UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~October 2,~~January 1, ~~2021~~2022

☐ 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: 001-04714

Skyline Champion Corporation

(Exact name of registrant as specified in its charter)


Indiana		35-1038277
(State of Incorporation)		(I.R.S. Employer Identification No.)

755 West Big Beaver Road, Suite 1000
Troy, Michigan		48084
(Address of Principal Executive Offices)		(Zip Code)

(248) 614-8211

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SKY	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filers,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:):


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
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 ☒

Number of shares of common stock outstanding as of ~~October 21, 2021:~~ ~~56,799,419~~January 24, 2022: 56,827,132

SKYLINE CHAMPION CORPORATION

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of ~~October 2, 2021~~January 1, 2022 (unaudited) and April 3, 2021	1
Condensed Consolidated Income Statements (unaudited) for the three ~~and six~~ and nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three ~~and six~~ and nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020	3
Condensed Consolidated Statements of Cash Flows (unaudited) for ~~the six~~ the nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020	4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three ~~and six~~ and nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020	5
Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2928

Item 4. Controls and Procedures	2928

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	3029

Item 6. Exhibits	3130

SIGNATURES	3231

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

(Dollars and shares in thousands, except per share amounts)


	October 2, 2021			April 3, 2021			January 1, 2022			April 3, 2021
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	310,258		$	262,581		$	382,133		$	262,581
Trade accounts receivable, net		72,886			57,481			46,184			57,481
Inventories, net		179,976			166,113			185,052			166,113
Other current assets		20,315			13,592			21,340			13,592
Total current assets		583,435			499,767			634,709			499,767
Long-term assets:
Property, plant, and equipment, net		122,905			115,140			127,196			115,140
Goodwill		191,970			191,803			191,970			191,803
Amortizable intangible assets, net		55,073			58,835			53,171			58,835
Deferred tax assets		13,832			19,914			14,304			19,914
Other noncurrent assets		43,115			32,443			46,801			32,443
Total assets	$	1,010,330		$	917,902		$	1,068,151		$	917,902
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Floor plan payable	$	30,840		$	25,733		$	34,315		$	25,733
Accounts payable		57,694			57,214			44,200			57,214
Other current liabilities		200,747			180,695			205,094			180,695
Total current liabilities		289,281			263,642			283,609			263,642
Long-term liabilities:
Long-term debt		12,430			39,330			12,430			39,330
Deferred tax liabilities		4,620			4,280			4,615			4,280
Other		41,021			42,039
Other liabilities								34,119			42,039
Total long-term liabilities		58,071			85,649			51,164			85,649

Stockholders' Equity:
Common stock, $0.0277 par value, 115,000 shares authorized, 56,796 and 56,640 shares issued as of October 2, 2021 and April 3, 2021, respectively		1,572			1,569
Common stock, $0.0277 par value, 115,000 shares authorized, 56,827 and 56,640 shares issued as of January 1, 2022 and April 3, 2021, respectively								1,572			1,569
Additional paid-in capital		496,059			491,668			498,898			491,668
Retained earnings		173,513			82,898			241,135			82,898
Accumulated other comprehensive loss		(8,166	)		(7,524	)		(8,227	)		(7,524	)
Total stockholders’ equity		662,978			568,611			733,378			568,611
Total liabilities and stockholders’ equity	$	1,010,330		$	917,902		$	1,068,151		$	917,902

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Income Statements

(Unaudited, dollars in thousands, except per share amounts)


	Three months ended					Six months ended						Three months ended					Nine months ended
	October 2, 2021		September 26, 2020			October 2, 2021			September 26, 2020			January 1, 2022		December 26, 2020			January 1, 2022			December 26, 2020
Net sales	$	524,225	$	322,366		$	1,034,422		$	595,651		$	534,690	$	377,581		$	1,569,112		$	973,232
Cost of sales		394,898		259,573			793,565			478,855			377,451		305,797			1,171,016			784,652
Gross profit		129,327		62,793			240,857			116,796			157,239		71,784			398,096			188,580
Selling, general, and administrative expenses		61,340		41,373			115,363			82,180			65,825		44,286			181,188			126,466
Operating income		67,987		21,420			125,494			34,616			91,414		27,498			216,908			62,114
Interest expense, net		845		864			1,494			1,806			508		795			2,002			2,601
Other expense (income)		11		(2,599	)		(43	)		(6,813	)		7		(180	)		(36	)		(6,993	)
Income before income taxes		67,131		23,155			124,043			39,623			90,899		26,883			214,942			66,506
Income tax expense		16,408		5,644			30,419			10,209			23,277		5,284			53,696			15,493
Net income	$	50,723	$	17,511		$	93,624		$	29,414		$	67,622	$	21,599		$	161,246		$	51,013
Net income per share:
Basic	$	0.89	$	0.31		$	1.65		$	0.52		$	1.19	$	0.38		$	2.84		$	0.90
Diluted	$	0.89	$	0.31		$	1.64		$	0.52		$	1.18	$	0.38		$	2.81		$	0.90

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)


	Three months ended					Six months ended					Three months ended					Nine months ended
	October 2, 2021			September 26, 2020		October 2, 2021			September 26, 2020		January 1, 2022			December 26, 2020		January 1, 2022			December 26, 2020
Net income	$	50,723		$	17,511	$	93,624		$	29,414	$	67,622		$	21,599	$	161,246		$	51,013
Other comprehensive income (loss):
Foreign currency translation adjustments		(1,520	)		861		(642	)		1,956		(61	)		2,151		(703	)		4,107
Total comprehensive income	$	49,203		$	18,372	$	92,982		$	31,370	$	67,561		$	23,750	$	160,543		$	55,120

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)


	Six months ended						Nine months ended
	October 2, 2021			September 26, 2020			January 1, 2022			December 26, 2020
Cash flows from operating activities
Net income	$	93,624		$	29,414		$	161,246		$	51,013
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		6,521			5,969			9,869			8,994
Amortization of intangible assets		3,762			2,721			5,664			4,082
Amortization of deferred financing fees		509			253			599			380
Equity-based compensation		4,213			3,624			6,134			4,625
Deferred taxes		6,421			2,655			5,942			3,251
Loss on disposal of property, plant, and equipment		686			15
Loss (gain) on disposal of property, plant, and equipment								696			(75	)
Foreign currency transaction loss (gain)		35			(219	)		55			(421	)
Change in assets and liabilities:
Accounts receivable		(15,351	)		(984	)		11,419			4,577
Inventories		(14,138	)		(990	)		(19,133	)		(3,388	)
Prepaids and other assets		(17,934	)		(2,063	)		(22,954	)		(2,239	)
Accounts payable		407			5,406			(13,076	)		(284	)
Accrued expenses and other liabilities		20,132			18,041			17,945			33,301
Net cash provided by operating activities		88,887			63,842			164,406			103,816
Cash flows from investing activities
Additions to property, plant, and equipment		(15,105	)		(2,552	)		(22,784	)		(4,235	)
Cash paid for acquisition		(207	)		—			(207	)		—
Proceeds from maturity of Company owned life insurance policy		—			1,186			—			1,186
Proceeds from disposal of property, plant, and equipment		66			32			70			1,836
Net cash used in investing activities		(15,246	)		(1,334	)		(22,921	)		(1,213	)
Cash flows from financing activities
Changes in floor plan financing, net		5,107			(7,316	)		8,583			(8,318	)
Payments on deferred financing fees		(1,130	)		—			(1,130	)		—
Payments on revolving debt facility		(26,900	)		—			(26,900	)		(38,000	)
Stock option exercises		377			67			1,099			67
Tax payments for equity-based compensation		(3,007	)		(1,687	)		(3,007	)		(1,687	)
Net cash used in financing activities		(25,553	)		(8,936	)		(21,355	)		(47,938	)
Effect of exchange rate changes on cash and cash equivalents		(411	)		1,259			(578	)		2,940
Net increase in cash and cash equivalents		47,677			54,831			119,552			57,605
Cash and cash equivalents at beginning of period		262,581			209,455			262,581			209,455
Cash and cash equivalents at end of period	$	310,258		$	264,286		$	382,133		$	267,060

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)


	Three months ended October 2, 2021															Three months ended January 1, 2022
	Common Stock															Common Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total			Shares		Amount		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at July 3, 2021		56,699	$	1,571	$	493,191	$	124,467		$	(6,646	)	$	612,583
Balance at October 2, 2021																	56,796	$	1,572	$	496,059	$	173,513		$	(8,166	)	$	662,978
Net income		—		—		—		50,723			—			50,723			—		—		—		67,622			—			67,622
Equity-based compensation		—		—		2,772		—			—			2,772			—		—		1,921		—			—			1,921
Net common stock issued under equity-based compensation plans		97		1		96		(1,677	)		—			(1,580	)		31		—		918		—			—			918
Foreign currency translation adjustments		—		—		—		—			(1,520	)		(1,520	)		—		—		—		—			(61	)		(61	)
Balance at October 2, 2021		56,796	$	1,572	$	496,059	$	173,513		$	(8,166	)	$	662,978
Balance at January 1, 2022																	56,827	$	1,572	$	498,898	$	241,135		$	(8,227	)	$	733,378


	Six months ended October 2, 2021															Nine months ended January 1, 2022
	Common Stock															Common Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total			Shares		Amount		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at April 3, 2021		56,640	$	1,569	$	491,668	$	82,898		$	(7,524	)	$	568,611			56,640	$	1,569	$	491,668	$	82,898		$	(7,524	)	$	568,611
Net income		—		—		—		93,624			—			93,624			—		—		—		161,246			—			161,246
Equity-based compensation		—		—		4,213		—			—			4,213			—		—		6,134		—			—			6,134
Net common stock issued under equity-based compensation plans		156		3		178		(3,009	)		—			(2,828	)		187		3		1,096		(3,009	)		—			(1,910	)
Foreign currency translation adjustments		—		—		—		—			(642	)		(642	)		—		—		—		—			(703	)		(703	)
Balance at October 2, 2021		56,796	$	1,572	$	496,059	$	173,513		$	(8,166	)	$	662,978
Balance at January 1, 2022																	56,827	$	1,572	$	498,898	$	241,135		$	(8,227	)	$	733,378


