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The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that the Company believes are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified to conform to current period classification. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC, and there were no disclosable subsequent events. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company's 2019 Annual Report on Form 10-K for the year ended March 30, 2019, filed with the SEC on May 28, 2019 ("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"). Actual results could differ from those estimates. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31^st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31^st. The Company's current fiscal year will end on March 28, 2020.

The Company operates 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 Company designs and builds a wide variety of affordable manufactured homes, modular homes and park model RVs in 20 factories located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through the Company's 39 Company-owned retail stores. Our financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Co. ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association 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.

Adoption of New Accounting Standards.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases ("Topic 842"). This guidance amends previous accounting considerations and treatments for leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for both finance leases and operating leases. For finance leases, the lessee recognizes interest expense and amortization of the ROU asset and for operating leases, the lessee recognizes straight-line lease expense.

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Effective March 31, 2019, the Company adopted Topic 842 using the modified retrospective transition approach. This approach provides a method for recording existing leases at adoption, without restating comparative periods. The Company also elected to adopt the package of practical expedients provided in the guidance, which allowed the Company to retain the historical classification for each lease, and provided relief from reviewing existing or expired contracts to determine if they contain leases under the new guidance. In addition, an accounting policy election was made to account for non-lease and lease components as a single lease component for all asset classes. The Company also made an accounting policy election to exclude ROU assets and lease liabilities for leases with an initial term of twelve months or less from the Consolidated Balance Sheet.

As a result of such adoption, net operating lease ROU assets and lease liabilities of $13.0 million and $13.5 million, respectively, were added to the Company’s Consolidated Balance Sheet as of March 31, 2019. The difference between the additional lease assets and lease liabilities reflects existing accrued rent balances that were reclassified to the operating lease ROU asset as of March 31, 2019. The standard did not materially impact our consolidated Net income and had no impact on cash flows. See Note 9 for additional information.

Accounting Standards Issued But Not Yet Adopted.

In June 2016, the FASB issued 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, which will now require a forward-looking impairment model based on expected losses rather than incurred losses. The guidance also requires increased disclosures. ASU 2016-13 will be effective beginning with the first quarter of the Company's fiscal year 2021 and will be applied using a modified retrospective transition method. While early adoption is permitted, the Company does not plan to early adopt the guidance. The Company is currently evaluating the effect ASU 2016-13 will have on the Company's Consolidated Financial Statements and disclosures.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates. Management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's Consolidated Financial Statements upon adoption.

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

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The following table summarizes customer contract revenues disaggregated by reportable segment and the source of revenue for the three and nine months ended December 28, 2019 and December 29, 2018 (in thousands):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Factory-built housing
U.S. Housing and Urban Development code homes	$	208,966			$	174,068			$	619,001			$	545,071
Modular homes	24,508				25,698				63,327				72,046
Park model RVs	10,219				10,037				34,831				27,743
Other (1)	13,413				10,539				41,405				35,338
Net revenue from factory-built housing	257,106				220,342				758,564				680,198
Financial services
Insurance agency commissions received from third-party insurance companies	783				704				2,212				1,979
Other (2)	15,833				12,654				45,663				39,456
Net revenue from financial services	16,616				13,358				47,875				41,435
Total Net revenue	$	273,722			$	233,700			$	806,439			$	721,633

(1)	Other factory-built housing revenue from ancillary products and services including freight, used homes and other services.

(2)	Other financial services revenue includes consumer finance and insurance revenue that is not within the scope of ASU 2014-09, Revenue from Contracts with Customers ("Topic 606").

Restricted cash consisted of the following (in thousands):

	December 28, 2019				March 30, 2019
Cash related to CountryPlace customer payments to be remitted to third parties	$	12,352			$	10,426
Other restricted cash	1,024				2,073
	$	13,376			$	12,499

Corresponding amounts are recorded in accounts payable and accrued liabilities for customer payments and deposits, respectively.

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):

	December 28, 2019				March 30, 2019				December 29, 2018				March 31, 2018
Cash and cash equivalents	$	216,882			$	187,370			$	192,869			$	186,766
Restricted cash, current	13,026				12,148				11,284				11,228
Restricted cash	350				351				454				1,264
Cash, cash equivalents and restricted cash per statement of cash flows	$	230,258			$	199,869			$	204,607			$	199,258

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Investments consisted of the following (in thousands):

	December 28, 2019				March 30, 2019
Available-for-sale debt securities	$	10,391			$	13,408
Marketable equity securities	13,473				11,073
Non-marketable equity investments	21,310				20,276
	$	45,174			$	44,757

The Company's investments in marketable equity securities consist of investments in the common stock of industrial and other companies.

As of December 28, 2019 and March 30, 2019, non-marketable equity investments included contributions of $15.0 million to 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 Company records investments in fixed maturity securities classified as available-for-sale at fair value and records the difference between fair value and cost in Accumulated other comprehensive income (loss).

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

	December 28, 2019
	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Residential mortgage-backed securities	$	5,267			$	17			$	(48	)		$	5,236
State and political subdivision debt securities	3,695				138				(2		)		3,831
Corporate debt securities	1,321				4				(1		)		1,324
	$	10,283			$	159			$	(51	)		$	10,391

	March 30, 2019
	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Residential mortgage-backed securities	$	6,625			$	3			$	(119	)		$	6,509
State and political subdivision debt securities	4,883				117				(17		)		4,983
Corporate debt securities	1,635				3				(19		)		1,619
U.S. Treasury and government debt securities	300				—				(3		)		297
	$	13,443			$	123			$	(158	)		$	13,408

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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 28, 2019
	Less than 12 Months								12 Months or Longer								Total
	Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Residential mortgage-backed securities	$	399			$	—			$	2,896			$	(48	)		$	3,295			$	(48	)
State and political subdivision debt securities	302				(1		)		102				(1		)		404				(2		)
Corporate debt securities	299				(1		)		250				—				549				(1		)
	$	1,000			$	(2	)		$	3,248			$	(49	)		$	4,248			$	(51	)

	March 30, 2019
	Less than 12 Months								12 Months or Longer								Total
	Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Residential mortgage-backed securities	$	1,066			$	(9	)		$	5,206			$	(110	)		$	6,272			$	(119	)
State and political subdivision debt securities	353				—				2,319				(17		)		2,672				(17		)
Corporate debt securities	243				(8		)		1,073				(11		)		1,316				(19		)
U.S. Treasury and government debt securities	—				—				297				(3		)		297				(3		)
	$	1,662			$	(17	)		$	8,895			$	(141	)		$	10,557			$	(158	)

Based on the Company's ability and intent to hold the investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider any investments to be other-than-temporarily impaired as of December 28, 2019.

