UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to

Commission File Number 000-08822

Cavco Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware	56-2405642
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1001 North Central Avenue, Suite 800 Phoenix, Arizona 85004
(Address of principal executive offices, including zip code)

602-256-6263

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last year)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of November 3, 2017, 9,027,594 shares of Registrant's Common Stock, $.01 par value, were outstanding.

CAVCO INDUSTRIES, INC.

FORM 10-Q

September 30, 2017

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2017 (unaudited) and April 1, 2017	1
Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended September 30, 2017 and October 1, 2016	2
Consolidated Statements of Cash Flows (unaudited) for the six months ended September 30, 2017 and October 1, 2016	3
Notes to Consolidated Financial Statements	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
Item 4. Controls and Procedures	48
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 6. Exhibits	49
SIGNATURES	50

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	September 30, 2017		April 1, 2017
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	136,788	$	132,542
Restricted cash, current	12,899		11,573
Accounts receivable, net	36,237		31,221
Short-term investments	14,179		11,289
Current portion of consumer loans receivable, net	32,104		31,115
Current portion of commercial loans receivable, net	9,474		7,932
Inventories	101,515		93,855
Prepaid expenses and other current assets	44,249		28,033
Deferred income taxes, current	—		9,204
Total current assets	387,445		356,764
Restricted cash	726		724
Investments	32,077		30,256
Consumer loans receivable, net	65,397		64,686
Commercial loans receivable, net	21,682		17,901
Property, plant and equipment, net	58,714		56,964
Goodwill and other intangibles, net	83,044		80,021
Total assets	$	649,085	$	607,316
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	25,296	$	24,010
Accrued liabilities	140,841		109,789
Current portion of securitized financings and other	5,954		6,417
Total current liabilities	172,091		140,216
Securitized financings and other	53,069		51,574
Deferred income taxes	10,957		21,118
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; No shares issued or outstanding	—		—
Common stock, $.01 par value; 40,000,000 shares authorized; Outstanding 9,027,594 and 8,994,968 shares, respectively	90		90
Additional paid-in capital	244,743		244,791
Retained earnings	166,145		148,141
Accumulated other comprehensive income	1,990		1,386
Total stockholders' equity	412,968		394,408
Total liabilities and stockholders' equity	$	649,085	$	607,316

See accompanying Notes to Consolidated Financial Statements

1

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Net revenue	$	200,507		$	188,348		$	407,323		$	373,489
Cost of sales	165,953			149,241			330,803			301,130
Gross profit	34,554			39,107			76,520			72,359
Selling, general and administrative expenses	26,153			25,429			52,458			50,116
Income from operations	8,401			13,678			24,062			22,243
Interest expense	(1,021		)	(1,132		)	(2,069		)	(2,293		)
Other income, net	1,119			552			2,157			1,578
Income before income taxes	8,499			13,098			24,150			21,528
Income tax expense	(2,317		)	(3,757		)	(6,215		)	(6,744		)
Net income	$	6,182		$	9,341		$	17,935		$	14,784
Comprehensive income:
Net income	$	6,182		$	9,341		$	17,935		$	14,784
Unrealized gain on available-for-sale securities, net of tax	1,159			879			604			824
Comprehensive income	$	7,341		$	10,220		$	18,539		$	15,608
Net income per share:
Basic	$	0.69		$	1.04		$	1.99		$	1.65
Diluted	$	0.67		$	1.03		$	1.96		$	1.63
Weighted average shares outstanding:
Basic	9,020,834			8,980,303			9,013,917			8,958,784
Diluted	9,181,899			9,100,833			9,171,515			9,092,653

See accompanying Notes to Consolidated Financial Statements

2

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	September 30, 2017			October 1, 2016
OPERATING ACTIVITIES
Net income	$	17,935		$	14,784
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,950			1,852
Provision for credit losses	676			259
Deferred income taxes	(1,267		)	(415		)
Stock-based compensation expense	1,535			1,357
Non-cash interest income, net	(526		)	(589		)
Incremental tax benefits from option exercises	—			(2,287		)
Gain on sale of property, plant and equipment, net	(88		)	(34		)
Gain on sale of loans and investments, net	(5,047		)	(3,685		)
Changes in operating assets and liabilities:
Restricted cash	(1,664		)	(2,050		)
Accounts receivable	(3,739		)	(3,510		)
Consumer loans receivable originated	(66,273		)	(53,960		)
Principal payments on consumer loans receivable	7,876			6,480
Proceeds from sales of consumer loans	59,243			47,405
Inventories	(5,733		)	2,229
Prepaid expenses and other current assets	(14,221		)	(702		)
Commercial loans receivable	(5,355		)	4,529
Accounts payable and accrued liabilities	22,055			10,716
Net cash provided by operating activities	7,357			22,379
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(1,779		)	(3,105		)
Payments for Lexington Homes, net	(564		)	—
Proceeds from sale of property, plant and equipment	411			65
Purchases of investments	(5,162		)	(4,753		)
Proceeds from sale of investments	4,925			5,472
Net cash used in investing activities	(2,169		)	(2,321		)
FINANCING ACTIVITIES
Payments from exercise of stock options	(1,583		)	(1,506		)
Incremental tax benefits from exercise of stock options	—			2,287
Proceeds from secured financings and other	4,963			541
Payments on securitized financings	(4,322		)	(4,135		)
Net cash used in financing activities	(942		)	(2,813		)
Net (decrease) increase in cash and cash equivalents	4,246			17,245
Cash and cash equivalents at beginning of the period	132,542			97,766
Cash and cash equivalents at end of the period	$	136,788		$	115,011
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes	$	7,861		$	7,750
Cash paid during the year for interest	$	1,508		$	1,783

See accompanying Notes to Consolidated Financial Statements

3

CAVCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

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 ("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 statements include all of the normal recurring adjustments necessary to fairly state the Company's Consolidated Financial Statements. 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; 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 Annual Report on Form 10-K for the year ended April 1, 2017, filed with the SEC on June 13, 2017.