	Three months ended September 26, 2020																		Three months ended December 26, 2020
	Common Stock																		Common Stock
	Shares			Amount			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total			Shares			Amount			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at June 27, 2020		56,665		$	1,570		$	487,781		$	11,610		$	(11,664	)	$	489,297
Balance at September 26, 2020																				56,638		$	1,569		$	487,557		$	29,121		$	(10,803	)	$	507,444
Net income		—			—			—			17,511			—			17,511			—			—			—			21,599			—			21,599
Equity-based compensation		—			—			1,398			—			—			1,398			—			—			1,001			—			—			1,001
Net common stock issued under equity-based compensation plans		(27	)		(1	)		(1,622	)		—			—			(1,623	)
Foreign currency translation adjustments		—			—			—			—			861			861			—			—			—			—			2,151			2,151
Balance at September 26, 2020		56,638		$	1,569		$	487,557		$	29,121		$	(10,803	)	$	507,444
Balance at December 26, 2020																				56,638		$	1,569		$	488,558		$	50,720		$	(8,652	)	$	532,195

	Six months ended September 26, 2020																		Nine months ended December 26, 2020
	Common Stock																		Common Stock
	Shares			Amount			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total			Shares			Amount			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at March 28, 2020		56,665		$	1,570		$	485,552		$	(48	)	$	(12,759	)	$	474,315			56,665		$	1,570		$	485,552		$	(48	)	$	(12,759	)	$	474,315
Net income		—			—			—			29,414			—			29,414			—			—			—			51,013			—			51,013
Equity-based compensation		—			—			3,624			—			—			3,624			—			—			4,625			—			—			4,625
Cumulative adjustment for adoption of ASU 2016-13		—			—			—			(245	)		—			(245	)		—			—			—			(245	)		—			(245	)
Net common stock issued under equity-based compensation plans		(27	)		(1	)		(1,619	)		—			—			(1,620	)		(27	)		(1	)		(1,619	)		—			—			(1,620	)
Foreign currency translation adjustments		—			—			—			—			1,956			1,956			—			—			—			—			4,107			4,107
Balance at September 26, 2020		56,638		$	1,569		$	487,557		$	29,121		$	(10,803	)	$	507,444
Balance at December 26, 2020																				56,638		$	1,569		$	488,558		$	50,720		$	(8,652	)	$	532,195

Components of accumulated other comprehensive income (loss) consisted solely of foreign currency translation adjustments.

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Business

Nature of Operations: Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the United States (“U.S.”) and Canada. The Company’s operations consist of manufacturing, retail, and transportation activities. The Company operates 35 manufacturing facilities throughout the U.S. and 5 manufacturing facilities in western Canada. These facilities primarily construct factory-built, timber-framed manufactured, and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured houses to consumers primarily in the Southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles and other products throughout the U.S. and Canada.

COVID-19 Government Financial Assistance: The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. Various government programs were announced to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and state level programs in the United States and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. The Company recognized $~~0.6~~ ~~million for wage subsidies under the CARES Act and other state level programs in the United States during the first quarter of fiscal 2021. The Company recognized $2.6~~0.2 million and $~~6.2~~7.0 million of ~~payroll~~ subsidies under ~~CEWS~~these programs during the three and ~~six~~nine months ended ~~September~~December 26, 2020, respectively. The Company’s policy is to account for these subsidies as Other Income in the period in which the related costs are incurred and the Company is reasonably assured to receive payment. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through ~~October 2, 2021,~~December 2020 the Company ~~has~~ deferred $11.8 million of payroll taxes. The Company paid $5.9 million of the deferred payroll taxes ~~that will~~in the third quarter of fiscal 2022, with the remaining amount expected to be paid ~~beginning~~ in December ~~2021.~~2022.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of the Company 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 United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany balances and transactions. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly state the Company’s consolidated results of operations, cash flows, and financial position. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on May 26, 2021 (the “Fiscal 2021 Annual Report”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes thereto. Actual results could differ from those estimates. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, and condensed consolidated statements of cash flows for the interim periods are not necessarily indicative of the results of operations or cash flows for the full year.

The Company’s allowance for credit losses on financial assets measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current economic conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. Accounts receivable are reflected net of reserves of $~~0.5~~1.0 million and $0.4 million at ~~October 2, 2021~~January 1, 2022 and April 3, 2021, respectively. At both ~~October 2, 2021~~January 1, 2022 and April 3, 2021, other notes receivable are reflected net of reserves of $0.4 million.

The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2022,” will end on April 2, 2022 and will include 52 weeks. References to “fiscal 2021” refer to the Company’s fiscal year ended April 3, 2021. The three and ~~six~~ ninemonths ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020 each included 13 and 2639 weeks, respectively.

There were no accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

2. Business Acquisition

ScotBilt Acquisition

On February 28, 2021, the Company acquired 100% of the membership interests of ScotBilt Homes, LLC and related companies (“ScotBilt”), a builder of manufactured homes with annual revenues of approximately $79.0 million, for a purchase price of $53.0 million. Under the terms of the purchase agreement, the preliminary purchase price was adjusted for cash held by ScotBilt at the closing date and working capital adjustments resulting in an initial total purchase consideration of $54.5 million. In the first quarter of fiscal 2022, the Company ~~adjusted~~reduced the preliminary purchase price allocation by $0.2 million as a result of the final working capital settlement. The Company accounted for the acquisition as a business combination under the acquisition method of accounting provided by FASB ASC 805, Business Combinations (“ASC 805”). As such, the purchase price was allocated to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill. The purchase price allocation for this acquisition is preliminary and could change.

The preliminary allocation of the purchase price was as follows:


(Dollars in thousands)
Cash	$	1,521
Trade accounts receivable		2,256
Inventory		6,752
Property, plant, and equipment		10,466
Other assets		1,164
Accounts payable and accrued liabilities		(7,432	)
Intangibles		21,100
Goodwill		18,449
Total purchase price allocation	$	54,276

Goodwill is primarily attributable to expected synergies from the combination of the companies, including, but not limited to, expected cost synergies through procurement activities and operational improvements through sharing of best practices. Goodwill, which is deductible for income tax purposes, was allocated to the U.S. Factory-built Housing reporting unit.

Cash, trade accounts receivable, inventory, other assets, accounts payable, and accrued liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Intangible assets include $13.0 million in customer relationships and $8.1 million associated with the ScotBilt trade name and were based on an independent appraisal. The fair value of the customer relationships was determined using the multi-period excess earnings method and the fair value of the trade name was determined using the relief-from-royalty method. The Company estimates that each intangible asset has a weighted average useful life of ten years from the acquisition date. Fair value estimates of property, plant, and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market, cost, and sales comparison approaches, as appropriate. Level 3 fair value estimates of $10.5 million related to property, plant, and equipment and $21.1 million related to intangible assets were recorded in the accompanying consolidated balance sheet as of April 3, 2021.

The acquisition of ScotBilt was a taxable business combination. Therefore, the Company’s tax basis in the assets acquired and the liabilities assumed approximate the respective fair values at the acquisition date.

3. Inventories, net

The components of inventory, net of reserves for obsolete inventory, were as follows:


(Dollars in thousands)	October 2, 2021		April 3, 2021		January 1, 2022		April 3, 2021
Raw materials	$	104,179	$	91,916	$	108,370	$	91,916
Work in process		24,036		21,642		22,644		21,642
Finished goods and other		51,761		52,555		54,038		52,555
Total inventories, net	$	179,976	$	166,113	$	185,052	$	166,113

At ~~October 2, 2021~~January 1, 2022 and April 3, 2021, reserves for obsolete inventory were $~~4.5~~4.4 million and $4.6 million, respectively.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

4. Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020 was $3.3 million and $~~3.1~~3.0 million, respectively. Depreciation expense for the ~~six~~ ninemonths ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020 was $~~6.5~~9.9 million and $~~6.0~~9.0 million, respectively.

The components of property, plant, and equipment were as follows:


(Dollars in thousands)	October 2, 2021			April 3, 2021			January 1, 2022			April 3, 2021
Land and improvements	$	38,966		$	36,470		$	39,411		$	36,470
Buildings and improvements		96,324			97,005			97,206			97,005
Machinery and equipment		61,384			57,790			64,286			57,790
Construction in progress		10,591			1,889			13,913			1,889
Property, plant, and equipment, at cost		207,265			193,154			214,816			193,154
Less: accumulated depreciation		(84,360	)		(78,014	)		(87,620	)		(78,014	)
Property, plant, and equipment, net	$	122,905		$	115,140		$	127,196		$	115,140

5. Goodwill, Intangible Assets, and Cloud Computing Arrangements

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At ~~October 2, 2021~~January 1, 2022 and April 3, 2021, the Company had goodwill of $192.0 million and $191.8 million, respectively.

Intangible Assets

The components of amortizable intangible assets were as follows:


(Dollars in thousands)	October 2, 2021									April 3, 2021									January 1, 2022									April 3, 2021
	Customer Relationships			Trade Names			Total			Customer Relationships			Trade Names			Total			Customer Relationships			Trade Names			Total			Customer Relationships			Trade Names			Total
Gross carrying amount	$	61,923		$	21,393		$	83,316		$	61,963		$	21,409		$	83,372		$	61,913		$	21,389		$	83,302		$	61,963		$	21,409		$	83,372
Accumulated amortization		(20,934	)		(7,309	)		(28,243	)		(18,158	)		(6,379	)	$	(24,537	)		(22,336	)		(7,795	)		(30,131	)		(18,158	)		(6,379	)	$	(24,537	)
Amortizable intangibles, net	$	40,989		$	14,084		$	55,073		$	43,805		$	15,030		$	58,835		$	39,577		$	13,594		$	53,171		$	43,805		$	15,030		$	58,835

During the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020, amortization of intangible assets was $1.9 million and $~~1.3~~1.4 million, respectively. During the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020, amortization of intangible assets was $~~3.8~~5.7 million and $~~2.7~~4.1 million, respectively.