The amortized cost and fair value of the Company's investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands). Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.

	December 28, 2019
	Amortized Cost				Fair Value
Due in less than one year	$	471			$	472
Due after one year through five years	2,081				2,092
Due after five years through ten years	262				282
Due after ten years	2,202				2,309
Mortgage-backed securities	5,267				5,236
	$	10,283			$	10,391

The Company recognizes investment gains and losses on available-for-sale debt securities when it sells or otherwise disposes of securities using the specific identification method. 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 or December 29, 2018.

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The Company recognizes 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. Net investment gains and losses on marketable equity securities for the three and nine months ended December 28, 2019 and December 29, 2018 were as follows (in thousands):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Marketable equity securities:
Net gains (losses) on securities held	$	764			$	(2,996	)		$	2,066			$	(1,698	)
Net gains (losses) on securities sold	13				11				11				(42		)
Total net gain (loss) on marketable equity securities	$	777			$	(2,985	)		$	2,077			$	(1,740	)

Inventories consisted of the following (in thousands):

	December 28, 2019				March 30, 2019
Raw materials	$	35,669			$	33,701
Work in process	12,571				12,212
Finished goods	61,904				70,290
	$	110,144			$	116,203

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

	December 28, 2019				March 30, 2019
Loans held for investment (at Acquisition Date, defined below)	$	39,403			$	44,375
Loans held for investment (originated after Acquisition Date)	20,839				20,580
Loans held for sale	19,839				11,288
Construction advances	12,626				12,883
Consumer loans receivable	92,707				89,126
Deferred financing fees and other, net	(2,284		)		(1,926		)
Allowance for loan losses	(431		)		(415		)
	$	89,992			$	86,785

The allowance for loan losses is developed at the loan level and allocated to specific individual loans or to impaired loans. A range of probable losses is calculated after giving consideration to, among other things, the loan characteristics and historical loss experience. The Company then makes a determination of the best estimate within the range of loan losses. The allowance for loan losses reflects the Company's judgment of the probable loss exposure on its loans held for investment portfolio.

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The Company acquired consumer loans receivable as part of its acquisition of Palm Harbor Homes, Inc. ("Palm Harbor") in April 2011 ("Acquisition Date"). As of the Acquisition Date, the Company determined the excess of the loan pool's scheduled contractual principal and interest payments over all cash flows expected as an amount that consists of interest that cannot be accreted into interest income (the non-accretable difference). The cash flow expected to be collected in excess of the carrying value of the acquired loans consists of interest that is accreted into interest income over the remaining life of the loans (accretable yield). Interest income on consumer loans receivable is recognized as Net revenue.

	December 28, 2019				March 30, 2019
	(in thousands)
Loans held for investment (at Acquisition Date) – contractual amount	$	87,543			$	100,595
Purchase discount:
Accretable	(32,068		)		(36,672		)
Non-accretable	(16,026		)		(19,502		)
Less loans reclassified as other assets	(46		)		(46		)
Total loans held for investment (at Acquisition Date), net	$	39,403			$	44,375

Over the life of the consumer loans held for investment (at Acquisition Date), the Company estimates cash flows expected to be collected to determine if an allowance for loan loss subsequent to the Acquisition Date is required. The weighted averages of assumptions used in the calculation of expected cash flows to be collected were as follows:

	December 28, 2019			March 30, 2019
Prepayment rate	16.6	%		17.1	%
Default rate	1.3	%		1.1	%

Assuming there was a 1% (100 basis point) unfavorable variation from the expected level, for each key assumption, the expected cash flows over the life of the portfolio, as of December 28, 2019, would decrease by approximately $817,000 and $2.3 million for the expected prepayment rate and expected default rate, respectively.

The changes in accretable yield on consumer loans receivable held for investment (at Acquisition Date) were as follows (in thousands):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Balance at the beginning of the period	$	34,108			$	40,937			$	36,672			$	44,481
Accretion	(1,606		)		(1,904		)		(5,086		)		(5,771		)
Reclassifications (from) to non-accretable discount	(434		)		(376		)		482				(53		)
Balance at the end of the period	$	32,068			$	38,657			$	32,068			$	38,657

Total consumer loans held for investment had the following characteristics:

	December 28, 2019			March 30, 2019
Weighted average contractual interest rate	8.42	%		8.49	%
Weighted average effective interest rate	9.18	%		9.11	%
Weighted average months to maturity	163			163

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The following table disaggregates CountryPlace's gross consumer loans receivable for each class by portfolio segment and credit quality indicator as of the time of origination (in thousands):

	December 28, 2019
	Consumer Loans Held for Investment
	Securitized 2005				Securitized 2007				Unsecuritized				Construction Advances				Consumer Loans Held For Sale				Total
Asset Class
Credit Quality Indicator (FICO® score)
Home-only loans
0-619	$	362			$	219			$	245			$	—			$	—			$	826
620-719	7,319				5,467				10,873				—				—				23,659
720+	7,933				4,660				7,392				—				538				20,523
Other	46				—				339				—				—				385
Subtotal	15,660				10,346				18,849				—				538				45,393
Conforming mortgages
0-619	—				—				83				—				—				83
620-719	—				—				2,402				8,321				12,173				22,896
720+	—				—				1,061				4,305				7,128				12,494
Subtotal	—				—				3,546				12,626				19,301				35,473
Non-conforming mortgages
0-619	76				277				828				—				—				1,181
620-719	764				3,820				2,528				—				—				7,112
720+	1,115				1,992				230				—				—				3,337
Other	—				—				181				—				—				181
Subtotal	1,955				6,089				3,767				—				—				11,811
Other loans	—				—				30				—				—				30
	$	17,615			$	16,435			$	26,192			$	12,626			$	19,839			$	92,707