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. 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 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. The Company's current fiscal year will end on March 31, 2018.

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 retailers, through the Company's 42 Company-owned retail stores and to community owners and developers. Our financial services group is comprised of a mortgage subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Co. ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer, and a Government National Mortgage Association ("GNMA" or "Ginnie Mae") mortgage-backed securities issuer which offers conforming mortgages, non-conforming mortgages and chattel loans to purchasers of factory-built and site-built homes. Standard Casualty provides property and casualty insurance to owners of manufactured homes.

On April 3, 2017, the Company acquired Lexington Homes, Inc. ("Lexington"), which produces manufactured homes distributed in the Southeastern United States. This operation, with one manufactured housing production facility in Lexington, Mississippi, provides for further operating capacity, increased home production capabilities and further distribution into certain markets. The acquisition was accounted for as a business combination and the results of operations have been included since the date of acquisition. Our purchase price allocation is preliminary and subject to revision as more detailed analyses are completed and additional information about fair value of assets and liabilities becomes available, including additional information relating to tax matters and finalization of our valuation of identified intangible assets. Pro forma results of operations for the acquisition during the current period has not been presented because the effects of the business combination are not material to our consolidated results of operations.

4

Recent Accounting Pronouncements. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 became effective in the current fiscal year. Therefore, we now present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating these items into current and noncurrent amounts. The prior period was not retrospectively adjusted. In addition, in March 2016, the FASB issued ASU 2016-09, Compensation- Stock Compensation (Topic 718) ("ASU 2016-09"), which also became effective in fiscal year 2018. As a result of this required implementation, excess tax benefits are recorded on exercises of stock options as a reduction of income tax expense in the consolidated statement of comprehensive income, whereas they were previously recognized in equity.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of the new revenue standard. Accordingly, the updated standard is effective for us beginning with the first quarter of the Company's fiscal year 2019. Our implementation approach includes performing a detailed analysis of the various types of agreements that we have with our customers and assessing conformance of our current accounting practices with the new standard. We are making progress in determining the impact of this guidance; however, we are still evaluating the full effects ASU 2014-09 will have on the Company's Consolidated Financial Statements and disclosures. We expect to adopt this guidance using the modified retrospective transition method. 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 will be effective beginning with the first quarter of the Company's fiscal year 2019. The amendments require certain equity investments to be measured at fair value, with changes in the fair value recognized through net income. The Company is currently evaluating the effect ASU 2016-01 will have on the Company's Consolidated Financial Statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases(Topic 842) ("ASU 2016-02"). ASU 2016-02 will be effective beginning with the first quarter of the Company's fiscal year 2020, with early adoption permitted. The amendments require the recognition of leased assets and the related liabilities on the balance sheet for most leases, and recognition of expenses in the income statement in a manner similar to current accounting treatment. In addition, disclosures of key information about leasing arrangements are required. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the effect ASU 2016-02 will have on the Company's Consolidated Financial Statements and disclosures.

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 to require a new forward-looking model based on expected losses rather than incurred losses. The guidance also requires increased disclosures. ASU 2016-01 will be effective beginning with the first quarter of the Company's fiscal year 2021. The Company is currently evaluating the effect ASU 2016-13 will have on the Company's Consolidated Financial Statements and disclosures.

5

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force ("ASU 2016-18"), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be effective beginning with the first quarter of the Company's fiscal year 2019. The adoption of ASU 2016-18 will only change the presentation of the Consolidated Statement of Cash Flows and is not expected to have a material impact on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08"), which requires the premium on callable debt securities to be amortized to the earliest call date as opposed to the contractual life of the security. ASU 2017-08 will be effective beginning with the first quarter of the Company's fiscal year 2020. The Company is currently evaluating the effect ASU 2017-08 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. Unless otherwise discussed, 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 in the Form 10-K.

2. Restricted Cash

Restricted cash consists of the following (in thousands):

	September 30, 2017		April 1, 2017
Cash related to CountryPlace customer payments to be remitted to third parties	$	11,432	$	9,998
Cash related to CountryPlace customer payments on securitized loans to be remitted to bondholders	1,055		1,391
Cash related to workers' compensation insurance held in trust	354		354
Other restricted cash	784		554
	$	13,625	$	12,297

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

3. Investments

Investments consist of the following (in thousands):

	September 30, 2017		April 1, 2017
Available-for-sale investment securities	$	27,713	$	24,162
Non-marketable equity investments	18,543		17,383
	$	46,256	$	41,545

6

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

	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government debt securities	$	650	$	—	$	(2	)	$	648
Residential mortgage-backed securities	6,549		2		(95		)	6,456
State and political subdivision debt securities	6,257		168		(124		)	6,301
Corporate debt securities	1,690		4		(13		)	1,681
Marketable equity securities	6,601		3,348		(84		)	9,865
Certificates of deposit	2,762		—		—			2,762
	$	24,509	$	3,522	$	(318	)	$	27,713