Cloud Computing Arrangements

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed ~~technology.~~software. At ~~October 2, 2021~~January 1, 2022 and April 3, 2021, the Company had capitalized cloud computing costs of $~~10.6~~15.7 million and $0.3 million, ~~within~~respectively. Cloud computing costs are included in other noncurrent assets ~~respectively.~~in the accompanying Consolidated Balance Sheets. There was 0 amortization of capitalized cloud computing costs during the three and ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020 ~~respectively,~~ as the related ~~cloud computing technology has~~systems have not yet been placed in service.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

6. Other Current Liabilities

The components of other current liabilities were as follows:


(Dollars in thousands)	October 2, 2021		April 3, 2021		January 1, 2022		April 3, 2021
Customer deposits	$	59,807	$	58,888	$	65,114	$	58,888
Accrued volume rebates		23,048		18,207		24,849		18,207
Accrued warranty obligations		25,419		24,033		24,508		24,033
Accrued compensation and payroll taxes		45,484		42,560		50,149		42,560
Accrued insurance		15,716		12,421		17,455		12,421
Other		31,273		24,586		23,019		24,586
Total other current liabilities	$	200,747	$	180,695	$	205,094	$	180,695

7. Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:


	Three months ended						Six months ended						Three months ended						Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020			January 1, 2022			December 26, 2020			January 1, 2022			December 26, 2020
Balance at beginning of period	$	31,079		$	24,695		$	30,469		$	24,969		$	31,855		$	24,460		$	30,469		$	24,969
Warranty expense		10,880			8,394			21,184			14,753			9,146			9,863			30,330			24,616
Cash warranty payments		(10,104	)		(8,629	)		(19,798	)		(15,262	)		(10,057	)		(8,808	)		(29,855	)		(24,070	)
Balance at end of period		31,855			24,460			31,855			24,460			30,944			25,515			30,944			25,515
Less: noncurrent portion in other long-term liabilities		(6,436	)		(5,790	)		(6,436	)		(5,790	)		(6,436	)		(5,790	)		(6,436	)		(5,790	)
Total current portion	$	25,419		$	18,670		$	25,419		$	18,670		$	24,508		$	19,725		$	24,508		$	19,725

8. Debt and Floor Plan Payable

Long-term debt consisted of the following:


(Dollars in thousands)	October 2, 2021		April 3, 2021		January 1, 2022		April 3, 2021
Revolving credit facility maturing in 2026	$	—	$	26,900	$	—	$	26,900
Obligations under industrial revenue bonds due 2029		12,430		12,430		12,430		12,430
Total debt		12,430		39,330		12,430		39,330
Less: current portion		—		—		—		—
Total long-term debt	$	12,430	$	39,330	$	12,430	$	39,330

On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement with a syndicate of banks that provides for a revolving credit facility of up to $200.0 million, including a $45.0 million letter of credit sub-facility (“Amended Credit Agreement”). The Amended Credit Agreement replaced the Company’s previously existing $100.0 million revolving credit facility. Outstanding borrowings of $26.9 million on the Company’s previous revolving credit facility were repaid in July 2021. The Amended Credit Agreement allows the Company to draw down, repay and re-draw loans on the available funds during the term, subject to certain terms and conditions, matures in July 2026 and has no scheduled amortization. The Company capitalized $1.1 million of deferred financing fees associated with the Amended Credit Agreement, which is included in other noncurrent assets on the accompanying consolidated balance ~~sheet.~~sheets. The Company wrote off $0.3 million of deferred financing fees associated with the previously existing credit facility, which is included in interest expense, net for the ~~three and six~~nine months ended ~~October 2, 2021.~~January 1, 2022.

The interest rate on borrowings under the Amended Credit Agreement adjusts based on the consolidated total net leverage of the Company from a high of LIBOR plus 1.875% and ABR plus 0.875%, at the election of the Company, when the consolidated total net leverage ratio is equal to or greater than 2.25:1.00, to a low of LIBOR plus 1.125% and ABR plus 0.125% when the consolidated total net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.15% and 0.3% (depending on the consolidated total net leverage ratio) in respect of unused commitments under the Amended Credit Agreement. At ~~October 2, 2021~~January 1, 2022 the interest rate under the Amended Credit Agreement was ~~1.2~~1.23%. At ~~October 2, 2021,~~January 1, 2022, letters of credit issued under the Amended Credit Agreement totaled $30.4 million and total available borrowings were $169.6 million.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at ~~October 2, 2021,~~January 1, 2022, including related costs and fees, was ~~1.74~~1.78%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.

The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Amended Credit Agreement as of ~~October 2, 2021.~~January 1, 2022.

Floor Plan Payable

The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At ~~October 2, 2021~~January 1, 2022 and April 3, 2021, the Company had outstanding borrowings on floor plan financing agreements of $~~30.8~~34.3 million and $25.7 million, respectively. Total credit line capacity provided under the agreements was $57.0 million as of ~~October 2, 2021.~~January 1, 2022. Borrowings are secured by the financed homes and are required to be repaid when the Company sells ~~the~~a financed home to a customer.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

9. Revenue Recognition

The following tables disaggregate the Company’s revenue by sales category for the three and ~~six~~ ninemonths ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended October 2, 2021								Three months ended January 1, 2022
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total		U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total

Manufacturing and retail	$	469,127	$	38,501	$	—	$	507,628	$	478,838	$	36,910	$	—	$	515,748
Commercial		2,572		—		—		2,572		5,481		—		—		5,481
Transportation		—		—		14,025		14,025		—		—		13,461		13,461
Total	$	471,699	$	38,501	$	14,025	$	524,225	$	484,319	$	36,910	$	13,461	$	534,690


	Six months ended October 2, 2021								Nine months ended January 1, 2022
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total		U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total

Manufacturing and retail	$	925,018	$	76,332	$	—	$	1,001,350	$	1,403,856	$	113,242	$	—	$	1,517,098
Commercial		4,001		—		—		4,001		9,482		—		—		9,482
Transportation		—		—		29,071		29,071		—		—		42,532		42,532
Total	$	929,019	$	76,332	$	29,071	$	1,034,422	$	1,413,338	$	113,242	$	42,532	$	1,569,112

	Three months ended September 26, 2020								Three months ended December 26, 2020
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total		U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total

Manufacturing and retail	$	275,969	$	24,558	$	—	$	300,527	$	332,200	$	26,351	$	—	$	358,551
Commercial		7,391		—		—		7,391		4,158		—		—		4,158
Transportation		—		—		14,448		14,448		—		—		14,872		14,872
Total	$	283,360	$	24,558	$	14,448	$	322,366	$	336,358	$	26,351	$	14,872	$	377,581



	Six months ended September 26, 2020								Nine months ended December 26, 2020
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total		U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total

Manufacturing and retail	$	524,828	$	39,753	$	—	$	564,581	$	857,028	$	66,104	$	—	$	923,132
Commercial		7,391		—		—		7,391		11,549		—		—		11,549
Transportation		—		—		23,679		23,679		—		—		38,551		38,551
Total	$	532,219	$	39,753	$	23,679	$	595,651	$	868,577	$	66,104	$	38,551	$	973,232

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

10. Income Taxes

For the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020, the Company recorded $~~16.4~~23.3 million and $~~5.6~~ ~~million of income tax expense and had an effective tax rate during each period of~~ ~~24.4%. For the six months ended October 2, 2021 and September 26, 2020, the Company recorded $30.4~~ ~~million and $10.2~~5.3 million of income tax expense and had an effective tax rate of ~~24.5~~25.6% and ~~25.8~~19.7%, respectively. For the nine months ended January 1, 2022 and December 26, 2020, the Company recorded $53.7 million and $15.5 million of income tax expense and had an effective tax rate of 25.0% and 23.3%, respectively. During the three months ended December 26, 2020, the Company completed a U.S. research and development ("R&D") tax credit study for the years 2018 and 2019 that resulted in the recognition of a tax benefit of $1.7 million.

The Company’s effective tax rate for the three ~~months~~ and ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 differs from the federal statutory rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, results in foreign jurisdictions, and tax benefits ~~from vested~~related to equity compensation. The Company’s effective tax rate for the three ~~months~~ and ~~six~~nine months ended ~~September~~December 26, 2020 differs from the federal statutory rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits (including the $1.7 million R&D credit), and results in foreign jurisdictions.

At ~~October 2, 2021,~~January 1, 2022, the Company had 0 unrecognized tax benefits. The Company does not anticipate any material changes to uncertain tax benefits in the next twelve months. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

11. Earnings Per Share

Basic net income per share (“EPS”) attributable to the Company was computed by dividing net income attributable to the Company by the average number of common shares outstanding during the period. Certain of the Company’s time-based restricted share awards were considered participating securities prior to the completion of the vesting period. The vesting for these time-based shares occurred in the second quarter of fiscal 2021. Diluted earnings per common share is computed based on the more dilutive of: (i) the two class method, assuming the participating securities are not exercised or converted; or (ii) the summation of average common shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued. During the ~~three and six~~nine months ended ~~September~~December 26, 2020, the two-class method was more dilutive. The two-class method was not applicable to the computation for the three months ended December 26,2020, or any subsequent periods, as the time-vested restricted share awards were fully vested and no longer considered participating securities.

The following table sets forth the computation of basic and diluted earnings per common share:


	Three months ended					Six months ended						Three months ended				Nine months ended
(Dollars and shares in thousands, except per share data)	October 2, 2021		September 26, 2020				October 2, 2021		September 26, 2020			January 1, 2022		December 26, 2020			January 1, 2022		December 26, 2020
Numerator:
Net income	$	50,723	$	17,511			$	93,624	$	29,414		$	67,622	$	21,599		$	161,246	$	51,013
Undistributed earnings allocated to participating securities		—		(19	)			—		(53	)		—		—			—		(62	)
Net income attributable to the Company's common shareholders	$	50,723	$	17,492			$	93,624	$	29,361		$	67,622	$	21,599		$	161,246	$	50,951
Denominator:
Basic weighted-average shares outstanding		56,808		56,654				56,757		56,593			56,847		56,702			56,787		56,630
Dilutive securities		400		255				455		238			491		288			498		253
Diluted weighted-average shares outstanding		57,208		56,909				57,212		56,831			57,338		56,990			57,285		56,883

Basic net income per share	$	0.89	$	0.31			$	1.65	$	0.52		$	1.19	$	0.38		$	2.84	$	0.90
Diluted net income per share	$	0.89	$	0.31			$	1.64	$	0.52		$	1.18	$	0.38		$	2.81	$	0.90

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

12. Segment Information

Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segments primarily based on net sales, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.