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	March 30, 2019
	Consumer Loans Held for Investment
	Securitized 2005				Securitized 2007				Unsecuritized				Construction Advances				Consumer Loans Held For Sale				Total
Asset Class
Credit Quality Indicator (FICO® score)
Home-only loans
0-619	$	401			$	245			$	266			$	—			$	—			$	912
620-719	8,448				5,996				10,266				—				—				24,710
720+	9,090				5,419				8,436				—				617				23,562
Other	47				—				390				—				—				437
Subtotal	17,986				11,660				19,358				—				617				49,621
Conforming mortgages
0-619	—				—				83				—				460				543
620-719	—				—				2,202				8,061				6,885				17,148
720+	—				—				684				4,822				3,326				8,832
Subtotal	—				—				2,969				12,883				10,671				26,523
Non-conforming mortgages
0-619	78				344				991				—				—				1,413
620-719	994				4,008				2,687				—				—				7,689
720+	1,238				2,053				369				—				—				3,660
Other	—				—				214				—				—				214
Subtotal	2,310				6,405				4,261				—				—				12,976
Other loans	—				—				6				—				—				6
	$	20,296			$	18,065			$	26,594			$	12,883			$	11,288			$	89,126

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 28, 2019, 41% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 14% was concentrated in Florida. As of March 30, 2019, 44% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 12% 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 28, 2019 or March 30, 2019.

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. On a monthly basis, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled approximately $1.1 million and $1.5 million as of December 28, 2019 and March 30, 2019, 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 $1.5 million as of December 28, 2019 and March 30, 2019, respectively.

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The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of the Company's independent distributors, communities and developers; and (ii) amounts loaned by the Company under participation financing programs.

Under the terms of the direct programs, the Company provides funds for financed home purchases by independent distributors, communities 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, the Company provides loans to independent floor plan lenders, representing a significant portion of the funds that such financiers then lend to distributors to finance their inventory purchases. The participation commercial loan 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):

	December 28, 2019				March 30, 2019
Direct loans receivable	$	44,619			$	42,899
Participation loans receivable	148				495
Allowance for loan losses	(162		)		(180		)
Deferred financing fees, net	(248		)		(208		)
	$	44,357			$	43,006

The commercial loans receivable balance had the following characteristics:

	December 28, 2019			March 30, 2019
Weighted average contractual interest rate	6.1	%		5.7	%
Weighted average months to maturity	10			7

The Company evaluates the potential for loss from its participation loan programs based on the independent lender's overall financial stability, as well as historical experience, and has determined that an applicable allowance for loan losses was not needed at December 28, 2019 or March 30, 2019.

With respect to direct programs with communities and developers, 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. For direct programs with independent distributors, the risk of loss is spread over numerous borrowers. Borrower activity is monitored in conjunction with third-party service providers, where applicable, to estimate the potential for loss on the related notes receivable, considering potential exposures, including repossession costs, remarketing expenses, impairment of value and the risk of collateral loss. The Company has historically been able to sell repossessed homes, thereby mitigating loss exposure. If a default occurs and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the Company determines that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, a specific reserve is determined and recorded within the estimated allowance for loan losses. The Company recorded an allowance for loan losses of $162,000 and $160,000 at December 28, 2019 and December 29, 2018, respectively.

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The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses applicable to the direct programs (in thousands):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Balance at beginning of period	$	163			$	135			$	180			$	42
Change in estimated loan losses, net	(1		)		25				(18		)		118
Loans charged off, net of recoveries	—				—				—				—
Balance at end of period	$	162			$	160			$	162			$	160

The following table disaggregates commercial loans receivable and the estimated allowance for loan losses for each class of financing receivable by evaluation methodology (in thousands):

	Direct Commercial Loans								Participation Commercial Loans
	December 28, 2019				March 30, 2019				December 28, 2019				March 30, 2019
Commercial loans receivable:
Collectively evaluated for impairment	$	16,186			$	18,018			$	—			$	—
Individually evaluated for impairment	28,433				24,881				148				495
	$	44,619			$	42,899			$	148			$	495
Allowance for loan losses:
Collectively evaluated for impairment	$	(162	)		$	(180	)		$	—			$	—
Individually evaluated for impairment	—				—				—				—
	$	(162	)		$	(180	)		$	—			$	—

Loans are subject to regular review and are given management's attention whenever a problem situation appears to be developing. Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due. The Company's policy is to place loans on non-accrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower is unable or unwilling to make payments as they become due. The Company will resume accrual of interest once these factors have been remedied. At December 28, 2019, there were no commercial loans 90 days or more past due that were still accruing interest. Payments received on non-accrual loans are recorded on a cash basis, first to interest and then to principal. At December 28, 2019, the Company was not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.

The following table disaggregates the Company's commercial loans receivable by class and credit quality indicator (in thousands):

	Direct Commercial Loans								Participation Commercial Loans
	December 28, 2019				March 30, 2019				December 28, 2019				March 30, 2019
Risk profile based on payment activity:
Performing	$	44,619			$	42,899			$	148			$	495
Watch list	—				—				—				—
Nonperforming	—				—				—				—
	$	44,619			$	42,899			$	148			$	495

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The Company had concentrations of commercial loans receivables related to factory-built homes in excess of 10% of the commercial loans receivables principal balance located in the following states:

	December 28, 2019			March 30, 2019
California	20.4	%		21.1	%
Arizona	17.5	%		16.3	%

Additionally, at March 30, 2019, 10.4% of the commercial loans receivables principal balance was concentrated in Oregon. The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses.

As of December 28, 2019 and March 30, 2019, the Company had concentrations with one independent third-party and its affiliates that equaled 19.8% and 22.0% of the commercial loans receivable principal balance outstanding, respectively, all of which was secured.

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

	December 28, 2019				March 30, 2019
Property, plant and equipment, at cost:
Land	$	21,723			$	21,359
Buildings and improvements	50,914				42,976
Machinery and equipment	30,150				27,053
	102,787				91,388
Accumulated depreciation	(31,380		)		(27,904		)
	$	71,407			$	63,484

Depreciation expense was $1.4 million and $1.1 million for the three months ended December 28, 2019 and December 29, 2018, respectively. For the nine months ended December 28, 2019 and December 29, 2018, depreciation expense was $3.8 million and $3.2 million, respectively.

Included in the amounts above are certain assets under finance leases. See Note 9 for additional information.

The Company leases certain production and retail locations, office space and equipment. The Company determines if a contract or arrangement is, or contains, a lease at inception. Lease agreements with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet. Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term by one to three years or more. Generally, the exercise of lease renewal options is at the Company’s discretion. Some agreements also include options to purchase the leased property. The estimated life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option that the Company is reasonably certain to exercise.