	April 1, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury and government debt securities	$	650	$	—	$	(1	)	$	649
Residential mortgage-backed securities	5,646		3		(90		)	5,559
State and political subdivision debt securities	7,195		145		(117		)	7,223
Corporate debt securities	1,698		4		(23		)	1,679
Marketable equity securities	5,752		2,430		(130		)	8,052
Certificates of deposit	1,000		—		—			1,000
	$	21,941	$	2,582	$	(361	)	$	24,162

7

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

	September 30, 2017
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury and government debt securities	$	648	$	(2	)	$	—	$	—		$	648	$	(2	)
Residential mortgage-backed securities	2,475		(22		)	3,253		(73		)	5,728		(95		)
State and political subdivision debt securities	952		(4		)	2,654		(120		)	3,606		(124		)
Corporate debt securities	875		(13		)	—		—			875		(13		)
Marketable equity securities	898		(58		)	100		(26		)	998		(84		)
	$	5,848	$	(99	)	$	6,007	$	(219	)	$	11,855	$	(318	)

	April 1, 2017
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury and government debt securities	$	349	$	(1	)	$	—	$	—		$	349	$	(1	)
Residential mortgage-backed securities	3,449		(38		)	1,962		(52		)	5,411		(90		)
State and political subdivision debt securities	1,948		(36		)	2,084		(81		)	4,032		(117		)
Corporate debt securities	1,424		(23		)	—		—			1,424		(23		)
Marketable equity securities	1,393		(90		)	157		(40		)	1,550		(130		)
	$	8,563	$	(188	)	$	4,203	$	(173	)	$	12,766	$	(361	)

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 at September 30, 2017.

As of September 30, 2017 and April 1, 2017, the Company's investments in marketable equity securities consist of investments in common stock of industrial and other companies.

8

The amortized cost and fair value of the Company's investments in 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 call or prepayment penalties.

	September 30, 2017
	Amortized Cost		Fair Value
Due in less than one year	$	1,563	$	1,552
Due after one year through five years	4,066		4,003
Due after five years through ten years	2,624		2,555
Due after ten years	6,893		6,976
	$	15,146	$	15,086

Realized gains and losses from the sale of securities are determined using the specific identification method. Gross gains realized on the sales of investment securities for the three and six months ended September 30, 2017 were approximately $570,000 and $735,000, respectively. Gross losses realized were approximately $61,000 and $122,000 for the three and six months ended September 30, 2017, respectively. Gross gains realized on the sales of investment securities for the three and six months ended October 1, 2016 were approximately $208,000 and $661,000, respectively. Gross losses realized were approximately $108,000 and $257,000 for the three and six months ended October 1, 2016, respectively.

4. Inventories

Inventories consist of the following (in thousands):

	September 30, 2017		April 1, 2017
Raw materials	$	35,394	$	31,506
Work in process	11,347		11,768
Finished goods and other	54,774		50,581
	$	101,515	$	93,855

5. Consumer Loans Receivable

The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were acquired at fair value and subsequently are accounted for in accordance with Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). Consumer loans receivable held for sale are carried at the lower of cost or market and construction advances are carried at the amount advanced less a valuation allowance. The following table summarizes consumer loans receivable (in thousands):

	September 30, 2017			April 1, 2017
Loans held for investment (acquired on Palm Harbor Acquisition Date)	$	55,964		$	60,513
Loans held for investment (originated after Palm Harbor Acquisition Date)	16,891			11,108
Loans held for sale	16,044			18,570
Construction advances	10,349			6,957
Consumer loans receivable	99,248			97,148
Deferred financing fees and other, net	(1,259		)	(1,095		)
Allowance for loan losses	(488		)	(252		)
Consumer loans receivable, net	$	97,501		$	95,801

9

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.

As of the date of the Palm Harbor acquisition, management evaluated consumer loans receivable held for investment by CountryPlace to determine whether there was evidence of deterioration of credit quality and if it was probable that CountryPlace would be unable to collect all amounts due according to the loans' contractual terms. The Company also considered expected prepayments and estimated the amount and timing of undiscounted expected principal, interest and other cash flows. The Company determined the excess of the loan pool's scheduled contractual principal and contractual interest payments over all cash flows expected as of the date of the Palm Harbor transaction as an amount that includes 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 includes interest that is accreted into interest income over the remaining life of the loans (referred to as accretable yield). Interest income on consumer loans receivable is recognized as net revenue.

	September 30, 2017			April 1, 2017
	(in thousands)
Consumer loans receivable held for investment – contractual amount	$	130,484		$	142,391
Purchase discount
Accretable	(51,180		)	(56,686		)
Non-accretable	(23,271		)	(25,032		)
Less consumer loans receivable reclassified as other assets	(69		)	(160		)
Total acquired consumer loans receivable held for investment, net	$	55,964		$	60,513

The Company continues to estimate cash flows expected to be collected over the life of the acquired loans. As of the balance sheet date, the Company evaluates whether the present value of expected cash flows, determined using the effective interest rate, has decreased from the value at acquisition and, if so, recognizes an allowance for loan loss. The present value of any subsequent increase in the loan pool's actual cash flows expected to be collected is used first to reverse any existing allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the amount of accretable yield recognized on a prospective basis over the loan pool's remaining life. The weighted averages of assumptions used in the calculation of expected cash flows to be collected are as follows:

	September 30, 2017		April 1, 2017
Prepayment rate	14.1	%	13.8	%
Default rate	1.2	%	1.1	%

Assuming there was a 1% unfavorable variation from the expected level, for each key assumption, the expected cash flows for the life of the portfolio, as of September 30, 2017, would decrease by approximately $1.6 million and $4.3 million for the expected prepayment rate and expected default rate, respectively.