The Company operates in 2 reportable segments: (i) U.S. Factory-built Housing, which includes manufacturing and retail housing operations and (ii) Canadian Factory-built Housing. Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments and intersegment eliminations. Segments are generally determined by geography. Segment data includes intersegment revenues and corporate office costs that are directly and exclusively incurred for each segment. Total assets for Corporate/Other primarily includes cash and certain deferred tax items not specifically allocated to another segment.

Selected financial information by reportable segment was as follows:


	Three months ended						Six months ended						Three months ended						Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020			January 1, 2022			December 26, 2020			January 1, 2022			December 26, 2020

Net sales:
U.S. Factory-built Housing	$	471,699		$	283,360		$	929,019		$	532,219		$	484,319		$	336,358		$	1,413,338		$	868,577
Canadian Factory-built Housing		38,501			24,558			76,332			39,753			36,910			26,351			113,242			66,104
Corporate/Other		14,025			14,448			29,071			23,679			13,461			14,872			42,532			38,551
Consolidated net sales	$	524,225		$	322,366		$	1,034,422		$	595,651		$	534,690		$	377,581		$	1,569,112		$	973,232
Operating income:
U.S. Factory-built Housing EBITDA	$	78,075		$	28,697		$	141,092		$	53,090		$	98,724		$	35,538		$	239,816		$	88,628
Canadian Factory-built Housing EBITDA		6,390			5,951			12,056			10,857			7,571			2,933			19,627			13,790
Corporate/Other EBITDA		(11,351	)		(6,221	)		(17,328	)		(13,828	)		(9,638	)		(6,407	)		(26,966	)		(20,235	)
Other income		11			(2,599	)		(43	)		(6,813	)		7			(180	)		(36	)		(6,993	)
Depreciation		(3,264	)		(3,048	)		(6,521	)		(5,969	)		(3,348	)		(3,025	)		(9,869	)		(8,994	)
Amortization		(1,874	)		(1,360	)		(3,762	)		(2,721	)		(1,902	)		(1,361	)		(5,664	)		(4,082	)
Consolidated operating income	$	67,987		$	21,420		$	125,494		$	34,616		$	91,414		$	27,498		$	216,908		$	62,114
Depreciation:
U.S. Factory-built Housing	$	2,619		$	2,391		$	5,229		$	4,789		$	2,706		$	2,378		$	7,935		$	7,167
Canadian Factory-built Housing		273			248			558			363			279			246			837			609
Corporate/Other		372			409			734			817			363			401			1,097			1,218
Consolidated depreciation	$	3,264		$	3,048		$	6,521		$	5,969		$	3,348		$	3,025		$	9,869		$	8,994
Amortization of U.S. Factory-built Housing intangible assets:	$	1,874		$	1,360		$	3,762		$	2,721		$	1,902		$	1,361		$	5,664		$	4,082
Capital expenditures:
U.S. Factory-built Housing	$	5,269		$	1,054		$	12,527		$	1,939		$	6,799		$	1,234		$	19,070		$	3,173
Canadian Factory-built Housing		236			85			341			242			248			312			589			554
Corporate/Other		379			102			2,237			371			632			137			3,125			508
Consolidated capital expenditures	$	5,884		$	1,241		$	15,105		$	2,552		$	7,679		$	1,683		$	22,784		$	4,235

(Dollars in thousands)							October 2, 2021			April 3, 2021									January 1, 2022			April 3, 2021
Total Assets:
U.S. Factory-built Housing (1)							$	605,669		$	578,897								$	586,047		$	578,897
Canadian Factory-built Housing (1)								93,773			87,224									94,891			87,224
Corporate/Other (1)								310,888			251,781									387,213			251,781
Consolidated total assets							$	1,010,330		$	917,902								$	1,068,151		$	917,902

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

(1)

Deferred tax assets for the Canadian operations are reflected in the Canadian Factory-built Housing segment. U.S. deferred tax assets are presented in Corporate/Other because an allocation between segments is not practicable.

13. Commitments, Contingencies and Legal Proceedings

Repurchase Contingencies and Guarantees

The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on its agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. Excluding the resale value of the homes, the contingent repurchase obligation as of ~~October 2, 2021~~January 1, 2022 was estimated to be $~~243.4~~281.7 million. The Company accounts for the guarantees under its repurchase agreements with the retailers’ financing institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. In addition, the Company has estimated the expected contingent net loss the Company will incur upon resale of any repurchases. These estimates are based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting retailers for which the Company has a contingent repurchase obligation. Based on these repurchase agreements and historical loss experience, as well as current economic conditions and forecasts that affect the potential loss exposure, a loss reserve of $~~1.5~~1.8 million and $1.4 million was recorded as of ~~October 2, 2021~~January 1, 2022 and April 3, 2021, respectively. Losses incurred on homes repurchased were not significant during the three or ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 or ~~September~~December 26, 2020.

At ~~October 2, 2021,~~January 1, 2022, the Company was contingently obligated for $30.4 million under letters of credit, primarily consisting of $12.6 million to support long-term debt, $17.5 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued from a sub-facility of the Amended Credit Agreement. The Company was also contingently obligated for $~~35.1~~35.6 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.

In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.

Legal Proceedings

The Company has agreed to indemnify counterparties in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. As of the date of this filing, the Company believes the ultimate liability with respect to these contingent obligations will not have, either individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Item 2. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with Skyline Champion Corporation’s condensed consolidated financial statements and the related notes that appear in Item 1 of this Report.

Overview

Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured offsite construction, company-owned retail locations, and transportation logistics services. The Company is the largest independent publicly traded factory-built solutions provider in North America (based on revenue) and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company operates 35 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed, manufactured and modular houses that are sold mainly to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured homes to consumers primarily in the southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.

Industry and Company Outlook

Since July 2020, U.S. and Canadian housing ~~industry~~ demand has been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the ~~United States,~~U.S., including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time home buyers, and the population of households earning less than $60,000 per year. We have also seen a number of market trends pointing to increased sales of accessory dwelling units and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options.

The robust demand environment has resulted in backlog of ~~$1,369~~$1.5 billion as of January 1, 2022 compared to $488.5 million as of ~~October 2, 2021 compared to $390.1 million as of September~~December 26, 2020. Generally higher backlog at our manufacturing facilities creates an opportunity to increase production efficiencies. Although the higher demand brings opportunities, it also has resulted in significant increases in ~~certain~~raw material ~~input costs, most significantly forest products for much of fiscal 2022.~~and labor costs. In addition, we are ~~also~~ experiencing intermittent supply disruption and higher freight ~~costs and fluctuating prices for many of our other material inputs.~~costs. Finding and retaining qualified labor continues to be a challenge for our plants which requires us to review our compensation programs and adjust accordingly. We manage our business to anticipate or quickly react to these supply challenges and cost increases and generally are able to pass along increased costs to our customers. Historically, order cancellation rates have been very low, but the longer lead-time caused by larger backlogs and changing prices could result in higher cancellations in future periods.

For the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, approximately ~~77%~~78% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the U.S. Department of Housing and Urban Development ("HUD") code construction standard in the U.S. Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by the Manufactured Housing Institute ("MHI"), HUD-code industry home shipments were ~~43,949~~71,281 and ~~36,312~~61,492 units during the ~~five~~eight months ended ~~August 31,~~November 30, 2021 and 2020, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was ~~19.5%~~19.4% and ~~15.6%~~16.2%, for the ~~five~~eight months ended ~~August 31,~~November 30, 2021 and 2020, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, current manufactured ~~housing’s most recent annual shipment levels~~housing shipments are still ~~operate~~ at lower levels than the long-term historical average of over 200,000 ~~units.~~units a year.

Acquisitions and Expansions

Over the last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve. As a result, the Company has focused on operational improvements to make existing manufacturing facilities more profitable as well as executing measured expansion of its manufacturing and retail footprints.

The Company has increased capacity through strategic acquisitions and expansions of its manufacturing operations. The Company is focused on growing in strong housing markets across the U.S.

On June 21, 2021, the Company acquired two idle facilities in Navasota, Texas in order to strengthen its production capabilities in the Texas market. The Company ~~intends to initiate production in~~began certification of the manufacturing operations at one of these facilities byin the ~~end~~third quarter of fiscal ~~2022.~~2022, and expects to begin delivering products from that facility in the fourth fiscal quarter. On February 28, 2021, the Company acquired ~~ScotBilt. In calendar 2020,~~ ScotBilt, ~~shipped over 1,600 homes from its~~which operates two manufacturing facilities in Georgia ~~providing~~that provide affordable housing throughout Alabama, Florida, Georgia and the Carolinas. ~~ScotBilt has approximately 400 employees in its two~~

manufacturing facilities. The Company believes ScotBilt is an excellent fit because of the compatible company cultures and because of ScotBilt’s strong presence in the attractive Mid-South region, which helps to balance national distribution and complements the Company’s existing manufacturing footprint. The operations of ScotBilt are included in the financial results of the Company since the date of the acquisition. On January 14, 2021, the Company

acquired two idled facilities in Pembroke, North Carolina, which provides an opportunity to further expand its manufacturing footprint in the South and Southeast markets. The Company is currently assessing prospects for initiating production in one or both of these facilities.

The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations. These acquisitions and investments are included in the Company's consolidated results for periods subsequent to their respective acquisition dates.

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.

The Company has prioritized the safety and well-being of its employees and customers and has implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand. By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members, and social distancing protocols. During fiscal 2021, the Company experienced intermittent closures due to COVID-19 outbreaks at the facilities or surrounding communities causing higher than normal absenteeism. In the second half of fiscal 2021, the Company was able to increase daily production rates over the levels achieved in the prior fiscal year period as direct labor staffing levels increased and production efficiencies improved. ~~As of October 2, 2021,~~Although the Company has generally been able to navigate the production challenges caused by the pandemic in fiscal 2022, availability of labor and certain materials remain subject to disruption and uncertainty. Prices for key raw materials have experienced increased volatility and, overall, manufacturing costs have trended higher than prior periods.

