What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-01-29 · 100 added, 148 removed, 106 unchanged (70% of the section changed)

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operational and legal risks;

how the Company may be affected by the novel coronavirus COVID-19 ("COVID-19") pandemic;

how the Company may be affected by the novel coronavirus COVID-19 pandemic ("COVID-19") or any other pandemic or outbreak;

governmental regulations and legal proceedings;

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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.

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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.

We are also one of the leading producers of park model RVs, vacation cabins and factory-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.

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

("CountryPlace"), is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation ("Freddie Mac") 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.

Our insurance subsidiary, Standard Casualty Company ("Standard Casualty"), provides property and casualty insurance to owners of manufactured homes.

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

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retail locations.

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

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.

Company and Industry Outlook

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 and these shipment numbers have not represented demand;

According to data reported by the Manufactured Housing Institute, industry home shipments increased 14.9% for the first 5 months of calendar year 2021 compared to the same period in the prior year, which was impacted by shutdowns related to COVID-19.

However, we did not experience any significant factory shutdowns in the prior year period like some other industry participants did.

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

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

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

Included in this group are lower-income households that may be limited in their ability to qualify for a new home loan by their particular employment status and down payment capability.

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

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

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

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

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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).

Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community owners and developers (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.

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

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

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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.

We also develop and invest in home-only lending programs to grow sales of homes through traditional distribution points.

We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our 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 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.

Operational efficiencies have declined from hiring challenges, higher and largely unpredictable factory employee absenteeism and other inefficiencies from building material supply shortages.

Accordingly, our total average plant capacity utilization rate was approximately 75% during the first fiscal quarter of 2022, which remains consistent with that of our fourth quarter of fiscal 2021.

Sales order activity remained exceptionally strong during the first fiscal quarter of 2022 and was nearly 50% 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 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.

Distributors may cancel orders prior to production without penalty.

After production of a particular home has commenced, the order becomes non-cancelable and the distributor is obligated to take delivery of the home.

Accordingly, until production of a particular home has commenced, we do not consider order backlog to be firm orders.

The financial services segment has also maintained operations since the onset of the COVID-19 pandemic, largely through the implementation of work-from-home solutions.

In addition to accepting and processing new applications for home loans and insurance policies, the financial services operations continue to assist customers in need and service existing loans and insurance policies while complying with state and federal regulations regarding loan forbearance, home foreclosures and policy cancellations.

Because of these economic conditions, loan loss reserves were increased at the end of fiscal year 2020 and continue to be adjusted as considered appropriate.

Certain loans serviced by CountryPlace for investors expose the Company to cash flow decreases if customers do not make contractual monthly payments of principal and interest in a timely manner.

Our primary investor, Ginnie Mae, permits cash obligations on loans in forbearance from COVID-19 to be offset by other incoming cash flows from loans such as loan pre-payments.

While monthly collections of principal and interest from borrowers has normally exceeded scheduled principal and interest payments owed to investors, this could be negatively impacted given various state and local emergency orders in light of COVID-19.

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.

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.

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

Increased orders outpaced the challenging production environment during the quarter, raising order backlogs to $792 million at July 3, 2021, up 31.3% compared to $603 million at April 3, 2021 and up 404.5% compared to $157 million at June 27, 2020.

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

Key housing building materials include wood and wood products, gypsum wallboard, steel, windows, appliances, insulation and other petroleum-based produ cts.

Pricing and availability of certain raw materials have recently been volatile due to a number of factors in th e current environment.

We continue to monitor and react to inflation in these materials by maintaining a focus on our product pricing in response to higher materials costs, but such increases may lag behind the escalation of such costs.

Availability of these products has not caused a production halt in the current period, but we have experienced periodic shutdowns in other periods and shortages of primary building materials have caused production inefficiencies as we have needed to change processes in response to the delay in materials.

While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and operations, maintaining an appropriately sized and well-trained workforce is key to increasing production to meet increased demand, and we face challenges in overcoming labor-related difficulties in the current environment to increase home production.

We continually review the wage rates of our production employees, and have established other monetary incentive and benefit programs, with a goal of providing competitive compensation.

We also provide leadership training to new managers and other employees in supervisory roles to enhance communication and improve the oversight and motivation of other employees, more extensively use online recruiting tools, update our recruitment brochures and improve the appearance and appeal of our manufacturing facilities to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates.