10

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

	Three Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Balance at the beginning of the period	$	54,912		$	66,284		$	56,686		$	69,053
Accretion	(2,163		)	(2,449		)	(4,373		)	(4,964		)
Reclassifications to non-accretable discount	(1,569		)	(1,626		)	(1,133		)	(1,880		)
Balance at the end of the period	$	51,180		$	62,209		$	51,180		$	62,209

The consumer loans held for investment have the following characteristics:

	September 30, 2017		April 1, 2017
Weighted average contractual interest rate	8.70	%	8.87	%
Weighted average effective interest rate	9.56	%	9.35	%
Weighted average months to maturity	167		165

The Company's consumer loans receivable balance consists of fixed-rate, fixed-term and fully-amortizing single-family home loans. These loans are either secured by a manufactured home, excluding the land upon which the home is located (chattel personal property loans), or by a combination of the home and the land upon which the home is located (real property mortgage loans). The real property mortgage loans are primarily for manufactured homes. Combined land and home loans are further disaggregated by the type of loan documentation: those conforming to the requirements of Government-Sponsored Enterprises ("GSEs"), and those that are non-conforming. In most instances, CountryPlace's loans are secured by a first-lien position and are provided for the consumer purchase of a home. Unsecuritized consumer loans held for investment include chattel personal property loans originated under the Company's chattel lending programs. Accordingly, CountryPlace classifies its loans receivable as follows: chattel loans, conforming mortgages, non-conforming mortgages and other loans.

In measuring credit quality within each segment and class, CountryPlace uses commercially available credit scores (such as FICO®). At the time of each loan's origination, CountryPlace obtains credit scores from each of the three primary credit bureaus, if available. To evaluate credit quality of individual loans, CountryPlace uses the mid-point of the available credit scores or, if only two scores are available, the Company uses the lower of the two. CountryPlace does not update credit bureau scores after the time of origination.

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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):

	September 30, 2017
	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)
Chattel loans
0-619	$	559	$	381	$	359	$	—	$	—	$	1,299
620-719	10,862		7,586		7,024		—		158		25,630
720+	11,696		7,091		9,012		—		2,049		29,848
Other	50		—		373		—		—		423
Subtotal	23,167		15,058		16,768		—		2,207		57,200
Conforming mortgages
0-619	—		—		159		—		93		252
620-719	—		—		1,746		6,344		9,076		17,166
720+	—		—		330		4,005		4,552		8,887
Other	—		—		—		—		116		116
Subtotal	—		—		2,235		10,349		13,837		26,421
Non-conforming mortgages
0-619	84		421		1,079		—		—		1,584
620-719	1,201		4,670		3,257		—		—		9,128
720+	1,494		2,717		404		—		—		4,615
Other	—		—		289		—		—		289
Subtotal	2,779		7,808		5,029		—		—		15,616
Other loans
Subtotal	—		—		11		—		—		11
	$	25,946	$	22,866	$	24,043	$	10,349	$	16,044	$	99,248

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	April 1, 2017
	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)
Chattel loans
0-619	$	705	$	411	$	393	$	—	$	—	$	1,509
620-719	11,681		8,072		5,406		—		697		25,856
720+	12,748		7,800		5,081		—		3,097		28,726
Other	51		—		433		—		—		484
Subtotal	25,185		16,283		11,313		—		3,794		56,575
Conforming mortgages
0-619	—		—		161		261		99		521
620-719	—		—		1,792		4,231		10,553		16,576
720+	—		—		247		2,465		4,124		6,836
Subtotal	—		—		2,200		6,957		14,776		23,933
Non-conforming mortgages
0-619	86		435		1,327		—		—		1,848
620-719	1,242		4,947		3,372		—		—		9,561
720+	1,527		2,909		484		—		—		4,920
Other	—		—		299		—		—		299
Subtotal	2,855		8,291		5,482		—		—		16,628
Other loans
Subtotal	—		—		12		—		—		12
	$	28,040	$	24,574	$	19,007	$	6,957	$	18,570	$	97,148

Loan contracts secured by collateral that is geographically concentrated could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed. Forty-five percent of the outstanding principal balance of consumer loans receivable portfolio is concentrated in Texas and 10% is concentrated in Florida. Other than Texas and Florida, no other state had concentrations in excess of 10% of the principal balance of the consumer loans receivable as of September 30, 2017.

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 computed based on the historical recovery rates of previously charged-off loans; the loan is charged off and the loss is charged 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 $1.6 million and $1.2 million as of September 30, 2017 and April 1, 2017, respectively, and are included in prepaid and other assets in the consolidated balance sheet. Foreclosure or similar proceedings in progress totaled approximately $797,000 and $694,000 as of September 30, 2017 and April 1, 2017, respectively.

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6. Commercial Loans Receivable and Allowance for Loan Loss

The Company's commercial loans receivable balance consists of two classes: (i) direct financing arrangements for the home product needs of our independent retailers, 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 the independent retailers, communities and developers' financed home purchases. The notes are secured by the homes as collateral and, in some instances, other security depending on the circumstances. The 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 retailers to finance their inventory purchases. The participation commercial loan receivables are unsecured general obligations of the independent floor plan lenders.