As part of the initial response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and waived premium payments on healthcare benefits for furloughed ~~employees during the first quarter of fiscal 2021.~~employees. The Company’s U.S. operations incurred ~~$1.9~~$2.2 million of expense related to the extended ~~benefits.~~benefits during the nine months ended December 26, 2020. Various government programs ~~have been announced~~were enacted to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the ~~United States~~U.S. and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. CEWS provided a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized ~~$2.6 million and~~ $6.2 million ~~respectively,~~ for payroll subsidies under CEWS ~~during the three~~ and ~~six months ended September 26, 2020. The Company also recognized~~ $0.6 million for payroll subsidies under the CARES Act during the ~~first quarter of fiscal 2021.~~nine months ended December 26, 2020. No payroll subsidy was recognized under CEWS or Cares Act during the three months ended December 26, 2020. In addition, the CARES Act allowed for deferring payment of certain payroll taxes. Through ~~October 2, 2021,~~December 2020 the Company ~~has~~ deferred $11.8 million of payroll taxes ~~that will~~. The Company repaid $5.9 million in the current quarter, with the remaining amount expected to be paid ~~beginning~~ in December ~~2021.~~2022.

UNAUDITED INCOME STATEMENTS FOR THE ~~SECOND~~THIRD QUARTER OF FISCAL 2022 VS. 2021


	Three months ended						Three months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			January 1, 2022			December 26, 2020

Results of Operations Data:
Net sales	$	524,225		$	322,366		$	534,690		$	377,581
Cost of sales		394,898			259,573			377,451			305,797
Gross profit		129,327			62,793			157,239			71,784
Selling, general, and administrative expenses		61,340			41,373			65,825			44,286
Operating income		67,987			21,420			91,414			27,498
Interest expense, net		845			864			508			795
Other income (expense)		11			(2,599	)		7			(180	)
Income before income taxes		67,131			23,155			90,899			26,883
Income tax expense		16,408			5,644			23,277			5,284
Net income	$	50,723		$	17,511		$	67,622		$	21,599

Reconciliation of Adjusted EBITDA:
Net income	$	50,723		$	17,511		$	67,622		$	21,599
Income tax expense		16,408			5,644			23,277			5,284
Interest expense, net		845			864			508			795
Depreciation and amortization		5,138			4,408			5,250			4,386
Equity-based compensation (for awards granted prior to December 31, 2018)		—			388
Other		—			122
Adjusted EBITDA	$	73,114		$	28,937		$	96,657		$	32,064
As a percent of net sales:
Gross profit		24.7	%		19.5	%		29.4	%		19.0	%
Selling, general, and administrative expenses		11.7	%		12.8	%		12.3	%		11.7	%
Operating income		13.0	%		6.6	%		17.1	%		7.3	%
Net income		9.7	%		5.4	%		12.6	%		5.7	%
Adjusted EBITDA		13.9	%		9.0	%		18.1	%		8.5	%

NET SALES

The following table summarizes net sales for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended										Three months ended
(Dollars in thousands)	October 2, 2021		September 26, 2020		$ Change			% Change			January 1, 2022		December 26, 2020		$ Change			% Change
Net sales	$	524,225	$	322,366	$	201,859			62.6	%	$	534,690	$	377,581	$	157,109			41.6	%
U.S. manufacturing and retail net sales	$	471,699	$	283,360	$	188,339			66.5	%	$	484,319	$	336,358	$	147,961			44.0	%
U.S. homes sold		5,902		4,689		1,213			25.9	%		5,832		5,343		489			9.2	%
U.S. manufacturing and retail average home selling price	$	79.9	$	60.4	$	19.5			32.3	%	$	83.0	$	63.0	$	20.0			31.7	%
Canadian manufacturing net sales	$	38,501	$	24,558	$	13,943			56.8	%	$	36,910	$	26,351	$	10,559			40.1	%
Canadian homes sold		358		302		56			18.5	%		336		318		18			5.7	%
Canadian manufacturing average home selling price	$	107.5	$	81.3	$	26.2			32.2	%	$	109.9	$	82.9	$	27.0			32.6	%
Corporate/Other net sales	$	14,025	$	14,448	$	(423	)		(2.9	%)	$	13,461	$	14,872	$	(1,411	)		(9.5	%)
U.S. manufacturing facilities in operation at end of period		35		33								35		33
U.S. retail sales centers in operation at end of period		18		18								18		18
Canadian manufacturing facilities in operation at end of period		5		5								5		5

Net sales for the three months ended ~~October 2, 2021~~January 1, 2022 were ~~$524.2~~$534.7 million, an increase of ~~$201.9~~$157.1 million, or ~~62.6%~~41.6%, over the three months ended ~~September~~December 26, 2020. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Net sales for the Company’s U.S. manufacturing and retail operations increased by ~~$188.3~~$148.0 million, or ~~66.5%~~44.0%, for the three months ended ~~October 2, 2021~~January 1, 2022 compared to the three months ended ~~September~~December 26, 2020. The change was primarily due to an increase in the number of homes sold during the period of ~~25.9%~~9.2%, an increase in the average home selling price of ~~32.3%~~31.7%, and the impact of the acquisition of ScotBilt. Demand for our products has increased significantly in recent periods and we have been able to increase production in response to that demand. The average selling price increased during the period due to pricing actions enacted in response to rising material, freight, and labor ~~costs.~~costs as well as a shift in product mix to larger homes with more features and amenities. Generally, we are able to pass the increase in input costs along to our customers.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales increased by ~~$13.9~~$10.6 million, or ~~56.8%~~40.1% for the three months ended ~~October 2, 2021~~January 1, 2022 compared to the same period in the prior fiscal year, primarily due to ~~an 18.5%~~a 5.7% increase in the number of homes sold and a ~~32.2%~~32.6% increase in average home selling price. The increase in volume was due to an increase in ~~demand and production rates.~~homes sold driven by strong demand. The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. On a constant currency basis, net sales for the Canadian segment were ~~unfavorably~~also favorably impacted by approximately ~~$0.6~~$1.8 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended ~~October 2, 2021~~January 1, 2022 as compared to the same period of the prior fiscal year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the three months ended ~~October 2, 2021,~~January 1, 2022, net sales decreased ~~$0.4~~$1.4 million, or ~~2.9%~~9.5%, primarily attributable to lower revenue from the shipment of recreational vehicles.

GROSS PROFIT

The following table summarizes gross profit for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended											Three months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change
Gross profit:
U.S. Factory-built Housing	$	116,604		$	54,546		$	62,058		113.8	%	$	143,333		$	62,943		$	80,390		127.7	%
Canadian Factory-built Housing		8,868			4,787			4,081		85.3	%		10,251			5,372			4,879		90.8	%
Corporate/Other		3,855			3,460			395		11.4	%		3,655			3,469			186		5.4	%
Total gross profit	$	129,327		$	62,793		$	66,534		106.0	%	$	157,239		$	71,784		$	85,455		119.0	%
Gross profit as a percent of net sales		24.7	%		19.5	%							29.4	%		19.0	%

Gross profit as a percent of sales during the three months ended ~~October 2, 2021~~January 1, 2022 was ~~24.7%~~29.4% compared to ~~19.5%~~19.0% during the three months ended ~~September~~December 26, 2020. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Gross profit for the U.S. Factory-built Housing segment increased by ~~$62.1~~$80.4 million, or ~~113.8%~~127.7%, during the three months ended ~~October 2, 2021~~January 1, 2022 compared to the same period in the prior fiscal year. Gross profit was ~~24.7%~~29.6% as a percent of segment net sales for the three months ended ~~October 2, 2021,~~January 1, 2022, compared to ~~19.2%~~18.7% in the same period of the prior fiscal year. ~~The increase~~Margin improvement was driven primarily by price increases in ~~gross profit is due~~response to rising input costs and the ~~increase in homes sold~~timing of certain price adjustments for raw materials under our buying programs. We have also focused on product simplification and material SKU rationalization to improve operational efficiencies ~~and~~to better leverage increased ~~leverage of~~production and manufacturing fixed ~~costs resulting from higher production volumes.~~costs.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment increased by ~~$4.1~~$4.9 million, or ~~85.3%~~90.8%, during the three months ended ~~October 2, 2021,~~January 1, 2022, compared to the same period in the prior fiscal year, primarily due to increased sales volume. Gross profit as a percent of net sales was ~~23.0%~~27.8% for the three months ended ~~October 2, 2021,~~January 1, 2022, compared to ~~19.5%~~20.4% in the same period of the prior fiscal year. ~~The~~Margin improvement ~~is due~~was driven by price increases in response to rising material and labor costs, as well as direct labor and manufacturing efficiencies, ~~from the increase in home sales, partially offset by higher material~~and increased leverage of manufacturing fixed costs.