 Certain of the Company's lease agreements include rental payments adjusted periodically for inflation. These lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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 ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments in accordance with the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the Company’s leases do not provide a readily determinable implicit interest rate, the Company must estimate an incremental borrowing rate. In determining the estimated incremental borrowing rate, the Company considers the lease period and comparable market interest rates, as well as any other information available at the lease commencement date. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

 The following table provides information about the financial statement classification of the Company's lease balances reported within the Consolidated Balance Sheets as of December 28, 2019 (in thousands):

	Classification		December 28, 2019
ROU assets
Operating lease assets	Operating lease right-of-use assets		$	10,710
Finance lease assets	Property, plant and equipment, net (1)		1,675
Total lease assets			$	12,385
Lease Liabilities
Current:
Operating lease liabilities	Accrued liabilities		$	3,809
Finance lease liabilities	Current portion of securitized financings and other		717
Non-current:
Operating lease liabilities	Operating lease liabilities		7,795
Finance lease liabilities	Securitized financings and other		303
Total lease liabilities			$	12,624

(1) Recorded net of accumulated amortization of $99,000 as of December 28, 2019.

The following table provides information about the financial statement classification of the Company's lease expenses reported within the Consolidated Statements of Comprehensive Income for the three and nine months ended December 28, 2019 (in thousands):

				December 28, 2019
Lease Expense Category		Classification		Three Months Ended				Nine Months Ended
Operating lease expense (1)
		Cost of sales		$	208			$	625
		Selling, general and administrative expenses		780				2,309
Finance lease expense:
Amortization of leased assets		Cost of sales		10				29
Interest on lease liabilities		Interest expense		13				40
Total lease expense				$	1,011			$	3,003

(1) Excludes short-term and variable lease expenses, which are immaterial.

Cash payments for operating leases for the three and nine months ended December 28, 2019 were $890,000 and $2.5 million, respectively. Cash payments for finance leases for the three and nine months ended December 28, 2019 were $36,000 and $106,000, respectively.

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The present value of the minimum payments for future fiscal years under non-cancelable leases as of December 28, 2019 were as follows (in thousands):

	Operating Leases				Finance Leases				Total
Remainder of 2020	$	880			$	666			$	1,546
2021	3,814				79				3,893
2022	2,882				73				2,955
2023	1,874				73				1,947
2024	1,529				73				1,602
Thereafter	3,367				122				3,489
Total lease payments	14,346				1,086				15,432
Less: Amount representing interest	(2,742		)		(66		)		(2,808		)
Present value of lease liabilities	$	11,604			$	1,020			$	12,624

The following table provides information about the weighted average remaining lease terms and weighted average discount rates as of December 28, 2019:

	Remaining Lease Term (Years)		Discount Rate
Operating leases	4.7		4.5	%
Finance leases	2.3		5.0	%

Operating Leases pre-Topic 842 adoption:

 The Company has non-cancelable operating leases with third parties, primarily for administrative and distribution center space and computer equipment. The Company's facility leases generally provide for periodic rent increases and many contain escalation clauses and renewal options. Rent expense for these third-party operating leases was $5.2 million for the fiscal year ended March 30, 2019 and $5.3 million for each of the fiscal years ended March 31, 2018 and April 1, 2017, and is included in Cost of sales and Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income.

 Future minimum lease commitments for future fiscal years under all non-cancelable operating leases having a remaining term in excess of one year as of March 30, 2019 were as follows (in thousands):

2020	$	2,292
2021	2,197
2022	1,389
2023	1,072
Thereafter	1,372
Total remaining lease payments	$	8,322

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

	December 28, 2019												March 30, 2019
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Indefinite-lived:
Goodwill	$	74,665			$	—			$	74,665			$	72,920			$	—			$	72,920
Trademarks and trade names	8,900				—				8,900				7,200				—				7,200
State insurance licenses	1,100				—				1,100				1,100				—				1,100
Total indefinite-lived intangible assets	84,665				—				84,665				81,220				—				81,220
Finite-lived:
Customer relationships	11,300				(6,305		)		4,995				7,100				(5,970		)		1,130
Other	1,424				(1,122		)		302				1,384				(1,038		)		346
	$	97,389			$	(7,427	)		$	89,962			$	89,704			$	(7,008	)		$	82,696

Amortization expense recognized on intangible assets was $188,000 and $80,000 for the three months ending December 28, 2019 and December 29, 2018, respectively. Amortization expense recognized on intangible assets for the nine months ended December 28, 2019 and December 29, 2018 was $419,000 and $244,000, respectively.

Accrued liabilities consisted of the following (in thousands):

	December 28, 2019				March 30, 2019
Salaries, wages and benefits	$	24,412			$	25,257
Customer deposits	20,437				17,804
Unearned insurance premiums	18,614				18,305
Estimated warranties	17,959				17,069
Accrued volume rebates	12,431				10,412
Company repurchase options on certain loans sold	6,178				3,810
Insurance loss reserves	5,411				6,686
Accrued self-insurance	5,259				5,171
Operating lease liabilities	3,809				—
Reserve for repurchase commitments	2,504				2,362
Accrued taxes	1,206				1,767
Capital lease obligation	—				1,075
Other	14,658				15,463
	$	132,878			$	125,181

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

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Balance at beginning of period	$	18,563			$	16,905			$	17,069			$	16,638
Purchase accounting additions	—				—				1,192				—
Charged to costs and expenses	7,269				10,665				21,855				23,607
Payments and deductions	(7,873		)		(10,028		)		(22,157		)		(22,703		)
Balance at end of period	$	17,959			$	17,542			$	17,959			$	17,542

Debt and finance lease obligations primarily consisted of amounts related to loans sold that did not qualify for loan sale accounting treatment and lease obligations in which it is expected that the Company will obtain ownership of a leased asset at the end of the lease term. The following table summarizes debt and finance lease obligations (in thousands):

	December 28, 2019				March 30, 2019
2007-1 securitized financings (acquired as part of the Palm Harbor transaction)	$	—			$	18,364
Secured credit facilities	10,842				11,289
Other secured financings	4,125				4,487
Finance lease liabilities	1,020				—
	$	15,987			$	34,140

Prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed an initial securitization (2005-1) and a second securitized borrowing (2007-1). The Company repurchased these loan portfolios in January 2019 and August 2019, respectively, eliminating the related securitized financings.