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

	September 30, 2017			April 1, 2017
Direct loans receivable	$	30,235		$	24,959
Participation loans receivable	1,163			1,084
Allowance for loan loss	(242		)	(210		)
	$	31,156		$	25,833

The commercial loans receivable balance has the following characteristics:

	September 30, 2017		April 1, 2017
Weighted average contractual interest rate	5.8	%	5.6	%
Weighted average months to maturity	6		6

The Company evaluates the potential for loss from its participation loan programs based on each independent lender's overall financial stability, as well as historical experience, and has determined that an applicable allowance for loan loss was not needed at either September 30, 2017 or April 1, 2017.

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 retailers, 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 resell repossessed unused homes, thereby mitigating loss experience. 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 a borrower will default, a specific reserve is determined and recorded within the estimated allowance for loan loss. The Company recorded an allowance for loan loss of $242,000 and $126,000 at September 30, 2017 and October 1, 2016, 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 loss applicable to the direct programs (in thousands):

	Three Months Ended					Six Months Ended
	September 30, 2017		October 1, 2016			September 30, 2017		October 1, 2016
Balance at beginning of period	$	222	$	135		$	210	$	128
Provision for inventory finance credit losses	20		(9		)	32		(2		)
Loans charged off, net of recoveries	—		—			—		—
Balance at end of period	$	242	$	126		$	242	$	126

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

	Direct Commercial Loans						Participation Commercial Loans
	September 30, 2017			April 1, 2017			September 30, 2017		April 1, 2017
Inventory finance notes receivable:
Collectively evaluated for impairment	$	16,845		$	13,688		$	—	$	—
Individually evaluated for impairment	13,390			11,271			1,163		1,084
	$	30,235		$	24,959		$	1,163	$	1,084
Allowance for loan loss:
Collectively evaluated for impairment	$	(169	)	$	(137	)	$	—	$	—
Individually evaluated for impairment	(73		)	(73		)	—		—
	$	(242	)	$	(210	)	$	—	$	—

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 past due 90 days or more. The Company's policy is to place loans on nonaccrual status when interest is past due and remains unpaid 90 days or more or when there is a clear indication that the borrower has the inability or unwillingness to meet payments as they become due. The Company will resume accrual of interest once these factors have been remedied. At September 30, 2017, there are no commercial loans that are 90 days or more past due that are still accruing interest. Payments received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal. At September 30, 2017, the Company was not aware of any potential problem loans that would have a material effect on the commercial receivables balance. Charge-offs occur when it becomes probable that outstanding amounts will not be recovered.

The following table disaggregates the Company's inventory finance receivables by class and credit quality indicator (in thousands):

	Direct Commercial Loans				Participation Commercial Loans
	September 30, 2017		April 1, 2017		September 30, 2017		April 1, 2017
Risk profile based on payment activity:
Performing	$	30,162	$	24,886	$	1,163	$	1,084
Watch list	—		—		—		—
Nonperforming	73		73		—		—
	$	30,235	$	24,959	$	1,163	$	1,084

15

The Company has concentrations of commercial loans receivable related to factory-built homes located in the following states, measured as a percentage of commercial loans receivables principal balance outstanding:

	September 30, 2017		April 1, 2017
Oregon	18.7	%	15.7	%
Arizona	16.1	%	21.3	%
California	11.3	%	11.0	%
Indiana	11.2	%	10.7	%
Texas	11.0	%	11.0	%

The risks created by these concentrations have been considered in the determination of the adequacy of the allowance for loan losses. The Company did not have concentrations in excess of 10% of the principal balance of the commercial loans receivables in any other states as of September 30, 2017 or April 1, 2017, respectively.

As of September 30, 2017 and April 1, 2017, the Company had concentrations with one independent third-party that equaled 23% of the principal balance outstanding, all of which was secured.

7. Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of each asset. Estimated useful lives for significant classes of assets are as follows: (i) buildings and improvements, 10 to 39 years, and (ii) machinery and equipment, 3 to 25 years. Repairs and maintenance charges are expensed as incurred. Property, plant and equipment consist of the following (in thousands):

	September 30, 2017			April 1, 2017
Property, plant and equipment, at cost:
Land	$	23,276		$	22,897
Buildings and improvements	36,099			34,180
Machinery and equipment	22,534			21,618
	81,909			78,695
Accumulated depreciation	(23,195		)	(21,731		)
Property, plant and equipment, net	$	58,714		$	56,964

Included in the amounts above are certain assets under a capital lease. See Note 8 for additional information.

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8. Capital Lease

On April 3, 2017, in connection with the purchase of Lexington Homes, the Company recorded capital leases covering the manufacturing facilities and land in Lexington, Mississippi. The following amounts were recorded for the leased assets as of September 30, 2017 (in thousands):

	September 30, 2017
Land	$	698
Buildings and improvements	1,050
	1,748
Accumulated amortization	(18		)
Leased assets, net	$	1,730

The future minimum payments under the leases as of September 30, 2017 are as follows (in thousands):

FY 2018	$	68
FY 2019	709
FY 2020	459
FY 2021	—
FY 2022	—
Thereafter	—
Total remaining lease payments	$	1,236
Less: Amount representing interest	(75		)
Present value of future minimum lease payments	$	1,161

9. Goodwill and Other Intangibles

Intangible assets principally consist of goodwill, trademarks and trade names, state insurance licenses, customer relationships, and other, which includes technology, insurance policies and renewal rights and other. Goodwill, trademarks and trade names and state insurance licenses are indefinite-lived intangible assets and are evaluated for impairment annually and whenever events or circumstances indicate that more likely than not impairment has occurred. During the six months ended September 30, 2017 and October 1, 2016, no impairment expense was recorded. Finite-lived intangibles are amortized over their estimated useful lives on a straight-line basis and are reviewed for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. The value of customer relationships is amortized over 4 to 15 years and other intangibles over 7 to 15 years.