Corporate/Other:

Gross profit for the Corporate/Other segment increased ~~$0.4~~$0.2 million, or ~~11.4%~~5.4%, during the three months ended ~~October 2, 2021,~~January 1, 2022, compared to the same period of the prior fiscal year, as a result of changes in revenue mix.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended											Three months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change
Selling, general, and administrative expenses:
U.S. Factory-built Housing	$	43,014		$	29,601		$	13,413		45.3	%	$	49,208		$	31,324		$	17,884		57.1	%
Canadian Factory-built Housing		2,751			1,683			1,068		63.5	%		2,958			2,682			276		10.3	%
Corporate/Other		15,575			10,089			5,486		54.4	%		13,659			10,280			3,379		32.9	%
Total selling, general, and administrative expenses	$	61,340		$	41,373		$	19,967		48.3	%	$	65,825		$	44,286		$	21,539		48.6	%
Selling, general, and administrative expense as a percent of net sales		11.7	%		12.8	%							12.3	%		11.7	%

Selling, general, and administrative expenses were ~~$61.3~~$65.8 million for the three months ended ~~October 2, 2021,~~January 1, 2022, an increase of ~~$20.0~~$21.5 million, or ~~48.3%~~48.6%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased ~~$13.4~~$17.9 million, or ~~45.3%~~57.1%, during the three months ended ~~October 2, 2021,~~January 1, 2022, as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales ~~decreased~~increased to ~~9.1%~~10.2% for the three months ended ~~October 2, 2021,~~January 1, 2022, compared to ~~10.4%~~9.3% during the comparable period of the prior fiscal ~~year, primarily due to increased leverage of fixed costs resulting from the increase in sales.~~year. The increase in expenses resulted from the following factors: (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from increased headcount ~~increases due~~as we staffed to respond to the growth in housing demand; and (iii) the impact of the acquisition of the ScotBilt operations.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased ~~$1.1~~$0.3 million, or ~~63.5%~~10.3%, for the three months ended ~~October 2, 2021~~January 1, 2022 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales ~~increased~~decreased to ~~7.1%~~8.0% for the three months ended ~~October 2, 2021,~~January 1, 2022, compared to ~~6.9%~~10.2% during the comparable period of the prior fiscal year. The ~~increase in~~higher expenses ~~resulted from~~are a result of an increase in ~~commissions and~~ incentive compensation ~~as well as wage expense from headcount increases due to the growth in housing demand.~~which is generally based on a measure of profitability.

Corporate/Other:

Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other increased ~~$5.5~~$3.4 million, or ~~54.4%~~32.9%, during the three months ended ~~October 2, 2021,~~January 1, 2022, compared to the same period of the prior fiscal year, due to an increase in ~~employee compensation, primarily~~ equity ~~and incentive~~ compensation, as well as ~~$2.1~~$2.2 million of costs related to investments made to enhance our customer buying experience and supporting systems.

INTEREST EXPENSE, NET

The following table summarizes the components of interest expense, net for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended												Three months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change			% Change			January 1, 2022			December 26, 2020			$ Change			% Change
Interest expense	$	993		$	974		$	19			2.0	%	$	701		$	946		$	(245	)		(25.9	%)
Less: Interest income		(148	)		(110	)		(38	)		34.5	%		(193	)		(151	)		(42	)		27.8	%
Interest expense, net	$	845		$	864		$	(19	)		(2.2	%)	$	508		$	795		$	(287	)		(36.1	%)
Average outstanding floor plan payable	$	29,300		$	27,309								$	32,942		$	24,304
Average outstanding long-term debt	$	12,430		$	77,330								$	12,430		$	64,663

Interest expense, net was ~~$0.8~~$0.5 million for the three months ended ~~October 2, 2021, remaining consistent with the same period~~January 1, 2022, a decrease of ~~the prior fiscal year. The Company wrote off~~ $0.3 million of deferred financing fees during the second quarter ended October 2, 2021, which offset the reduction in interest expense from lower average outstanding borrowing balance on the Company's revolving credit facility during the second quarter ended October 2, 2021 versus the same quarter in fiscal 2021.

~~OTHER EXPENSE (INCOME)~~

~~The following table summarizes other income for the three months ended October 2, 2021 and September 26, 2020:~~

Three months ended

(Dollars in thousands)

October 2,
2021

September 26,
2020

$
Change

%
Change

Other expense (income)

$
11

$
(2,599
)

$
2,610

(100.4
%)

~~Other income decreased $2.6 million, or 100.4%, during the three months ended October 2, 2021, as~~ compared to the same period of the prior fiscal year. The net decrease isin expense was primarily due to ~~a reduction~~lower average outstanding borrowings on long-term debt, offset in part by higher average borrowings on floor plan payables. The Company repaid the ~~wage subsidies~~ ~~provided by a Canadian government sponsored financial assistance program initially enacted in response to~~outstanding balance on its revolving credit facility during the ~~pandemic~~.second quarter of fiscal 2022.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Three months ended											Three months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change

Income tax expense	$	16,408		$	5,644		$	10,764		190.7	%	$	23,277		$	5,284		$	17,993		340.5	%
Effective tax rate		24.4	%		24.4	%							25.6	%		19.7	%

Income tax expense for the three months ended ~~October 2, 2021~~January 1, 2022 was ~~$16.4~~$23.3 million, representing an effective tax rate of ~~24.4%~~25.6%, compared to income tax expense of ~~$5.6~~$5.3 million, representing an effective tax rate of ~~24.4%~~19.7% for the three months ended ~~September~~December 26, 2020.

The change in the effective tax rate for the three months ended January 1, 2022 compared with the same period of the prior year, was primarily due to the recognition of a tax benefit of $1.7 million during the third quarter of fiscal 2021 related to a U.S. R&D tax credit study.

The Company’s effective tax rate for the three months ended ~~October 2, 2021~~January 1, 2022 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, results in foreign jurisdictions, and tax benefits ~~from vested~~related to equity compensation. The Company’s effective tax rate for the three months ended ~~September~~December 26, 2020 ~~differs~~differed from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, tax credits (including the R&D study), and results in foreign jurisdictions.

ADJUSTED EBITDA

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the three months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:

Three months ended

(Dollars in thousands)

October 2,
2021

September 26,
2020

$
Change

%
Change

Net income

$
50,723

$
17,511

$
33,212

*

Income tax expense

16,408

5,644

10,764

*

Interest expense, net

845

864

(19
)

(2.2
%)
Depreciation and amortization

5,138

4,408

730

16.6
%
Equity-based compensation (for awards granted prior to December 31, 2018)

—

388

(388
)

*

Other

—

122

(122
)

*

Adjusted EBITDA

$
73,114

$
28,937

$
44,177

*

* indicates that the calculated percentage is not meaningful


	Three months ended				��
(Dollars in thousands)	January 1, 2022		December 26, 2020			$ Change			% Change
Net income	$	67,622	$	21,599		$	46,023			213.1	%
Income tax expense		23,277		5,284			17,993			340.5	%
Interest expense, net		508		795			(287	)		(36.1	%)
Depreciation and amortization		5,250		4,386			864			19.7	%
Adjusted EBITDA	$	96,657	$	32,064		$	64,593			201.5	%

Adjusted EBITDA for the three months ended ~~October 2, 2021~~January 1, 2022 was ~~$73.1~~$96.7 million, an increase of ~~$44.2~~$64.6 million from the same period of the prior fiscal year. The increase is primarily a result of higher operating income due to increases in net sales volume and gross ~~margin,~~margins, partially offset by higher SG&A expenses.

UNAUDITED INCOME STATEMENTS FOR THE FIRST ~~HALF~~NINE MONTHS OF FISCAL 2022 VS. 2021

Six months ended

(Dollars in thousands)

October 2,
2021

September 26,
2020

Results of Operations Data:

Net sales

$
1,034,422

$
595,651

Cost of sales

793,565

478,855

Gross profit

240,857

116,796

Selling, general, and administrative expenses

115,363

82,180

Operating income

125,494

34,616

Interest expense, net

1,494

1,806

Other income

(43
)

(6,813
)
Income before income taxes

124,043

39,623

Income tax expense

30,419

10,209

Net income

$
93,624

$
29,414

Reconciliation of Adjusted EBITDA:

Net income

$
93,624

$
29,414

Income tax expense

30,419

10,209

Interest expense, net

1,494

1,806

Depreciation and amortization

10,283

8,690

Equity-based compensation (for awards granted prior to December 31, 2018)

—

1,358

Adjusted EBITDA

$
135,820

$
51,477

As a percent of net sales:

Gross profit

23.3
%

19.6
%
Selling, general, and administrative expenses

11.2
%

13.8
%
Operating income

12.1
%

5.8
%
Net income

9.1
%

4.9
%
Adjusted EBITDA

13.1
%

8.6
%


	Nine months ended
(Dollars in thousands)	January 1, 2022			December 26, 2020

Results of Operations Data:
Net sales	$	1,569,112		$	973,232
Cost of sales		1,171,016			784,652
Gross profit		398,096			188,580
Selling, general, and administrative expenses		181,188			126,466
Operating income		216,908			62,114
Interest expense, net		2,002			2,601
Other income		(36	)		(6,993	)
Income before income taxes		214,942			66,506
Income tax expense		53,696			15,493
Net income	$	161,246		$	51,013

Reconciliation of Adjusted EBITDA:
Net income	$	161,246		$	51,013
Income tax expense		53,696			15,493
Interest expense, net		2,002			2,601
Depreciation and amortization		15,533			13,076
Equity-based compensation (for awards granted prior to December 31, 2018)		—			1,358
Adjusted EBITDA	$	232,477		$	83,541
As a percent of net sales:
Gross profit		25.4	%		19.4	%
Selling, general, and administrative expenses		11.5	%		13.0	%
Operating income		13.8	%		6.4	%
Net income		10.3	%		5.2	%
Adjusted EBITDA		14.8	%		8.6	%

NET SALES

The following table summarizes net sales for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended									Nine months ended
(Dollars in thousands)	October 2, 2021		September 26, 2020		$ Change		% Change			January 1, 2022		December 26, 2020		$ Change		% Change

Net sales	$	1,034,422	$	595,651	$	438,771		73.7	%	$	1,569,112	$	973,232	$	595,880		61.2	%
U.S. manufacturing and retail net sales	$	929,019	$	532,219	$	396,800		74.6	%	$	1,413,338	$	868,577	$	544,761		62.7	%
U.S. homes sold		12,274		8,717		3,557		40.8	%		18,106		14,060		4,046		28.8	%
U.S. manufacturing and retail average home selling price	$	75.7	$	61.1	$	14.6		23.9	%	$	78.1	$	61.8	$	16.3		26.4	%
Canadian manufacturing net sales	$	76,332	$	39,753	$	36,579		92.0	%	$	113,242	$	66,104	$	47,138		71.3	%
Canadian homes sold		743		494		249		50.4	%		1,079		812		267		32.9	%
Canadian manufacturing average home selling price	$	102.7	$	80.5	$	22.2		27.6	%	$	105.0	$	81.4	$	23.6		29.0	%
Corporate/Other net sales	$	29,071	$	23,679	$	5,392		22.8	%	$	42,532	$	38,551	$	3,981		10.3	%
U.S. manufacturing facilities in operation at end of period		35		33							35		33
U.S. retail sales centers in operation at end of period		18		18							18		18
Canadian manufacturing facilities in operation at end of period		5		5							5		5