Regardless, we believe our ability to recruit the workforce we need to meet the overall need for affordable housing continues to improve.

In the financial services segment, we continue to assist customers in need by servicing existing loans and insurance policies and complying with state and federal regulations regarding loan forbearance, home foreclosures and policy cancellations.

Certain loans serviced for investors expose us to cash flow deficits if customers do not make contractual monthly payments of principal and interest in a timely manner.

For certain loans serviced for Ginnie Mae and Freddie Mac, and home-only loans serviced for certain other investors, we must remit scheduled monthly principal and/or interest payments and principal curtailments regardless of whether monthly mortgage payments are collected from borrowers.

Ginnie Mae permits cash obligations on loans in forbearance from COVID-19 to be offset by other incoming cash flows from loans such as loan pre-payments.

Although monthly collections of principal and interest from borrowers have exceeded scheduled principal and interest payments owed to investors, mandatory extended forbearance under the Coronavirus Aid, Relief and Economic Security Act and certain other regulations related to COVID-19 could negatively impact cash obligations in the future.

Results of Operations

Three Months Ended

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

2020 December 28,

($ in thousands, except revenue per home sold) July 3,

2021 June 27,

Factory-built housing $ 312,283 $ 238,090 $ 74,193 31.2 %

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$ 330,422 $ 254,801 $ 75,621 29.7 %

Total homes sold 3,603 3,865 (262) (6.8) %

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

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) %

Financial services 51,670 47,875 3,795 7.9 %

Factory-built homes sold

by Company-owned retail sales centers 723 752 (29) (3.9) %

to independent retailers, builders, communities & developers 2,977 2,597 380 14.6 %

3,700 3,349 351 10.5 %

Total homes sold 10,379 11,453 (1,074) (9.4) %

Net factory-built housing revenue per home sold $ 84,401 $ 71,093 $ 13,308 18.7 %

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.

In the factory-built housing segment, the increase in Net revenues was primarily due to a 10.5% increase in units sold and 18.7% increase in the average sales price.

The higher home prices were driven by product price increases and a shift toward more multi-section homes.

Home sales volume increased from higher factory capacity utilization.

On a sequential basis, adjusting for the extra week of production in the fourth quarter of fiscal year 2021, home sales volume would have also increased from slightly higher factory capacity utilization.

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, 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.

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

Other factors include fluctuations in product mix, the result of home buyer tastes and preferences as they select home types/models, as well as optional home upgrades when purchasing the home.

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 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.

Gross Profit.

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

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

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

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

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

The table below presents the mix of modules and homes shipped for the three months ended July 3, 2021 and June 27, 2020:

Three Months Ended

($ in thousands) December 26,

2020 December 28,

Gross profit:

Factory-built housing $ 47,031 $ 48,793 $ (1,762) (3.6) %

Financial services 12,207 11,062 1,145 10.4 %

2021 June 27,

Modules Homes Modules Homes Modules Homes

Housing and Urban Development code homes 5,652 3,276 4,881 2,865 15.8 % 14.3 %

Modular homes 468 226 466 215 0.4 % 5.1 %

Park model RVs 198 198 269 269 (26.4) % (26.4) %

6,318 3,700 5,616 3,349 12.5 % 10.5 %

Gross profit as % of Net revenue:

Consolidated 20.5 % 21.9 % N/A (1.4) %

Factory-built housing 17.4 % 19.0 % N/A (1.6) %

Financial services 68.0 % 66.6 % N/A 1.4 %

Nine Months Ended

($ in thousands) December 26,

2020 December 28,

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

These gains were partially offset by lower unrealized gains on marketable equity securities in the insurance subsidiary's portfolio, which were $0.4 million and $1.0 million for the three months ended July 3, 2021 and June 27, 2020, respectively, and lower interest income earned on the acquired consumer loan portfolios that continue to amortize.

Gross Profit.

Three Months Ended

($ in thousands) July 3,

2021 June 27,

Factory-built housing $ 66,273 $ 46,992 $ 19,281 41.0 %

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Financial services 42.7 % 49.9 % N/A (7.2) %

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.

Factory-built housing gross profit increased primarily due to increased home sales volume and higher average sales prices.

We continue to monitor and react to inflation in building material prices by maintaining a focus on our product pricing;

however, product price increases may lag behind the escalation of building costs.