17

Goodwill and other intangibles consist of the following (in thousands):

	September 30, 2017							April 1, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived:
Goodwill	$	72,760	$	—		$	72,760	$	69,753	$	—		$	69,753
Trademarks and trade names	7,200		—			7,200		7,000		—			7,000
State insurance licenses	1,100		—			1,100		1,100		—			1,100
Total indefinite-lived intangible assets	81,060		—			81,060		77,853		—			77,853
Finite lived:
Customer relationships	7,100		(5,649		)	1,451		7,100		(5,543		)	1,557
Other	1,384		(851		)	533		1,384		(773		)	611
Total goodwill and other intangible assets	$	89,544	$	(6,500	)	$	83,044	$	86,337	$	(6,316	)	$	80,021

Amortization expense recognized on intangible assets was $92,000 and $184,000during the three and six months ended September 30, 2017, respectively. Amortization expense of $92,000 and $184,000 was recognized during the three and six months ended October 1, 2016, respectively.

10. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	September 30, 2017		April 1, 2017
Insurance loss reserves	$	24,870	$	5,239
Salaries, wages and benefits	19,958		22,029
Customer deposits	19,202		15,986
Unearned insurance premiums	17,057		17,488
Estimated warranties	16,470		15,479
Accrued volume rebates	8,030		5,686
Accrued insurance	4,509		4,113
Company repurchase option on certain loans sold	4,311		5,858
Deferred margin	3,595		2,906
Accrued taxes	2,704		1,682
Reserve for repurchase commitments	1,692		1,749
Capital lease obligation	1,161		—
Other	17,282		11,574
	$	140,841	$	109,789

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11. Warranties

Homes are generally warranted against manufacturing defects for a period of one year commencing at the time of sale to the retail customer. Estimated costs relating to home warranties are recorded at the date of sale. The Company has recorded a liability for estimated future warranty costs relating to homes sold based upon management's assessment of historical experience factors, an estimate of the amount of homes in the distribution channel and current industry trends. Activity in the liability for estimated warranties was as follows (in thousands):

	Three Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Balance at beginning of period	$	16,316		$	13,718		$	15,479		$	13,371
Purchase accounting additions	—			—			838			—
Charged to costs and expenses	7,399			6,144			12,622			12,280
Payments and deductions	(7,245		)	(5,816		)	(12,469		)	(11,605		)
Balance at end of period	$	16,470		$	14,046		$	16,470		$	14,046

12. Debt Obligations

Debt obligations consist of amounts related to loans sold that did not qualify for loan sale accounting treatment. The following table summarizes debt obligations (in thousands):

	September 30, 2017		April 1, 2017
Acquired securitized financings (acquired as part of the Palm Harbor transaction)
Securitized financing 2005-1	$	21,993	$	23,756
Securitized financing 2007-1	24,025		25,728
Other secured financings	4,965		4,987
Secured Term Loan	8,040		3,520
Total securitized financings and other, net	$	59,023	$	57,991

The Company acquired CountryPlace's securitized financings during the first quarter of fiscal year 2012 as a part of the Palm Harbor acquisition. 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 ASC 310-30 to accrete the discount.

19

The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for securitized consumer loans receivable held for investment to determine the expected cash flows on securitized financings and the contractual payments. The amount of contractual principal and contractual interest payments due on the securitized financings in excess of all cash flows expected as of the date of the Palm Harbor acquisition include interest that cannot be accreted into interest expense (the non-accretable difference). The remaining amount is accreted into interest expense over the remaining life of the obligation (referred to as accretable yield). The following table summarizes acquired securitized financings (in thousands):

	September 30, 2017			April 1, 2017
Securitized financings – contractual amount	$	51,727		$	57,120
Purchase discount
Accretable	(5,709		)	(7,636		)
Non-accretable (1)	—			—
Total acquired securitized financings, net	$	46,018		$	49,484

(1) There is no non-accretable difference, as the contractual payments on acquired securitized financing are determined by the cash collections from the underlying loans.

Over the life of the loans, the Company continues to estimate cash flows expected to be paid on securitized financings. The Company evaluates at the balance sheet date whether the present value of its securitized financings, determined using the effective interest rate, has increased or decreased. The present value of any subsequent change in cash flows expected to be paid adjusts the amount of accretable yield recognized on a prospective basis over the securitized financing's remaining life.

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

	Three Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Balance at the beginning of the period	$	6,666		$	11,459		$	7,636		$	12,333
Accretion	(846		)	(938		)	(1,716		)	(1,906		)
Adjustment to cash flows	(111		)	(731		)	(211		)	(637		)
Balance at the end of the period	$	5,709		$	9,790		$	5,709		$	9,790

On July 12, 2005, prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed its initial securitization (2005-1) for approximately $141.0 million of loans, which was funded by issuing bonds totaling approximately $118.4 million. The bonds were issued in four different classes: Class A-1 totaling $36.3 million with a coupon rate of 4.23%; Class A-2 totaling $27.4 million with a coupon rate of 4.42%; Class A-3 totaling $27.3 million with a coupon rate of 4.80%; and Class A-4 totaling $27.4 million with a coupon rate of 5.20%. The bonds mature at varying dates and at issuance had an expected weighted average maturity of 4.66 years. For accounting purposes, this transaction was structured as a securitized borrowing. As of September 30, 2017, the Class A-1, Class A-2, and Class A-3 bonds have been retired.