Net sales for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 were ~~$1,034.4~~$1,569.1 million, an increase of ~~$438.8~~$595.9 million, or ~~73.7%~~61.2%, over the ~~six~~nine months ended ~~September~~December 26, 2020. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Net sales for the Company’s U.S. manufacturing and retail operations increased by ~~$396.8~~$544.8 million, or ~~74.6%~~62.7%, for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to the ~~six~~nine months ended ~~September~~December 26, 2020. The increase was primarily due to an increase in the number of homes sold during the period of ~~3,557,~~4,046 and an increase in the average selling price of ~~23.9%, and the impact of the acquisition of ScotBilt.~~26.4%. The increase in the number of homes sold was a result of increased production levels at many of the Company’s manufacturing locations in ~~reaction~~response to strong ~~demand.~~demand for our products, as well as the addition of production volume through the acquisition of ScotBilt. The average selling price increased over the prior year due to pricing actions enacted in response to rising material and labor costs. Generally, we are able to pass ~~the increase~~increases in input costs along to our customers. ~~Net~~The improvement this year is also a result of a negative impact to sales in the ~~six months ended September 26, 2020 were more negatively impacted~~prior fiscal year caused by COVID-19 related plant shutdowns and higher than normal absenteeism.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales increased by ~~$36.6~~$47.1 million, or ~~92.0%~~71.3%, for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to the same period in the prior fiscal year, primarily due to an increase in homes sold of ~~249, coupled with~~267 and a ~~27.6%~~29.0% increase in average home selling price. The increase in volume was due to an increase in ~~demand and~~ production ~~rates.~~rates in response to strong housing demand. The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. OnIn addition, on a constant currency basis, net sales for the Canadian segment were favorably impacted by approximately ~~$6.8~~$8.4 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the first ~~six~~nine months of fiscal 2022 as compared to the same period of the prior fiscal year. Net sales induring the ~~six~~nine months ended ~~September~~December 26, 2020 were ~~more~~ negatively impacted by COVID-19 related plant shutdowns and higher than normal absenteeism.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, net sales increased ~~$5.4~~$4.0 million, or ~~22.8%~~10.3%, primarily attributable to an increase in shipments of manufactured homes and recreational vehicles.

GROSS PROFIT

The following table summarizes gross profit for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended											Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change

Gross profit:
U.S. Factory-built Housing	$	215,815		$	102,956		$	112,859		109.6	%	$	359,148		$	165,899		$	193,249		116.5	%
Canadian Factory-built Housing		17,193			7,569			9,624		127.2	%		27,444			12,941			14,503		112.1	%
Corporate/Other		7,849			6,271			1,578		25.2	%		11,504			9,740			1,764		18.1	%
Total gross profit	$	240,857		$	116,796		$	124,061		106.2	%	$	398,096		$	188,580		$	209,516		111.1	%
Gross profit as a percent of net sales		23.3	%		19.6	%							25.4	%		19.4	%

Gross profit as a percent of sales during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 was ~~23.3%~~25.4% compared to ~~19.6%~~19.4% during the ~~six~~nine months ended ~~September~~December 26, 2020. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Gross profit for the U.S. Factory-built Housing segment increased by ~~$112.9~~$193.2 million, or ~~109.6%~~116.5%, during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to the same period in the prior fiscal year. Gross profit was ~~23.2%~~25.4% as a percent of segment net sales for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~19.3%~~19.1% in the same period of the prior fiscal year. The increase in gross profit is due to operational efficiencies and increased leverage of manufacturing fixed costs resulting from higher production volumes and higher average selling prices during fiscal 2022. Higher input costs for materials and labor have generally been offset to date by increasing the prices of our products. The improvement is also a ~~reduction~~result of less COVID-19 related sick-pay and health benefits which were provided in the prior fiscal ~~year, all partially offset by higher material costs.~~year.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment increased by ~~$9.6~~$14.5 million, or ~~127.2%~~112.1% during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to the same period in the prior fiscal year primarily due to increased sales ~~volume.~~volumes and the price of our products. Gross profit as a percent of net sales was ~~22.5%~~24.2% for the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, compared to ~~19.0%~~19.6% in the same period of the prior

fiscal ~~year~~year. The increase in gross profit as a percent of sales is primarily due to operational ~~efficiencies~~leverage from the increase in ~~home sales,~~homes sold, partially offset by higher material ~~and labor~~ costs.

Corporate/Other:

Gross profit for the Corporate/Other segment increased ~~$1.6~~$1.8 million, or ~~25.2%~~18.1%, during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to the same period of the prior fiscal year, primarily due to increased net sales inand the product mix within the Company’s transportation operations.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended											Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change

Selling, general, and administrative expenses:
U.S. Factory-built Housing	$	83,769		$	57,977		$	25,792		44.5	%	$	132,977		$	89,301		$	43,676		48.9	%
Canadian Factory-built Housing		5,696			3,289			2,407		73.2	%		8,654			5,971			2,683		44.9	%
Corporate/Other		25,898			20,914			4,984		23.8	%		39,557			31,194			8,363		26.8	%
Total selling, general, and administrative expenses	$	115,363		$	82,180		$	33,183		40.4	%	$	181,188		$	126,466		$	54,722		43.3	%
Selling, general, and administrative expense as a percent of net sales		11.2	%		13.8	%							11.5	%		13.0	%

Selling, general, and administrative expenses were ~~$115.4~~$181.2 million for the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, an increase of ~~$33.2~~$54.7 million, or ~~40.4%~~43.3%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased ~~$25.8~~$43.7 million, or ~~44.5%~~48.9%, during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses, as a percent of segment net sales decreased to ~~9.0%~~9.4% for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~10.9%~~10.3% during the comparable period of the prior fiscal year. The increase in expenses resulted from the following factors: (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from headcount increases to support increased ~~production;~~sales; (iii) an increase in travel expenses compared to the same period in the prior fiscal year; and (iv) the impact of the acquisition of the ScotBilt operations.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased ~~$2.4~~$2.7 million, or ~~73.2%~~44.9%, for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales decreased to ~~7.5%~~7.6% for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~8.3%~~9.0% during the comparable period of the prior fiscal year. The increase in selling, general, and administrative expenses resulted from an increase in commissions and incentive compensation as well as wage expense from additional headcount to support the increase in ~~production.~~sales.

Corporate/Other:

Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other increased ~~$5.0~~$8.4 million, or ~~23.8%~~26.8%, during the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 as compared to the same period of the prior fiscal year due to ~~an increase in wages, incentive and equity compensation~~$4.2 million of costs ~~as well as $1.9 million for the investment~~related to investments made to enhance our customer buying experience and supporting ~~systems.~~systems and an increase in incentive, equity compensation costs, and wage expense from additional headcount.

INTEREST EXPENSE, NET

The following table summarizes the components of interest expense, net for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended												Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change			% Change			January 1, 2022			December 26, 2020			$ Change			% Change

Interest expense	$	1,801		$	2,061		$	(260	)		(12.6	%)	$	2,502		$	3,007		$	(505	)		(16.8	%)
Less: Interest income		(307	)		(255	)		(52	)		20.4	%		(500	)		(406	)		(94	)		23.2	%
Interest expense, net	$	1,494		$	1,806		$	(312	)		(17.3	%)	$	2,002		$	2,601		$	(599	)		(23.0	%)
Average outstanding floor plan payable	$	28,946		$	29,188								$	30,278		$	27,560
Average outstanding long-term debt	$	25,882		$	77,330								$	12,430		$	73,108

Interest expense, net was ~~$1.5~~$2.0 million for the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, a decrease of ~~$0.3~~$0.6 million, or ~~17.3%~~23.0%, compared to the same period of the prior fiscal year. The net decrease in expense was primarily due to a lower average outstanding borrowings on long-term debt, offset in part by higher average borrowings on floor plan payables. The Company repaid the outstanding balance on ~~the Company’s~~its revolving credit facility ~~partially offset by~~during the ~~write-off~~second quarter of ~~deferred financing fees of $0.3 million in association with the previously existing revolving credit facility.~~fiscal 2022.

OTHER EXPENSE (INCOME)

The following table summarizes other income for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended											Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change

Other expense (income)	$	(43	)	$	(6,813	)	$	6,770		(99.4	%)
Other income												$	(36	)	$	(6,993	)	$	6,957		(99.5	%)

Other income decreased ~~$6.8~~$7.0 million, or ~~99.4%~~99.5%, during the ~~six~~nine months ended ~~October 2, 2021,~~January 1, 2022, compared to the same period of the prior fiscal year. The decrease is due to a reduction in the wage subsidies provided by government sponsored financial assistance programs that were

enacted in response to the COVID-19 ~~pandemic.~~pandemic during fiscal 2021. The programs included a Canadian wage subsidy benefit of $6.2 million and U.S. federal and state wage subsidy ~~benefit~~benefits of ~~$0.6~~$0.8 million ~~during~~recognized in the ~~six~~nine months ended ~~September~~December 26, ~~2020.~~2020 which did not recur in the current year.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended											Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			$ Change		% Change			January 1, 2022			December 26, 2020			$ Change		% Change

Income tax expense	$	30,419		$	10,209		$	20,210		198.0	%	$	53,696		$	15,493		$	38,203		246.6	%
Effective tax rate		24.5	%		25.8	%							25.0	%		23.3	%

Income tax expense for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 was ~~$30.4~~$53.7 million, representing an effective tax rate of ~~24.5%~~25.0%, compared to income tax expense of ~~$10.2~~$15.5 million, representing an effective tax rate of ~~25.8%~~23.3% for the ~~six~~nine months ended ~~September~~December 26, 2020.The change in the effective tax rate for the nine months ended January 1, 2022 compared with the same period of the prior year, was primarily due to the recognition of a tax benefit of $1.7 million during the third quarter of fiscal 2021 related to a U.S. R&D tax credit study.