Acquired securitized financings were recorded at fair value at the time of acquisition, which resulted in a discount, and subsequently are accounted for in a manner similar to FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality to accrete the discount.

Prior to the repurchase, over the life of the loans, the Company estimated cash flows expected to be paid on the securitized financings. The Company evaluated at the balance sheet date whether the present value of its securitized financings, determined using the effective interest rate, had increased or decreased. The amount of accretable yield recognized on a prospective basis over the securitized financing's remaining life was adjusted by the present value of any subsequent change in cash flows expected to be paid.

The changes in accretable yield on securitized financings were as follows (in thousands):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Balance at the beginning of the period	$	—			$	1,834			$	491			$	3,515
Accretion	—				(764		)		(577		)		(2,341		)
Adjustment to cash flows	—				(2		)		86				(106		)
Balance at the end of the period	$	—			$	1,068			$	—			$	1,068

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The Company has 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. This draw down period expired in September 2019. The proceeds are used by the Company 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 period, 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 is 80% of the outstanding collateral principal balance, with the Company providing the remaining funds. As of December 28, 2019, the outstanding balance of the converted loans was $10.8 million at a weighted average interest rate of 4.91%.

See Note 9 for further discussion of the finance lease obligations.

Standard Casualty is primarily a specialty writer of manufactured home physical damage insurance. Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. The ceded reinsurance agreements provide Standard Casualty with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. 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.

The effects of reinsurance on premiums written and earned were as follows (in thousands):

	Three Months Ended
	December 28, 2019								December 29, 2018
	Written				Earned				Written				Earned
Direct premiums	$	4,654			$	4,756			$	4,190			$	4,304
Assumed premiums—nonaffiliate	5,918				6,676				5,860				6,385
Ceded premiums—nonaffiliate	(3,071		)		(3,071		)		(3,475		)		(3,475		)
Net premiums	$	7,501			$	8,361			$	6,575			$	7,214

	Nine Months Ended
	December 28, 2019								December 29, 2018
	Written				Earned				Written				Earned
Direct premiums	$	13,866			$	13,979			$	12,551			$	12,764
Assumed premiums—nonaffiliate	20,191				19,703				19,074				18,969
Ceded premiums—nonaffiliate	(9,087		)		(9,087		)		(9,457		)		(9,457		)
Net premiums	$	24,970			$	24,595			$	22,168			$	22,276

Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $300,000 per claim, of which Standard Casualty cedes $175,000 of the risk of loss per reinsurance. Therefore, Standard Casualty's risk of loss is limited to $125,000 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 $1.5 million per occurrence, up to a maximum of $43.5 million in the aggregate.

Purchasing reinsurance contracts protects Standard Casualty from frequency and/or severity of losses incurred on insurance policies issued, such as in the case of a catastrophe that generates a large number of serious claims on multiple policies at the same time. Under these agreements, the Company may be required to repurchase and reestablish its reinsurance contracts for the remainder of the year to the extent that they have been utilized.

The Company has reinsurance reinstatement premium protection coverage, which will assist in reducing premium repurchase expense in the event of a catastrophic weather claim.

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The Company's deferred tax assets primarily result from financial statement accruals not currently deductible for tax purposes and differences in the acquired basis of certain assets, and its deferred tax liabilities primarily result from tax amortization of goodwill and other intangible assets.

The Company complies with the provisions of ASC 740, Income Taxes ("ASC 740"), which clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before recognition in the financial statements. ASC 740 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The amount of unrecognized tax benefits recorded by the Company is insignificant and the impact on the effective tax rate if all unrecognized tax benefits were recognized would also be insignificant. The Company classifies interest and penalties related to unrecognized tax benefits in tax expense.

Income tax returns are filed in the U.S. federal jurisdiction and in several state jurisdictions. In general, the Company is no longer subject to examination by the Internal Revenue Service for years before fiscal year 2017 or state and local income tax examinations by tax authorities for years before fiscal year 2015. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to the Company's financial position. The total amount of unrecognized tax benefit related to any particular tax position is not anticipated to change significantly within the next 12 months. The provision for income taxes generally represents income taxes paid or payable for the current year plus the change in deferred taxes during the year.

Repurchase Contingencies. The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent distributors of its 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 risk of loss under these agreements is spread over numerous distributors. The price the Company is obligated to pay generally declines over the period of the agreement (generally 18 to 36 months, calculated from the date of sale to the distributor) and the risk of loss is further reduced by the resale value of the repurchased homes. The maximum amount for which the Company was contingently liable under such agreements approximated $77.2 million and $77.1 million at December 28, 2019 and March 30, 2019, respectively, without reduction for the resale value of the homes. The Company applies ASC 460, Guarantees ("ASC 460"), and ASC 450-20, Loss Contingencies ("ASC 450-20"), to account for its liability for repurchase commitments. Under the provisions of ASC 460, the Company records the greater of the estimated value of the non-contingent obligation (accounted for pursuant to ASC 460) or a contingent liability for each repurchase arrangement (accounted for under the provisions of ASC 450-20). The Company recorded an estimated liability of $2.5 million and $2.4 million at December 28, 2019 and March 30, 2019, respectively, related to the commitments pertaining to these agreements.

Letters of Credit. To secure certain reinsurance contracts, Standard Casualty maintains an irrevocable letter of credit of $11.0 million to provide assurance that Standard Casualty will fulfill its reinsurance obligations. This letter of credit is secured by certain of the Company's investments. There were no amounts outstanding against the letter of credit at either December 28, 2019 or March 30, 2019.

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.