Gross profit as a percentage of Net revenue also increased this period from a shift toward more multi-section homes.

Financial services gross profit decreased due to higher weather-related claims volume and lower unrealized gains on marketable equity securities.

Selling, General and Administrative Expenses.

Three Months Ended

($ in thousands) December 26,

2020 December 28,

Selling, general and administrative expenses:

Factory-built housing $ 30,575 $ 32,017 $ (1,442) (4.5) %

Financial services 4,839 4,827 12 0.2 %

$ 35,414 $ 36,844 $ (1,430) (3.9) %

Selling, general and administrative expenses as % of Net revenue:

12.3 % 13.5 % N/A (1.2) %

Nine Months Ended

($ in thousands) December 26,

2020 December 28,

Selling, general and administrative expenses:

($ in thousands) July 3,

2021 June 27,

Factory-built housing $ 35,497 $ 30,737 $ 4,760 15.5 %

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$ 40,832 $ 35,323 $ 5,509 15.6 %

Selling, general and administrative expenses as % of Net revenue:

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 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.

Selling, general and administrative expenses as % of Net revenue 12.4 % 13.9 % N/A (1.5) %

Selling, general and administrative expenses related to factory-built housing increased between periods primarily from higher salary and incentive-based compensation expense.

This was partially offset by a reduction in the amortization of the additional Director and Officer insurance premium, added in the third quarter of fiscal year 2019, which was $2.1 million for the three months ended June 27, 2020, with no expense in the current period .

In Financial services, Selling, general and administrative expenses increased primarily from greater expensing of deferred origination costs on higher loan sales and higher compensation expense.

Other Components of Net Income.

Three Months Ended

($ in thousands) July 3,

2021 June 27,

Interest expense $ 164 $ 196 $ (32) (16.3) %

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 2,461 1,876 585 31.2 %

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 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 8,432 5,006 3,426 68.4 %

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.

Effective tax rate 23.8 % 23.1 % N/A 0.7 %

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

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

The increase is driven by more interest income earned on larger cash and commercial loan receivables than the prior year period.

Liquidity and Capital Resources

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 believe that cash and cash equivalents at July 3, 2021, 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.

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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.

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

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

There can be no assurance that such financing would be available on satisfactory terms, if at all.

If this financing were not available, it could be necessary for us to reevaluate our long-term operating plans to make more efficient use of our existing capital resources.

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 our 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 at such time.

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

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

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

We believe that stockholders' equity at the insurance subsidiary remains sufficient and do not believe that the 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 three months ended July 3, 2021 and June 27, 2020, respectively:

Three Months Ended

(in thousands) July 3,

2021 June 27,

2020 $ Change

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Net cash provided by operating activities 24,275 35,692 (11,417)

Net cash used in investing activities (5,098) (18,873) 13,775

Net cash (used in) provided by investing activities (3,616) 105 (3,721)

Net cash used in financing activities (13,150) (922) (12,228)

Cash, cash equivalents and restricted cash at end of the period $ 346,816 $ 290,482 $ 56,334

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.

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.

Net cash provided by operating activities decreased primarily due to the rising material costs of our raw materials and higher purchases of such materials.

This was partially offset by higher proceeds from consumer loan sales of $49.6 million compared to $39.3 million in the previous year.

Consumer loan originations decreased $4.7 million to $42.7 million for the three months ended July 3, 2021 from $47.4 million for the three months ended June 27, 2020 due to origination personnel shortages.

We enter into commercial loan arrangements with distributors, communities and developers under which the Company provides funds for financing homes.

In addition, we enter into commercial loan arrangements with certain distributors of our products under which the Company provides funds for wholesale purchases.

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

Further, we invest in and develop 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.

Increased lending activity resulted in a net use of $0.2 million while the prior period net activity provided $2.6 million.

Net cash used in or provided by 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.

Greater cash was used in the current period for the purchase of debt securities.

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

We entered into secured credit facilities with independent third-party banks 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 or 25-year amortization period with a balloon payment due upon maturity.

As of July 3, 2021, the outstanding balance of the converted loans was $8.0 million with a weighted average interest rate o f 4.91% .

Contractual Commitments and Contingencies.

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Critical Accounting Policies

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.

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 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

See Note 1 to the Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements.

There have been no other significant changes to our critical accounting policies during the three months ended July 3, 2021, 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.

Other Matters

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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 2. Management’s Discussion and Analysis