On March 22, 2007, prior to the Company's acquisition of Palm Harbor and CountryPlace, CountryPlace completed its second securitization (2007-1) for approximately $116.5 million of loans, which was funded by issuing bonds totaling approximately $101.9 million. The bonds were issued in four classes: Class A-1 totaling $28.9 million with a coupon rate of 5.484%; Class A-2 totaling $23.4 million with a coupon rate of 5.232%; Class A-3 totaling $24.5 million with a coupon rate of 5.593%; and Class A-4 totaling $25.1 million with a coupon rate of 5.846%. The bonds mature at varying dates and at issuance had an expected weighted average maturity of 4.86 years. For accounting purposes, this transaction was also structured as a securitized borrowing. As of September 30, 2017, the Class A-1, Class A-2 and Class A-3 bonds have been retired.

20

CountryPlace's securitized debt is subject to provisions that require certain levels of overcollateralization. Overcollateralization is equal to CountryPlace's equity in the bonds. Failure to satisfy these provisions could cause cash, which would normally be distributed to CountryPlace, to be used for repayment of the principal of the related Class A bonds until the required overcollateralization level is reached. During periods when the overcollateralization is below the specified level, cash collections from the securitized loans in excess of servicing fees payable to CountryPlace and amounts owed to the Class A bondholders, trustee and surety, are applied to reduce the Class A debt until such time the overcollateralization level reaches the specified level. Therefore, failure to meet the overcollateralization requirement could adversely affect the timing of cash flows received by CountryPlace. However, principal payments of the securitized debt, including accelerated amounts, is payable only from cash collections from the securitized loans and no additional sources of repayment are required or permitted. As of September 30, 2017, the 2005-1 and 2007-1 securitized portfolios were within the required overcollateralization level.

The Company has entered into agreements with independent third party banks for a total of $15.0 million secured credit facilities with one year drawn periods and maturity dates of ten years. The proceeds are used by the Company to originate and hold consumer chattel loans secured by manufactured homes, which are pledged as collateral to the facility. The maximum advance for loans under these programs is 80% of the outstanding collateral principal balance, with the Company providing the remaining funds. One of the facilities has a floating interest rate during a one year warehouse period in which the Company has the option to convert all or a portion of the loan to a fixed rate. During the warehouse period, the facility bears interest at an annual rate of the average one month LIBOR rates plus 3.50%. Upon conversion, converted balances bear interest at an annual rate of 10 year US Treasury bonds plus 2.75%. Payments are based on a 20 year amortization schedule with a balloon payment due upon maturity. The other facility has a fixed interest rate of 4.75% and a balloon payment due upon maturity.

13. Reinsurance

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 are as follows (in thousands):

	Three Months Ended
	September 30, 2017						October 1, 2016
	Written			Earned			Written			Earned
Direct premiums	$	3,628		$	4,137		$	3,749		$	3,992
Assumed premiums—nonaffiliate	6,210			6,326			6,152			5,941
Ceded premiums—nonaffiliate	(4,309		)	(4,309		)	(3,077		)	(3,077		)
Net premiums	$	5,529		$	6,154		$	6,824		$	6,856

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	Six Months Ended
	September 30, 2017						October 1, 2016
	Written			Earned			Written			Earned
Direct premiums	$	7,994		$	8,287		$	8,135		$	7,918
Assumed premiums—nonaffiliate	12,470			12,593			13,099			11,573
Ceded premiums—nonaffiliate	(7,257		)	(7,257		)	(6,297		)	(6,297		)
Net premiums	$	13,207		$	13,623		$	14,937		$	13,194

Typical insurance policies written or assumed by Standard Casualty have a maximum coverage of $300,000 per claim, of which Standard cedes $200,000 of the risk of loss per reinsurance. Therefore, Standard Casualty maintains risk of loss limited to $100,000 per claim on typical policies. 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.

14. Income Taxes

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 being recognized 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 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 August 2017, the Company received a notice of examination from the Internal Revenue Service ("IRS") for the Company’s federal income tax return for the fiscal year ended April 2, 2016. The Company is no longer subject to examination by the IRS for years before fiscal year 2013. In general, the Company is no longer subject to state and local income tax examinations by tax authorities for years before fiscal year 2012. 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.

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15. Commitments and Contingencies

Repurchase Contingencies. The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer. The risk of loss under these agreements is spread over numerous retailers. 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 retailer) 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 $46.6 million at September 30, 2017, 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 or a contingent liability for each repurchase arrangement under the provisions of ASC 450-20. The Company recorded an estimated liability of $1.7 millionat both September 30, 2017 and April 1, 2017, 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 $7.0 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.

Construction-Period Mortgages. CountryPlace funds construction-period mortgages through periodic advances during the period of 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 in the consolidated balance sheet at the amount advanced less a valuation allowance, which are included in consumer loans receivable. The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment of CountryPlace to fund future advances.