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Loan contracts with off-balance sheet commitments are summarized below (in thousands):

	December 28, 2019				March 30, 2019
Construction loan contract amount	$	31,859			$	28,230
Cumulative advances	(12,626		)		(12,883		)
Remaining construction contingent commitment	$	19,233			$	15,347

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, whole-loan purchasers and lenders, representations and warranties related to the loans sold or financed. These representations and warranties generally relate to the ownership of the loan, the validity of the lien securing the loan, the loan's compliance with the criteria for inclusion in the sale transactions, including compliance with underwriting standards or loan criteria established by the buyer, and CountryPlace's ability to deliver documentation in compliance with applicable laws. Generally, representations and warranties may be enforced at any time over the life of the loan. Upon a breach of a representation, CountryPlace may be required to repurchase the loan or to indemnify a party for incurred losses. Repurchase demands and claims for indemnification payments are reviewed on a loan-by-loan basis to validate if there has been a breach requiring repurchase. CountryPlace manages the risk of repurchase through underwriting and quality assurance practices and by servicing the mortgage loans to investor standards. The Company maintains a reserve for these contingent repurchase and indemnification obligations. This reserve of $1.0 million as of December 28, 2019 and March 30, 2019, included in Accrued liabilities, reflects management's estimate of probable loss. CountryPlace considers a variety of assumptions, including borrower performance (both actual and estimated future defaults), historical repurchase demands and loan default rates to estimate the liability for loan repurchases and indemnifications. During the nine months ended December 28, 2019, no claim request resulted in the execution of an indemnification agreement or in the repurchase of a loan.

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 the Company 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 such, outstanding IRLCs are subject to interest rate risk and related loan sale price risk during the period from the date of the IRLC through the earlier of the loan sale date or IRLC expiration date. The loan commitments generally range between 30 and 180 days; however, borrowers are not obligated to close the related loans. As a result, the Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs unless the commitment is successfully paired with another loan that may mitigate losses from fallout.

As of December 28, 2019, CountryPlace had outstanding IRLCs with a notional amount of $15.2 million, which are recorded at fair value in accordance with ASC 815, Derivatives and Hedging ("ASC 815"). ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair value of IRLCs is recorded in Prepaid expenses and other current assets in the Consolidated Balance Sheets. The fair value of IRLCs is based on the value of the underlying loan adjusted for: (1) estimated cost to complete and originate the loan and (2) the estimated percentage of IRLCs that will result in closed loans. The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on loans held for sale. During the three and nine months ended December 28, 2019, the Company recognized losses of $5,000 and $8,000, respectively, on outstanding IRLCs. During the three and nine months ended December 29, 2018, the Company recognized gains of $13,000 and $25,000, respectively, on outstanding IRLCs.

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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 28, 2019, CountryPlace had $55.9 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 forward 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 and nine months ended December 28, 2019, the Company recognized gains of $79,000 and $163,000 on forward sales and whole loan sale commitments, respectively. The Company recognized losses of $304,000 and $242,000 on forward sales and whole loan sale commitments during the three and nine months ended December 29, 2018, respectively.

Legal Matters. Since August 2018, the Company has been cooperating with an investigation by the SEC's enforcement staff in Los Angeles regarding trading in another public company’s securities by the Company, its former Chief Executive Officer and others outside the Company. The Audit Committee of the Board of Directors conducted and completed an internal investigation led by independent legal counsel and other advisers to assess the Company's trading. The results of the Audit Committee’s work have been shared with the Company’s auditors, listing exchange and with the SEC staff. The Company has also made internal records and personnel available to the SEC staff and intends to continue cooperating with the SEC on this matter.  

The Company is party to certain other legal proceedings that arise in the ordinary course and are incidental to its business. Certain of the claims pending against the Company in these proceedings allege, among other things, breach of contract, product liability and warranty, personal injury and employment. Although litigation is inherently uncertain, based on past experience and the information currently available, except as discussed above, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. 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 the Company's consolidated financial position, liquidity or results of operations in any future reporting periods.

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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
	Shares			Amount
Balance, March 30, 2019	9,098,320			$	91			$	249,447			$	280,078			$	(28	)		$	529,588
Net income	—			—				—				21,282				—				21,282
Issuance of common stock under stock incentive plans	13,304			—				(1,252		)		—				—				(1,252		)
Stock-based compensation	—			—				630				—				—				630
Other comprehensive income, net	—			—				—				—				89				89
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	15,842			—				941				—				—				941
Stock-based compensation	—			—				818				—				—				818
Other comprehensive income, 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

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The following table represents changes in stockholders' equity for each quarterly period during the nine months ended December 29, 2018 (dollars in thousands):

								Additional paid-in capital				Retained earnings				Accumulated other comprehensive income (loss)				Total
	Common Stock
	Shares			Amount
Balance, March 31, 2018	9,044,858			$	90			$	246,197			$	209,381			$	1,438			$	457,106
Cumulative effect of implementing ASU 2016-01, net	—			—				—				1,621				(1,621		)		—
Cumulative effect of implementing Topic 606, net	—			—				—				454				—				454
Net income	—			—				—				19,691				—				19,691
Issuance of common stock under stock incentive plans	16,448			1				(2,169		)		—				—				(2,168		)
Stock-based compensation	—			—				599				—				—				599
Other comprehensive income, net	—			—				—				—				5				5
Balance, June 30, 2018	9,061,306			$	91			$	244,627			$	231,147			$	(178	)		$	475,687
Net income	—			—				—				15,576				—				15,576
Issuance of common stock under stock incentive plans	36,053			—				1,995				—				—				1,995
Stock-based compensation	—			—				1,516				—				—				1,516
Other comprehensive loss, net	—			—				—				—				(26		)		(26		)
Balance, September 29, 2018	9,097,359			$	91			$	248,138			$	246,723			$	(204	)		$	494,748
Net income	—			—				—				13,384				—				13,384
Issuance of common stock under stock incentive plans	961			—				59				—				—				59
Stock-based compensation	—			—				821				—				—				821
Other comprehensive income, net	—			—				—				—				60				60
Balance, December 29, 2018	9,098,320			$	91			$	249,018			$	260,107			$	(144	)		$	509,072

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The Company maintains stock incentive plans whereby stock option grants or awards of restricted stock may be made to certain officers, directors and key employees. The plans, which are shareholder approved, permit the award of up to 1,650,000 shares of the Company's common stock, of which 235,065 shares were still available for grant as of December 28, 2019. Upon option exercise, new shares of the Company's common stock are issued and when restricted stock vests, restricted stock shares issued become unrestricted. Awards may not be granted below 100% of the fair market value of the Company's common stock at the date of grant and generally expire seven years from the date of grant. Stock options and awards of restricted stock vest over a defined period or based on certain performance criteria, as determined by the plan administrator (the Compensation Committee of the Board of Directors, which consists of independent directors), but typically is no more than five years. The stock incentive plans provide for accelerated vesting of stock options and removal of restrictions on restricted stock awards upon a change in control (as defined in the plans).