The Company’s effective tax rate for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, results in foreign jurisdictions, and tax benefits ~~from vested~~related to equity compensation. The Company’s effective tax rate for the ~~six~~nine months ended ~~September~~December 26, 2020 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, tax credits (including the R&D study), and results in foreign jurisdictions.

2524

ADJUSTED EBITDA

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:

Six months ended

(Dollars in thousands)

October 2,
2021

September 26,
2020

$
Change

%
Change

Net income

$
93,624

$
29,414

$
64,210

*

Income tax expense

30,419

10,209

20,210

*

Interest expense, net

1,494

1,806

(312
)

(17.3
%)
Depreciation and amortization

10,283

8,690

1,593

18.3
%
Equity-based compensation (for awards granted prior to December 31, 2018)

—

1,358

(1,358
)

*

Adjusted EBITDA

$
135,820

$
51,477

$
84,343

*

* Indicates that the calculated percentage is not meaningful


	Nine months ended
(Dollars in thousands)	January 1, 2022		December 26, 2020		$ Change			% Change

Net income	$	161,246	$	51,013	$	110,233			216.1	%
Income tax expense		53,696		15,493		38,203			246.6	%
Interest expense, net		2,002		2,601		(599	)		(23.0	%)
Depreciation and amortization		15,533		13,076		2,457			18.8	%
Equity-based compensation (for awards granted prior to December 31, 2018)		—		1,358		(1,358	)		(100.0	%)
Adjusted EBITDA	$	232,477	$	83,541	$	148,936			178.3	%

Adjusted EBITDA for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 was ~~$135.8~~$232.5 million, an increase of ~~$84.3~~$148.9 million, from the same period of the prior fiscal year. The increase is primarily a result of higher operating income due to increases in net sales volume and gross ~~margin,~~margins, partially offset by higher SG&A ~~expenses.~~expenses and the reduction in wage subsidies received in the prior year.

The Company defines Adjusted EBITDA as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) equity based compensation for awards granted prior to December 31, 2018; (f) non-cash restructuring charges and impairment of assets; and (g) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP and should not be considered an alternative to, or more meaningful than, net income or loss prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

In evaluating Adjusted EBITDA, investors should be aware that, in the future, the Company may incur expenses similar to those adjusted for in this presentation. This presentation of Adjusted EBITDA should not be construed as an implication that the Company’s future results will be unaffected by unusual or nonrecurring items.

Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

Adjusted EBITDA:

•

does not reflect the interest expense on our debt;

•

excludes impairments; and

•

does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

Also about Adjusted EBITDA:

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

•

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Given these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using non-GAAP financial measures only on a supplemental basis.

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BACKLOG

Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at ~~October 2, 2021~~January 1, 2022 totaled ~~$1,369 million~~$1.5 billion compared to ~~$390.1~~$488.5 million at ~~September~~December 26, 2020. The increase in backlog was driven by increased demand for single-family homes, which resulted in order levels that significantly outpaced production in both the U.S. and Canada. Our ability to increase production rates to keep pace with orders is limited by individual plant capacity, the availability of and ~~time~~time needed to train new employees, employee attendance and availability of materials, including ~~(most recently)~~certain allocations of raw ~~material allocations~~materials by ~~certain of~~ our suppliers. WeWe may experience greater order cancellations in the future as a result of higher prices and the longer time required to manufacture and deliver our products.

Liquidity and Capital Resources

Sources and Uses of Cash

The following table presents summary cash flow information for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 and ~~September~~December 26, 2020:


	Six months ended						Nine months ended
(Dollars in thousands)	October 2, 2021			September 26, 2020			January 1, 2022			December 26, 2020
Net cash provided by (used in):
Operating activities	$	88,887		$	63,842		$	164,406		$	103,816
Investing activities		(15,246	)		(1,334	)		(22,921	)		(1,213	)
Financing activities		(25,553	)		(8,936	)		(21,355	)		(47,938	)
Effect of exchange rate changes on cash, cash equivalents		(411	)		1,259			(578	)		2,940
Net increase in cash and cash equivalents		47,677			54,831			119,552			57,605
Cash and cash equivalents at beginning of period		262,581			209,455			262,581			209,455
Cash and cash equivalents at end of period	$	310,258		$	264,286		$	382,133		$	267,060

The Company’s primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements and capital ~~expenditures, and debt payment obligations.~~expenditures. The Company does not have any scheduled long-term debt maturities in the next twelve months. On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement which provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility. At ~~October 2, 2021~~January 1, 2022, $169.6 million was available for borrowing under the Amended Credit Agreement. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise operating strategies accordingly.

Cash provided by operating activities was ~~$88.9~~$164.4 million for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~$63.8~~$103.8 million for the ~~six~~nine months ended ~~September~~December 26, 2020. Cash provided by operating activities increased due to higher net income in the current year, partially offset by an increase in inventory from higher material costs and higher stocking levels to mitigate supply chain challenges, an increase in ~~accounts receivable from higher sales volumes, and an increase in~~ prepaid and other assets primarily from the capitalization of $15.4 million of cloud computing costs in fiscal ~~2022.~~2022, and a $5.9 million payment of payroll taxes which were deferred in the prior fiscal year under the CARES Act regulations.

Cash used in investing activities was ~~$15.2~~$22.9 million for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~$1.3~~$1.2 million for the ~~six~~nine months ended ~~September~~December 26, 2020. The increase ~~in cash used for investing activities~~ was primarily related to an increase in capital expenditures in the current ~~period which was related to the acquisition of~~period. The Company acquired two idle manufacturing facilities in Texas and made investments in plant ~~operations which were deferred in the prior-year due~~improvements to ~~the pandemic.~~facilitate increased production or operational efficiencies. The Company ~~suspended~~deferred all ~~but critical capital projects~~non-essential spending in the first half of fiscal 2021 due to COVID-19 concerns. ~~Capital spending in the first half of fiscal 2022 reflects our reversion to normal, planned spending.~~

Cash used in financing activities was ~~$25.6~~$21.4 million for the ~~six~~nine months ended ~~October 2, 2021~~January 1, 2022 compared to ~~$8.9~~$47.9 million for the ~~six~~nine months ended ~~September~~December 26, 2020. The ~~increase~~decrease in cash used for financing was primarily related to ~~the repayment~~lower repayments during fiscal 2022 of the Company's previously existing revolving credit ~~facility and payments of deferred~~facility. The Company also saw an increase in floor plan financing ~~fees related~~during fiscal 2022, which had decreased in fiscal 2021 in response to lowering financed retail inventories in response to the ~~Amended Credit Agreement.~~pandemic.

Critical Accounting Policies

For a discussion of our critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements, see Part II, Item 7 of the Fiscal 2021 Annual Report, under the heading “Critical

Accounting Policies.” There have been no significant changes in our significant accounting policies or critical accounting estimates discussed in the Fiscal 2021 Annual Report.

Recently Issued Accounting Pronouncements

For information on the impact of recently issued accounting pronouncements, see Note 1, “Basis of Presentation – Recently Issued Accounting Pronouncements,” to the condensed consolidated financial statements included in this Report.

Forward-Looking Statements

Some of the statements in this Report are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:

•

The COVID-19 pandemic, which has had, and could continue to have, significant adverse effects on us;

•

supply-related issues, including prices and availability of materials;

•

labor-related issues;

•

the cyclicality and seasonality of the housing industry and its sensitivity to changes in general economic or other business conditions;

•

demand fluctuations in the housing industry;

•

the possible unavailability of additional capital when needed;

•

competition and competitive pressures;

•

changes in consumer preferences for our products or our failure to gauge those preferences;

•

quality problems, including the quality of parts sourced from suppliers and related liability and reputational issues;

•

data security breaches, cybersecurity attacks, and other information technology disruptions;

•

the potential disruption of operations caused by the conversion to new information systems;

•

the extensive regulation affecting the production and sale of factory-built housing and the effects of possible changes in laws with which we must comply;

•

the potential impact of natural disasters on sales and raw material costs;

•

the risks associated with mergers and acquisitions, including integration of operations and information systems;

•

periodic inventory adjustments by, and changes to relationships with, independent retailers;

•

changes in interest and foreign exchange rates;

•

insurance coverage and cost issues;

•

the possibility that all or part of our intangible assets, including goodwill, might become impaired;

•

the possibility that our risk management practices may leave us exposed to unidentified or unanticipated risks; and

•

other risks described in Part I — Item 1A, "Risk Factors," included in the Fiscal 2021 Annual Report, as well as the risks and information provided from time to time in our other periodic reports filed with the Securities and Exchange Commission.

If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of the Company’s interest rate and foreign exchange risks, see Part II, Item 7A of the Fiscal 2021 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There have been no significant changes in such risks since April 3, 2021.

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to ~~Rule~~Rules 13a-15(e) of the Exchange Act at ~~October 2, 2021.~~January 1, 2022. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of ~~October 2, 2021.~~January 1, 2022.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial ~~reporting~~reporting.

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PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and other matters. For additional information on legal proceedings, see Note 13 “Commitments, Contingencies and Legal Proceedings – Legal Proceedings,” to the condensed consolidated financial statements included in this Report.

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Item 6. EXHIBITS


Exhibit Number		Description

31.1		Certification of Chief Executive Officer pursuant to Exchange Act rules 13a-4 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †

31.2		Certification of Chief Financial Officer pursuant to Exchange Act rules 13a-4 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

101 (INS)		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101(SCH)		Inline XBRL Taxonomy Extension Schema Document.
101(CAL)		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101(DEF)		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101(LAB)		Inline XBRL Taxonomy Extension Label Linkbase Document.
101(PRE)		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

† Filed herewith.

3130

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Skyline Champion Corporation

Registrant


Signature	Title	Date

/s/ Mark Yost	President and Chief Executive Officer	~~November~~February 3, ~~2021~~2022
Mark Yost	(Principal Executive Officer)

/s/ Laurie Hough	Executive Vice President, Chief Financial Officer and Treasurer	~~November~~February 3, ~~2021~~2022
Laurie Hough	(Principal Financial Officer)

3231