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

	September 30, 2017			April 1, 2017
Construction loan contract amount	$	25,913		$	18,031
Cumulative advances	(10,349		)	(6,957		)
Remaining construction contingent commitment	$	15,564		$	11,074

Representations and Warranties of Mortgages Sold. CountryPlace sells loans to 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. CountryPlace maintains a reserve for these contingent repurchase and indemnification obligations. This reserve of $888,000 and $885,000 as of September 30, 2017 and April 1, 2017, respectively, 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 defect rates to estimate the liability for loan repurchases and indemnifications.

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Interest Rate Lock Commitments. In originating loans for sale, CountryPlace issues interest rate lock commitments ("IRLCs") to prospective borrowers and third-party originators. These IRLCs represent an agreement to extend credit to a loan applicant, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to loan closing or sale. These IRLCs bind CountryPlace to fund the approved loan at the specified rate regardless of whether interest rates or market prices for similar loans have changed between the commitment date and the closing date. As 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, CountryPlace 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 September 30, 2017, CountryPlace had outstanding IRLCs with a notional amount of $12.7 million and 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 values of IRLCs are recorded in other assets in the consolidated balance sheets. The fair value of IRLCs is based on the value of the underlying mortgage loan adjusted for: (i) estimated cost to complete and originate the loan and (ii) the estimated percentage of IRLCs that will result in closed mortgage loans. The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on mortgage loans held for sale. During the three and six months ended September 30, 2017, CountryPlace recognized gainsof $10,000 and losses of $15,000 on the outstanding IRLCs, respectively. During the three and six months ended October 1, 2016, CountryPlace recognized lossesof $18,000and gains of $10,000, respectively, on the outstanding IRLCs.

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 September 30, 2017, CountryPlace had $45.4 million in outstanding notional forward sales of MBSs and forward sales commitments. Commitments to 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 other current assets in the consolidated balance sheets. During the three and six months ended September 30, 2017, CountryPlace recognized losses of $227,000 and $72,000, respectively, on forward sales and whole loan sale commitments. CountryPlace recognized gains of $33,000 and losses of $11,000 on forward sales and whole loan sale commitments during the three and six months ended October 1, 2016, respectively.

Legal Matters. The Company is party to certain 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 and warranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience and the information currently available, 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 currently 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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16. Stockholders' Equity

The following table represents changes in stockholders' equity for the six months ended September 30, 2017 (dollars in thousands):

				Additional paid-in capital			Retained earnings		Accumulated other comprehensive income		Total
	Common Stock
	Shares	Amount
Balance, April 1, 2017	8,994,968	$	90	$	244,791		$	148,141	$	1,386	$	394,408
Cumulative effect of implementing ASU 2016-09	—	—		—			69		—		69
Stock option exercises, including incremental tax benefits	32,626	—		(1,583		)			—		(1,583		)
Share-based compensation	—	—		1,535			—		—		1,535
Net income	—	—		—			17,935		—		17,935
Unrealized loss on available-for-sale securities	—	—		—			—		604		604
Balance, September 30, 2017	9,027,594	$	90	$	244,743		$	166,145	$	1,990	$	412,968

(1) Other comprehensive income is comprised of unrealized gains and losses on available-for-sale investments. Unrealized gains before tax effect on available-for-sale securities were $983,000 for the six months ended September 30, 2017.

17. Stock-Based Compensation

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. As of September 30, 2017, the plans, which are shareholder approved, permit the award of up to 1,650,000 shares of the Company's common stock, of which 342,451 shares were still available for grant. When options are exercised, new shares of the Company's common stock are issued. Stock options 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 typically vest over a one to five year period as determined by the plan administrator (the Compensation Committee of the Board of Directors, which consists of independent directors). The stock incentive plans provide for accelerated vesting of stock options upon a change in control (as defined in the plans).

Stock-based compensation cost charged against income for the three and six months ended September 30, 2017 was $1.0 million and $1.5 million, respectively. The Company recorded stock-based compensation expense of $987,000 and $1.4 million for three and six months ended October 1, 2016, respectively.

As of September 30, 2017, total unrecognized compensation cost related to stock options was approximately $4.0 million and the related weighted-average period over which the expense is expected to be recognized is approximately 3.35 years.

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The following table summarizes the option activity within the Company's stock-based compensation plans for the six months ended September 30, 2017:

	Number of Shares
Outstanding at April 1, 2017	464,930
Granted	38,000
Exercised	(66,875	)
Canceled or expired	—
Outstanding at September 30, 2017	436,055
Exercisable at September 30, 2017	215,871

18. Earnings Per Share

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				Six Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Net income	$	6,182	$	9,341	$	17,935	$	14,784
Weighted average shares outstanding:
Basic	9,020,834		8,980,303		9,013,917		8,958,784
Common stock equivalents—treasury stock method	161,065		120,530		157,598		133,869
Diluted	9,181,899		9,100,833		9,171,515		9,092,653
Net income per share:
Basic	$	0.69	$	1.04	$	1.99	$	1.65
Diluted	$	0.67	$	1.03	$	1.96	$	1.63

Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the three and six months ended September 30, 2017were 4,867 and 8,432, respectively. There were 4,155 and 7,941 anti-dilutive common stock equivalents excluded for the three and six months ended October 1, 2016, respectively.

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19. Fair Value Measurements

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

	September 30, 2017				April 1, 2017
	Book Value		Estimated Fair Value		Book Value		Estimated Fair Value
Available-for-sale securities (1)	$	27,713	$	27,713	$	24,162	$	24,162
Non-marketable equity investments (2)	18,543		18,543