Stock-based compensation charged against income for the three and nine months ended December 28, 2019 was $820,000 and $2.3 million, respectively. The Company recorded stock-based compensation expense of $821,000 and $2.9 million for the three and nine months ended December 29, 2018, respectively.

As of December 28, 2019, total unrecognized compensation cost related to stock options was approximately $6.1 million and the related weighted-average period over which it is expected to be recognized is approximately 2.83 years.

Stock Options. The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes-Merton option pricing model, which requires the input of assumptions. The Company estimates the risk-free interest rate based on the U.S. Treasury security rate in effect at the time of the grant. The expected life of the options, volatility and dividend rates are estimated based on historical data. 

The following table summarizes stock option activity for the nine months ended December 28, 2019:

	Number of Options
Outstanding at March 30, 2019	411,111
Granted	74,750
Exercised	(66,572	)
Canceled or expired	(1,000	)
Outstanding at December 28, 2019	418,289
Exercisable at December 28, 2019	212,290

Restricted Stock Awards. The fair value of restricted stock awards is estimated as the closing price of the Company's common stock on the date of grant. A summary of restricted stock award activity is as follows:

	Number of Shares
	Performance-Based Awards			Service-Based Awards			Total
Outstanding at March 30, 2019	—			—			—
Awarded	7,305			4,650			11,955
Released	—			(400	)		(400	)
Canceled or expired	—			—			—
Outstanding at December 28, 2019	7,305			4,250			11,555
Unvested target stock awards that may vest based upon performance conditions through fiscal year 2022	7,305

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Basic earnings per common share is computed based on the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed based on the combination of dilutive common share equivalents, comprised of shares issuable under the Company's stock-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money options to purchase shares, which is calculated based on the average share price for each period using the treasury stock method. 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
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Net income	$	20,898			$	13,384			$	63,065			$	48,651
Weighted average shares outstanding:
Basic	9,138,202				9,097,993				9,120,241				9,075,156
Effect of dilutive securities	155,739				172,227				138,962				207,022
Diluted	9,293,941				9,270,220				9,259,203				9,282,178
Net income per share:
Basic	$	2.29			$	1.47			$	6.91			$	5.36
Diluted	$	2.25			$	1.44			$	6.81			$	5.24

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three and nine months ended December 28, 2019 were 14,482 and 29,971, respectively. In addition, 7,305 outstanding restricted share awards were excluded from the calculation of diluted earnings per share for both the three and nine months ended December 28, 2019, because the underlying performance criteria had not yet been met. For the three and nine months ended December 29, 2018, anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share were 21,894 and 8,115, respectively.

The book value and estimated fair value of the Company's financial instruments were as follows (in thousands):

	December 28, 2019								March 30, 2019
	Book Value				Estimated Fair Value				Book Value				Estimated Fair Value
Available-for-sale debt securities (1)	$	10,391			$	10,391			$	13,408			$	13,408
Marketable equity securities (1)	13,473				13,473				11,073				11,073
Non-marketable equity investments (2)	21,310				21,310				20,276				20,276
Consumer loans receivable (3)	89,992				103,141				86,785				101,001
Interest rate lock commitment derivatives (4)	3				3				11				11
Forward loan sale commitment derivatives (4)	104				104				(59		)		(59		)
Commercial loans receivable (5)	44,357				44,313				43,006				43,582
Securitized financings and other (6)	(15,987		)		(19,448		)		(34,140		)		(38,101		)

(1)	For Level 1 classified securities, the fair value is based on quoted market prices. The fair value of Level 2 securities is based on other inputs, as further described below.

(2)	The fair value approximates book value based on the non-marketable nature of the investments.

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(3)

Includes consumer loans receivable held for investment, held for sale and construction advances. The fair value of the loans held for investment is based on the discounted value of the remaining principal and interest cash flows. The fair value of the loans held for sale is estimated based on recent GSE mortgage-backed bond prices. The fair value of the construction advances approximates book value and the sales price of these loans.

(4)	The fair values are based on changes in GSE mortgage-backed bond prices and, additionally for IRLCs, pull through rates.

(5)	The fair value is estimated using market interest rates of comparable loans.

(6)	The fair value is estimated using recent public transactions of similar asset-backed securities.

In accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 –	Quoted prices in active markets for identical assets or liabilities.
Level 2 –	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

When the Company uses observable market prices for identical securities that are traded in less active markets, it classifies such securities as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs.

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

	December 28, 2019
	Total				Level 1				Level 2				Level 3
Residential mortgage-backed securities (1)	$	5,236			$	—			$	5,236			$	—
State and political subdivision debt securities (1)	3,831				—				3,831				—
Corporate debt securities (1)	1,324				—				1,324				—
Marketable equity securities (2)	13,473				13,473				—				—
Interest rate lock commitment derivatives (3)	3				—				—				3
Forward loan sale commitment derivatives (3)	104				—				—				104
Mortgage servicing rights (4)	1,263				—				—				1,263

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	March 30, 2019
	Total				Level 1				Level 2				Level 3
U.S Treasury and government debt securities(1)	$	297			$	—			$	297			$	—
Residential mortgage-backed securities (1)	6,509				—				6,509				—
State and political subdivision debt securities (1)	4,983				—				4,983				—
Corporate debt securities (1)	1,619				—				1,619				—
Marketable equity securities (2)	11,073				11,073				—				—
Interest rate lock commitment derivatives (3)	11				—				—				11
Forward loan sale commitment derivatives (3)	(59		)		—				—				(59		)
Mortgage servicing rights (4)	1,372				—				—				1,372

(1)	Unrealized gains or losses on investments are recorded in Accumulated other comprehensive income (loss) 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 recognized in current period earnings through Cost of sales.

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

No transfers between Level 1, Level 2 or Level 3 occurred during the nine months ended December 28, 2019. The Company's policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

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 28, 2019
	Total				Level 1				Level 2				Level 3
Loans held for investment	$	69,932			$	—			$	—			$	69,932
Loans held for sale	20,583				—				—				20,583
Loans held—construction advances	12,626				—				—				12,626
Commercial loans receivable	44,313				—				—				44,313
Securitized financings and other	(19,448		)		—				(19,448		)		—
Non-marketable equity investments	21,310				—				—				21,310

	March 30, 2019
	Total				Level 1				Level 2				Level 3
Loans held for investment	$	76,319			$	—			$	—			$	76,319
Loans held for sale	11,799				—				—				11,799
Loans held—construction advances	12,883				—				—				12,883
Commercial loans receivable	43,582				—				—				43,582
Securitized financings and other	(38,101		)		—				(38,101		)		—
Non-marketable equity investments	20,276				—				—				20,276

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No recent sales have been executed in an orderly market of manufactured home loan portfolios with comparable product features, credit characteristics or performance. Therefore, loans held for investment are measured using Level 3 inputs that are calculated using estimated discounted future cash flows from the evaluation of loan credit quality and performance history to determine expected prepayments and defaults on the portfolio, discounted with rates considered to reflect current market conditions. Loans held for sale are measured at the lower of cost or fair value using inputs that consist of quoted market prices for mortgage-backed securities or investor purchase commitments for similar types of loan commitments on hand from investors. These loans are held for relatively short periods, typically no more than 45 days. As a result, changes in loan-specific credit risk are not a significant component of the change in fair value and changes are largely driven by changes in interest rates or investor yield requirements. The cost of loans held for sale was lower than the fair value as of December 28, 2019. As noted above, activity in the manufactured housing asset-backed securities market is infrequent with no reliable market price information. As such, to determine the fair value of securitized financings, management evaluates the credit quality and performance history of the underlying loan assets to estimate the expected prepayment of the debt and credit spreads, based on market activity for similar rated bonds from other asset classes with similar durations.

The Company records impairment losses on long-lived assets held for sale when the fair value of such long-lived assets is below their carrying values. The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. No impairment charges were recorded during the nine months ended December 28, 2019.

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. MSRs are initially recorded at fair value. Changes in fair value subsequent to the initial capitalization are recorded in the Company's results of operations. The Company recognizes MSRs on all loans sold to investors that meet the requirements for sale accounting and for which servicing rights are retained.

The Company applies fair value accounting to MSRs, with all changes in fair value recorded to Net revenue in accordance with ASC 860-50, Servicing Assets and Liabilities. The fair value of MSRs is based on the present value of the expected future cash flows related to servicing these loans. The revenue components of the cash flows are servicing fees, interest earned on custodial accounts and other ancillary income. The expense components include operating costs related to servicing the loans (including delinquency and foreclosure costs) and interest expenses on servicer advances that are consistent with the assumptions major market participants use in valuing MSRs. The expected cash flows are primarily impacted by prepayment estimates, delinquencies and market discounts. Generally, the value of MSRs is expected to increase when interest rates rise and decrease when interest rates decline, due to the effect those changes in interest rates have on prepayment estimates. Other factors noted above as well as the overall market demand for MSRs may also affect the valuation.

	December 28, 2019				March 30, 2019
Number of loans serviced with MSRs	4,632				4,557
Weighted average servicing fee (basis points)	31.12				31.59
Capitalized servicing multiple	70.53		%		77.97		%
Capitalized servicing rate (basis points)	21.95				24.63
Serviced portfolio with MSRs (in thousands)	$	575,313			$	556,934
Mortgage servicing rights (in thousands)	$	1,263			$	1,372

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The Company has non-marketable equity investments in other distribution operations outside of Company-owned retail locations. In the ordinary course of business, the Company sells homes and lends to certain of these operations through its commercial lending programs. For the three and nine months ended December 28, 2019, the total sales to related parties were $13.3 million and $37.1 million, respectively. Total sales to related parties for the three and nine months ended December 29, 2018 were $9.0 million and $30.2 million, respectively. As of December 28, 2019 and March 30, 2019, there were a total of $8.3 million and $6.2 million of commercial loans outstanding with certain related parties, respectively.

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 the Company’s reach. The transaction was accounted for as a business combination and the results of operations have been included in the accompanying Consolidated Financial Statements since the date of acquisition.

The acquisition-date fair value of the total consideration was $16.5 million, which is subject to future adjustments. Neither Destiny Homes nor the Company incurred debt in connection with the purchase or subsequent operations.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands). Certain estimated values are not yet finalized and are subject to change, which could be significant. The allocation of the purchase price is still preliminary due to the short duration since the acquisition date and will be finalized upon completion of the analysis of the fair values of Destiny Home’s assets and specified liabilities. The Company will finalize the amounts recognized as it obtains the information necessary to complete the analysis. We expect to finalize these amounts as soon as possible but no later than one year from the acquisition date.

	August 2, 2019
Accounts receivable	$	908
Inventories	5,508
Property, plant and equipment, net	5,244
Other current assets	3,296
Intangible assets (1)	5,940
Total identifiable assets acquired	20,896
Accounts payable and accrued liabilities	(6,174		)
Net identifiable assets acquired	14,722
Goodwill	1,745
Net assets acquired	$	16,467

(1) Includes $1.7 million assigned to trademarks and trade names, which are considered indefinite lived intangible assets and are not subject to amortization and $4.2 million assigned to a customer-related intangible subject to a useful life of 10 years amortized on a straight-line basis.

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Since the acquisition date, Destiny Homes contributed Net revenue of $11.2 million and $17.6 million for the three and nine months ended December 28, 2019, respectively. Destiny Homes increased consolidated Net income on the Company's Consolidated Statements of Comprehensive Income for the three and nine months ended December 28, 2019 by $168,000 and $32,000, respectively. Net income from the Destiny Homes acquisition included required purchase accounting adjustments whereby home product inventory is recorded at fair value upon acquisition. This had the effect of eliminating profits from the related home sales after the acquisition date.

Pro Forma Impact of Acquisition. The following table presents supplemental pro forma information as if the acquisition of Destiny Homes had occurred on April 1, 2018 (in thousands, except per share data):

	Three Months Ended								Nine Months Ended
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Net revenue	$	273,722			$	245,742			$	817,674			$	757,112
Net income	20,898				14,832				63,868				52,296
Diluted net income per share	2.25				1.60				6.90				5.63

The Company operates 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
	December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Net revenue:
Factory-built housing	$	257,106			$	220,342			$	758,564			$	680,198
Financial services	16,616				13,358				47,875				41,435
	$	273,722			$	233,700			$	806,439			$	721,633
Income before income taxes:
Factory-built housing	$	19,247			$	14,562			$	66,023			$	53,050
Financial services	5,485				2,385				13,326				7,550
	$	24,732			$	16,947			$	79,349			$	60,600

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