed securities (1)

$ 5,237 $ — $ 5,237 $ —

State and political subdivision debt securities (1)

6,306 — 6,306 —

Corporate debt securities (1)

5,130 — 5,130 —

Marketable equity securities (2)

13,987 13,987 — —

Interest rate lock commitment derivatives (3)

Forward loan sale commitment derivatives (3)

( 195 ) — — ( 195 )

Mortgage servicing rights (4)

March 28, 2020

Total Level 1 Level 2 Level 3

Residential mortgage-backed securities (1)

$ 5,443 $ — $ 5,443 $ —

State and political subdivision debt securities (1)

4,370 — 4,370 —

Corporate debt securities (1)

4,961 — 4,961 —

Marketable equity securities (2)

9,829 9,829 — —

Interest rate lock commitment derivatives (3)

Forward loan sale commitment derivatives (3)

( 1,011 ) — — ( 1,011 )

Mortgage servicing rights (4)

1,225 — — 1,225

(1) Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income at each measurement date.

(2) Unrealized gains or losses on investments are recorded in earnings at each measurement date.

(3) Gains or losses on derivatives are recorded in earnings through Cost of sales.

(4) Changes in the fair value of mortgage servicing rights are recorded in earnings through Net revenue.

No transfers between Level 1, Level 2 or Level 3 occurred during the nine months ended December 26, 2020.

Financial instruments for which fair value is disclosed but not required to be recognized in the balance sheet on a recurring basis are summarized below (in thousands):

December 26, 2020

Total Level 1 Level 2 Level 3

Loans held for investment

$ 59,167 $ — $ — $ 59,167

Loans held for sale

23,223 — — 23,223

Construction advances 13,923 — — 13,923

Commercial loans receivable

38,300 — — 38,300

Secured financings and other ( 12,493 ) — ( 12,493 ) —

Non-marketable equity investments

21,791 — — 21,791

March 28, 2020

Total Level 1 Level 2 Level 3

Loans held for investment

$ 68,503 $ — $ — $ 68,503

Loans held for sale

15,492 — — 15,492

Construction advances 13,400 — — 13,400

Commercial loans receivable

46,819 — — 46,819

Secured financings and other ( 15,592 ) — ( 15,592 ) —

Non-marketable equity investments

21,536 — — 21,536

No impairment charges were recorded during the nine months ended December 26, 2020.

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, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow accounts, performing loss mitigation activities on behalf of investors and otherwise administering the loan servicing portfolio.

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 initially recorded at fair value.

Changes in fair value subsequent to the initial capitalization are recorded in earnings.

2020 March 28,

2021 April 3,

Number of loans serviced with MSRs 4,614 4,647

5 unchanged sentences

Related Party Transactions

We have non-marketable equity investments in other distribution operations outside of Company-owned retail locations.

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 December 26, 2020 and December 28, 2019, the total amount of sales to related parties was $ 11.2 million and $ 13.3 million, respectively.

For the nine months ended December 26, 2020 and December 28, 2019, the total amount of sales to related parties was $ 34.2 million and $ 37.1 million, respectively.

As of December 26, 2020, receivables from related parties included $ 3.9 million of accounts receivable and $ 7.5 million of commercial loans outstanding.

As of March 28, 2020, receivables from related parties incl uded $ 1.7 million of accounts receivable and $ 8.2 million of commercial loans outstanding.

Acquisition of Destiny Homes

On August 2, 2019, the Company purchased certain manufactured housing assets and assumed certain liabilities of Destiny Homes, which operates one manufacturing facility located in Moultrie, Georgia and produces and distributes manufactured and modular homes through a network of independent retailers in the Southeastern United States, further expanding our reach.

We finalized the purchase price allocation and have not made any purchase accounting adjustments during fiscal year 2021.

Pro Forma Impact of Acquisition .

The following table presents supplemental pro forma information as if the acquisition of Destiny Homes had occurred on March 31, 2019 (in thousands, except per share data):

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

$ 288,772 $ 273,722 $ 801,549 $ 817,674

19,701 20,898 51,424 63,868

Diluted net income per share

2.12 2.25 5.54 6.90

For the three months ended July 3, 2021 and June 27, 2020, the total amount of sales to related parties was $ 14.8 million and $ 12.7 million, respectively.

As of July 3, 2021, receivables from related parties included $ 4.3 million of accounts receivable and $ 6.8 million of commercial loans outstanding .

As of April 3, 2021, receivables from related parties included $ 4.7 million of accounts receivable and $ 9.5 million of commercial loans outstanding.

Business Segment Information

We operate principally in two segments:

(1) factory-built housing, which includes wholesale and retail systems-built housing operations and (2) financial services, which includes manufactured housing consumer finance and insurance.

The following table details Net revenue and Income before income taxes by segment (in thousands):

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

(1) factory-built housing, which includes wholesale and retail factory-built housing operations and (2) financial services, which includes manufactured housing consumer finance and insurance.

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

Three Months Ended

2021 June 27,

Factory-built housing $ 312,283 $ 238,090

5 unchanged sentences

$ 35,478 $ 21,680

Subsequent Event

On July 23, 2021 , we entered into an agreement to acquire the business and certain assets and liabilities of The Commodore Corporation ("Commodore"), including its six manufacturing and two retail locations.

Commodore is the largest private independent builder of manufactured and modular housing in the United States, operating under a variety of strong brand names.

Commodore operates across the Northeast, Midwest and Mid-Atlantic regions, with wholly owned retail stores.

In addition to manufacturing, Commodore also has a commercial lending portfolio with its dealers that we will acquire and continue.

For the last 12 months ended March 31, 2021, Commodore generated net sales of approximately $ 258 million and sold over 6,600 modules, equating to over 3,700 homes.

The purchase price totals $ 153 million, before certain adjustments that will be determined upon close of the transaction.

The estimated cash outlay is $ 140 million after adjustments and including transaction fees.

We expect to fund the acquisition entirely with cash on hand.

The transaction is expected to close in our third quarter of fiscal year 2022, subject to applicable regulatory approvals and satisfaction of certain customary conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements