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 December 28, 201926, 2020

or

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

For the transition period from                     to                     

Commission file number: 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 January 26, 2020: 56,665,6812021: 56,638,836

 

 

 

 


 

SKYLINE CHAMPION CORPORATION

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of December 28, 201926, 2020 (unaudited) and March 30, 201928, 2020

1

Condensed Consolidated Income Statements of Operations (unaudited) for the three and nine months ended December 28, 201926, 2020 and December 29, 201828, 2019

2

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018

3

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 28, 201926, 2020 and December 29, 201828, 2019

4

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended December 28, 201926, 2020 and December 29, 201828, 2019

5

Notes to Condensed Consolidated Financial Statements

6

 

 

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

1715

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2927

 

 

Item 4. Controls and Procedures

2927

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

30

Item 1A. Risk Factors

3029

 

 

Item 6. Exhibits

3130

 

 

SIGNATURES

3231

 

 

 

i


 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

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

 

 

December 28,

2019

 

 

March 30,

2019

 

 

December 26,

2020

 

 

March 28,

2020

 

 

(unaudited)

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

171,287

 

 

$

126,634

 

 

$

267,060

 

 

$

209,455

 

Trade accounts receivable, net

 

 

42,233

 

 

 

57,649

 

 

 

41,325

 

 

 

45,733

 

Inventories, net

 

 

107,938

 

 

 

122,638

 

 

 

131,123

 

 

 

126,386

 

Other current assets

 

 

13,377

 

 

 

11,369

 

 

 

15,517

 

 

 

17,239

 

Total current assets

 

 

334,835

 

 

 

318,290

 

 

 

455,025

 

 

 

398,813

 

Long-term assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

110,944

 

 

 

108,587

 

 

 

103,826

 

 

 

109,291

 

Goodwill

 

 

173,521

 

 

 

173,406

 

 

 

173,521

 

 

 

173,521

 

Amortizable intangible assets, net

 

 

44,714

 

 

 

48,936

 

 

 

39,272

 

 

 

43,357

 

Deferred tax assets

 

 

30,435

 

 

 

34,058

 

 

 

19,516

 

 

 

21,812

 

Other noncurrent assets

 

 

30,029

 

 

 

16,677

 

 

 

34,705

 

 

 

34,906

 

Total assets

 

$

724,478

 

 

$

699,954

 

 

$

825,865

 

 

$

781,700

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Floor plan payable

 

$

32,375

 

 

$

33,321

 

 

$

25,595

 

 

$

33,914

 

Accounts payable

 

 

27,325

 

 

 

43,421

 

 

 

38,603

 

 

 

38,703

 

Other current liabilities

 

 

118,603

 

 

 

129,561

 

 

 

143,453

 

 

 

114,030

 

Total current liabilities

 

 

178,303

 

 

 

206,303

 

 

 

207,651

 

 

 

186,647

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

39,330

 

 

 

54,330

 

 

 

39,330

 

 

 

77,330

 

Deferred tax liabilities

 

 

3,746

 

 

 

3,422

 

 

 

4,008

 

 

 

3,264

 

Other

 

 

33,902

 

 

 

23,927

 

 

 

42,681

 

 

 

40,144

 

Total long-term liabilities

 

 

76,978

 

 

 

81,679

 

 

 

86,019

 

 

 

120,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.0277 par value, 115,000 shares authorized, 56,666 and 56,657 shares issued (including 145 and 290 shares subject to restriction) as of December 28, 2019 and March 30, 2019, respectively

 

 

1,570

 

 

 

1,569

 

Common stock, $0.0277 par value, 115,000 shares authorized, 56,638 and 56,665 shares issued (including 0 and 145 shares subject to restriction) as of December 26, 2020 and March 28, 2020, respectively

 

 

1,569

 

 

 

1,570

 

Additional paid-in capital

 

 

483,371

 

 

 

479,226

 

 

 

488,558

 

 

 

485,552

 

Accumulated deficit

 

 

(6,046

)

 

 

(58,208

)

Retained earnings (accumulated deficit)

 

 

50,720

 

 

 

(48

)

Accumulated other comprehensive loss

 

 

(9,698

)

 

 

(10,615

)

 

 

(8,652

)

 

 

(12,759

)

Total stockholders’ equity

 

 

469,197

 

 

 

411,972

 

 

 

532,195

 

 

 

474,315

 

Total liabilities and stockholders’ equity

 

$

724,478

 

 

$

699,954

 

 

$

825,865

 

 

$

781,700

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 


Skyline Champion Corporation

Condensed Consolidated Income Statements of Operations

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Net sales

 

$

342,239

 

 

$

354,671

 

 

$

1,068,585

 

 

$

1,032,368

 

 

$

377,581

 

 

$

342,239

 

 

$

973,232

 

 

$

1,068,585

 

Cost of sales

 

 

273,338

 

 

 

289,935

 

 

 

849,594

 

 

 

853,472

 

 

 

305,797

 

 

 

273,338

 

 

 

784,652

 

 

 

849,594

 

Gross profit

 

 

68,901

 

 

 

64,736

 

 

 

218,991

 

 

 

178,896

 

 

 

71,784

 

 

 

68,901

 

 

 

188,580

 

 

 

218,991

 

Selling, general, and administrative expenses

 

 

45,237

 

 

 

48,848

 

 

 

145,354

 

 

 

222,005

 

 

 

44,286

 

 

 

45,237

 

 

 

126,466

 

 

 

145,354

 

Operating income (loss)

 

 

23,664

 

 

 

15,888

 

 

 

73,637

 

 

 

(43,109

)

Operating income

 

 

27,498

 

 

 

23,664

 

 

 

62,114

 

 

 

73,637

 

Interest expense, net

 

 

328

 

 

 

813

 

 

 

1,019

 

 

 

2,712

 

 

 

795

 

 

 

328

 

 

 

2,601

 

 

 

1,019

 

Other expense

 

 

 

 

 

125

 

 

 

 

 

 

7,845

 

Income (loss) before income taxes

 

 

23,336

 

 

 

14,950

 

 

 

72,618

 

 

 

(53,666

)

Other income

 

 

(180

)

 

 

 

 

 

(6,993

)

 

 

 

Income before income taxes

 

 

26,883

 

 

 

23,336

 

 

 

66,506

 

 

 

72,618

 

Income tax expense

 

 

6,299

 

 

 

4,437

 

 

 

20,456

 

 

 

13,699

 

 

 

5,284

 

 

 

6,299

 

 

 

15,493

 

 

 

20,456

 

Net income (loss)

 

$

17,037

 

 

$

10,513

 

 

$

52,162

 

 

$

(67,365

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

21,599

 

 

$

17,037

 

 

$

51,013

 

 

$

52,162

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.19

 

 

$

0.92

 

 

$

(1.28

)

 

$

0.38

 

 

$

0.30

 

 

$

0.90

 

 

$

0.92

 

Diluted

 

$

0.30

 

 

$

0.19

 

 

$

0.92

 

 

$

(1.28

)

 

$

0.38

 

 

$

0.30

 

 

$

0.90

 

 

$

0.92

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.


Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 28,

2019

 

 

December 29,

2018

 

Net income (loss)

 

$

17,037

 

 

$

10,513

 

 

$

52,162

 

 

$

(67,365

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

548

 

 

 

(2,099

)

 

 

917

 

 

 

(2,206

)

Total comprehensive income (loss)

 

$

17,585

 

 

$

8,414

 

 

$

53,079

 

 

$

(69,571

)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 26,

2020

 

 

December 28,

2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Net income

 

$

21,599

 

 

$

17,037

 

 

$

51,013

 

 

$

52,162

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,151

 

 

 

548

 

 

 

4,107

 

 

 

917

 

Total comprehensive income

 

$

23,750

 

 

$

17,585

 

 

$

55,120

 

 

$

53,079

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.


Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

52,162

 

 

$

(67,365

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

51,013

 

 

$

52,162

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

9,826

 

 

 

8,219

 

 

 

8,994

 

 

 

9,826

 

Amortization of intangible assets

 

 

4,069

 

 

 

3,316

 

 

 

4,082

 

 

 

4,069

 

Amortization of deferred financing fees

 

 

384

 

 

 

409

 

 

 

380

 

 

 

384

 

Fair market value adjustment for asset classified as held for sale

 

 

986

 

 

 

 

 

 

 

 

 

986

 

Equity-based compensation

 

 

6,168

 

 

 

97,589

 

 

 

4,625

 

 

 

6,168

 

Deferred taxes

 

 

4,222

 

 

 

3,223

 

 

 

3,251

 

 

 

4,222

 

Loss on disposal of property, plant, and equipment

 

 

126

 

 

 

1

 

Foreign currency transaction (gain) loss

 

 

(93

)

 

 

188

 

Change in assets and liabilities net of business acquired:

 

 

 

 

 

 

 

 

(Gain) loss on disposal of property, plant, and equipment

 

 

(75

)

 

 

126

 

Foreign currency transaction gain

 

 

(421

)

 

 

(93

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

15,441

 

 

 

8,414

 

 

 

4,577

 

 

 

15,441

 

Inventories

 

 

14,980

 

 

 

4,991

 

 

 

(3,388

)

 

 

14,980

 

Prepaids and other assets

 

 

(6,199

)

 

 

(286

)

 

 

(2,239

)

 

 

(6,199

)

Accounts payable

 

 

(16,130

)

 

 

(11,756

)

 

 

(284

)

 

 

(16,130

)

Accrued expenses and other liabilities

 

 

(12,865

)

 

 

4,975

 

 

 

33,301

 

 

 

(12,865

)

Net cash provided by operating activities

 

 

73,077

 

 

 

51,918

 

 

 

103,816

 

 

 

73,077

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(12,110

)

 

 

(7,627

)

 

 

(4,235

)

 

 

(12,110

)

Cash acquired in business acquisition

 

 

 

 

 

9,722

 

Proceeds from maturity of company owned life insurance policy

 

 

1,186

 

 

 

 

Proceeds from disposal of property, plant, and equipment

 

 

44

 

 

 

17

 

 

 

1,836

 

 

 

44

 

Proceeds from sale of held for sale asset

 

 

1,100

 

 

 

 

 

 

 

 

 

1,100

 

Decrease in note receivable

 

 

 

 

 

284

 

Net cash (used in) provided by investing activities

 

 

(10,966

)

 

 

2,396

 

Net cash used in investing activities

 

 

(1,213

)

 

 

(10,966

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in floor plan financing, net

 

 

(946

)

 

 

9,133

 

 

 

(8,318

)

 

 

(946

)

Borrowings on revolving debt facility

 

 

 

 

 

46,900

 

Payments on revolving debt facility

 

 

(15,000

)

 

 

 

 

 

(38,000

)

 

 

(15,000

)

Payments on term-loans and other debt

 

 

 

 

 

(46,900

)

Payments for deferred financing fees

 

 

 

 

 

(2,169

)

Stock option exercises

 

 

109

 

 

 

1,615

 

 

 

67

 

 

 

109

 

Tax payments for equity-based compensation

 

 

(2,131

)

 

 

(4,117

)

 

 

(1,687

)

 

 

(2,131

)

Members' capital distribution

 

 

 

 

 

(65,277

)

Net cash used in financing activities

 

 

(17,968

)

 

 

(60,815

)

 

 

(47,938

)

 

 

(17,968

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

510

 

 

 

(1,130

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

44,653

 

 

 

(7,631

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

126,634

 

 

 

136,616

 

Cash, cash equivalents, and restricted cash at end of period

 

$

171,287

 

 

$

128,985

 

Effect of exchange rate changes on cash and cash equivalents

 

 

2,940

 

 

 

510

 

Net increase in cash and cash equivalents

 

 

57,605

 

 

 

44,653

 

Cash and cash equivalents at beginning of period

 

 

209,455

 

 

 

126,634

 

Cash and cash equivalents at end of period

 

$

267,060

 

 

$

171,287

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

4



Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)

 

 

Three Months Ended December 28, 2019

 

 

Three Months Ended December 26, 2020

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Members'

Contributed

Capital

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

 

Shares

 

 

Amount

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at September 28, 2019

 

 

56,665

 

 

$

1,570

 

 

$

 

 

$

481,909

 

 

$

(23,083

)

 

$

(10,246

)

 

$

450,150

 

Balance at September 26, 2020

 

 

56,638

 

 

$

1,569

 

 

$

487,557

 

 

$

29,121

 

 

$

(10,803

)

 

$

507,444

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,037

 

 

 

 

 

 

17,037

 

 

 

 

 

 

 

 

 

 

 

 

21,599

 

 

 

 

 

 

21,599

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

1,465

 

 

 

 

 

 

 

 

 

1,465

 

 

 

 

 

 

 

 

 

1,001

 

 

 

 

 

 

 

 

 

1,001

 

Net common stock issued under equity-based compensation plans

 

 

1

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,151

 

 

 

2,151

 

Balance at December 28, 2019

 

 

56,666

 

 

$

1,570

 

 

$

 

 

$

483,371

 

 

$

(6,046

)

 

$

(9,698

)

 

$

469,197

 

Balance at December 26, 2020

 

 

56,638

 

 

$

1,569

 

 

$

488,558

 

 

$

50,720

 

 

$

(8,652

)

 

$

532,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 28, 2019

 

 

Nine Months Ended December 26, 2020

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Members'

Contributed

Capital

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

 

Shares

 

 

Amount

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at March 30, 2019

 

 

56,657

 

 

$

1,569

 

 

$

 

 

$

479,226

 

 

$

(58,208

)

 

$

(10,615

)

 

$

411,972

 

Balance at March 28, 2020

 

 

56,665

 

 

$

1,570

 

 

$

485,552

 

 

$

(48

)

 

$

(12,759

)

 

$

474,315

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,162

 

 

 

 

 

 

52,162

 

 

 

 

 

 

 

 

 

 

 

 

51,013

 

 

 

 

 

 

51,013

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

6,168

 

 

 

 

 

 

 

 

 

6,168

 

 

 

 

 

 

 

 

 

4,625

 

 

 

 

 

 

 

 

 

4,625

 

Cumulative adjustment for adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

(245

)

 

 

 

 

 

(245

)

Net common stock issued under equity-based compensation plans

 

 

9

 

 

 

1

 

 

 

 

 

 

(2,023

)

 

 

 

 

 

 

 

 

(2,022

)

 

 

(27

)

 

 

(1

)

 

 

(1,619

)

 

 

 

 

 

 

 

 

(1,620

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

917

 

 

 

917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,107

 

 

 

4,107

 

Balance at December 28, 2019

 

 

56,666

 

 

$

1,570

 

 

$

 

 

$

483,371

 

 

$

(6,046

)

 

$

(9,698

)

 

$

469,197

 

Balance at December 26, 2020

 

 

56,638

 

 

$

1,569

 

 

$

488,558

 

 

$

50,720

 

 

$

(8,652

)

 

$

532,195

 

 

 

 

 

 

Three Months Ended December 29, 2018

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Members'

Contributed

Capital

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at September 29, 2018

 

 

56,713

 

 

$

1,571

 

 

$

 

 

$

472,176

 

 

$

(77,878

)

 

$

(9,400

)

 

$

386,469

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,513

 

 

 

 

 

 

10,513

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

3,662

 

 

 

 

 

 

 

 

 

3,662

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,099

)

 

 

(2,099

)

Balance at December 29, 2018

 

 

56,713

 

 

$

1,571

 

 

$

 

 

$

475,838

 

 

$

(67,365

)

 

$

(11,499

)

 

$

398,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 29, 2018

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Members'

Contributed

Capital

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at April 1, 2018

 

 

 

 

$

 

 

$

140,076

 

 

$

 

 

$

22,514

 

 

$

(9,293

)

 

$

153,297

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(67,365

)

 

 

 

 

 

(67,365

)

Members' capital distributions

 

 

 

 

 

 

 

 

(42,763

)

 

 

 

 

 

 

(22,514

)

 

 

 

 

 

(65,277

)

Exchange of membership interest for shares of Skyline Champion Corporation

 

 

56,143

 

 

 

1,555

 

 

 

(97,313

)

 

 

380,923

 

 

 

 

 

 

 

 

 

285,165

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

97,589

 

 

 

 

 

 

 

 

 

97,589

 

Net common stock issued under equity-based compensation plans

 

 

570

 

 

 

16

 

 

 

 

 

 

(2,674

)

 

 

 

 

 

 

 

 

 

 

(2,658

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,206

)

 

 

(2,206

)

Balance at December 29, 2018

 

 

56,713

 

 

$

1,571

 

 

$

 

 

$

475,838

 

 

$

(67,365

)

 

$

(11,499

)

 

$

398,545

 

 

 

 

Three Months Ended December 28, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at September 28, 2019

 

 

56,665

 

 

$

1,570

 

 

$

481,909

 

 

$

(23,083

)

 

$

(10,246

)

 

$

450,150

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,037

 

 

 

 

 

 

17,037

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,465

 

 

 

 

 

 

 

 

 

1,465

 

Net common stock issued under equity-based compensation plans

 

 

1

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

548

 

Balance at December 28, 2019

 

 

56,666

 

 

$

1,570

 

 

$

483,371

 

 

$

(6,046

)

 

$

(9,698

)

 

$

469,197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 28, 2019

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid in

Capital

 

 

Retained

Earnings

(Accumulated

Deficit)

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at March 30, 2019

 

 

56,657

 

 

$

1,569

 

 

$

479,226

 

 

$

(58,208

)

 

$

(10,615

)

 

$

411,972

 

Net income

 

 

 

 

 

 

 

 

 

 

 

52,162

 

 

 

 

 

 

52,162

 

Equity-based compensation

 

 

 

 

 

 

 

 

6,168

 

 

 

 

 

 

 

 

 

6,168

 

Net common stock issued under equity-based compensation plans

 

 

9

 

 

 

1

 

 

 

(2,023

)

 

 

 

 

 

 

 

 

(2,022

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

917

 

 

 

917

 

Balance at December 28, 2019

 

 

56,666

 

 

$

1,570

 

 

$

483,371

 

 

$

(6,046

)

 

$

(9,698

)

 

$

469,197

 

 

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

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 


5


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

 

1.

Basis of Presentation and Business

On June 1, 2018, Nature of Operations: Skyline Champion Corporation (formerly known as Skyline Corporation), an Indiana corporation (the “Company”), is a leading producer of factory-built housing in the United States (“U.S.”) and Champion Enterprises Holdings, LLC (“Champion Holdings”Canada. The Company’s operations consist of manufacturing, retail, and transportation activities. The Company operates 33 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") completed the transactions contemplatedwas declared a global pandemic by the Share Contribution & Exchange Agreement (the “Exchange Agreement”World Health Organization in March 2020. Various government programs have been announced to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), dated 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 $6.2 million for payroll subsidies under CEWS during the nine months ended December 26, 2020. NaN payroll subsidy was recognized under CEWS during the three months ended December 26, 2020. The Company also recognized $0.2 million and $0.8 million during the three and nine months ended December 26, 2020 for wage subsidies under the CARES Act and other state level programs in the United States. The Company’s policy is to account for these subsidies as of January 5, 2018, byOther Income in the period in which the related costs are incurred and between the Company and Champion Holdings. Underis reasonably assured to receive payment. As of December 26, 2020, the Exchange Agreement, (i) Champion Holdings contributed to the Company had collected all of the issued and outstanding equity interestsCEWS subsidies for which it has applied. In addition, the CARES Act allows for deferring payment of each of Champion Holdings’ wholly-owned operating subsidiaries (the “Contributed Shares”), and (ii) in exchange for the Contributed Shares,certain payroll taxes. Through December 26, 2020, the Company issued to the membershas deferred $11.6 million of Champion Holdings,payroll taxes that will be paid beginning in the aggregate, 47,752,008 sharesDecember 2021.

Basis of Company common stock (“Skyline Common Stock”) (such issuance, the “Shares Issuance”). Immediately following the Shares Issuance, the members of Champion Holdings collectively held 84.5%, and the Company’s pre-closing shareholders collectively held 15.5%, of the issued and outstanding Skyline Common Stock on a fully-diluted basis. The contribution of the Contributed Shares by Champion Holdings to Skyline, and the Shares Issuance by the Company to the members of Champion Holdings are collectively referred to herein as the “Exchange.”

The Exchange was treated as a purchase of the Company by Champion Holdings for accounting and financial reporting purposes. As a result, the financial results for the nine months ending December 29, 2018 are comprised of the results of 1) Champion Holdings for the period between April 1, 2018 and May 31, 2018 and 2) the Company, after giving effect to the Exchange, from June 1, 2018 through December 29, 2018.

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 23, 2019.21, 2020 (the “Fiscal 2020 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, (loss) 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.

Certain prior year amounts have been reclassified to conform with the current year presentation.

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 2020”,2021,” will end on March 28, 2020.April 3, 2021 and will include 53 weeks. References to “fiscal 2019”2020” refer to the Company’s fiscal year ended March 30, 2019.28, 2020. The three and nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018 each included 13 weeks and 39 weeks, respectively.  

The Company’s operations consist of manufacturing, retail and transportation activities. The Company operates 33 manufacturing facilities throughout the United States (“U.S.”) and 5 manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured, and modular houses that are sold primarily to independent retailers and builders/developers. The Company’s retail operations consist of 21 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 recreational vehicles throughout the U.S. and Canada and manufactured houses in certain regions of the U.S.

Recently Adopted Accounting Pronouncements: In February 2016,On March 29, 2020, the Financial Accounting Standards Board (“FASB”) issuedCompany adopted Accounting Standards Update (“ASU”("ASU") 2016-02,2016-13, Leases(Topic 842) (ASC 842”)Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model. The cumulative effect of adoption resulted in an increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognizeof $0.2 million in the consolidated balance sheetallowance for credit loss and a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous requirements. This ASC 842 is effective for fiscal years beginning after December 31, 2018 and modified retrospective application is permitted.

The Company adopted ASC 842corresponding decrease in retained earnings as of March 31, 2019,29, 2020. 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. As of December 26, 2020 and March 28, 2020, accounts receivable are reflected net of reserves of $0.5 million and $0.4 million, respectively. As of December 26, 2020 and March 28, 2020, other notes receivable are reflected net of reserves of $0.4 million and $0.5 million, respectively. Changes in expected credit losses were not significant in the first daynine months of fiscal 2020 using2021.  

In January 2017, the modified retrospective approachFASB issued ASU 2017-04, “Intangibles - Goodwill and without restating comparative periods. The Company has elected to applyOther (Topic 350), Simplifying the transition package of three practical expedientsTest for Goodwill Impairment,” which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. The Company did not elect the practical expedient which permits the use of hindsight when determining the lease term and assessing right-of-use assets for impairment. As permitted by the standard, the Company elected to: 1) recognize lease expense for leases with a term of 12 months or less on a straight-line basisaddresses concerns over the lease termcost and will not recognize any rightcomplexity of use assets or lease liabilities for those leases,the two-step impairment testing model, and 2) not separate lease and non-lease components.

removes the second step

6


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

The primary financial statement impact upon adoption was the recognition, on a discounted basis, of the Company's minimum commitments under non-cancelable operating leases as righttest. An entity will apply a one-step quantitative test and record the amount of use assets and obligations on the consolidated balance sheets. The adoption of ASC 842 resulted in the recognition of lease-related assets and liabilities of $13.7 million. The standard did not have a material impact on the Company's results of operations or cash flows.

Recently Issued Accounting Pronouncements Pending Adoption: In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairments and allows a goodwill impairment charge to be based onas the amountexcess of a reporting unit’s carrying value in excess ofamount over its fair value. This eliminatesvalue, not to exceed the requirement to calculate the implied fair valuetotal amount of goodwill or what is known as “Step 2” underallocated to the current guidance. This guidance isreporting unit. The Company adopted the provisions of ASU 2017-04 effective for annualMarch 29, 2020, and interim periods of public entities beginning after December 15, 2019, with earlythe adoption permitted. The Company is currently assessingdid not have an impact on the potential impact this ASU will have on itsCompany's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

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

2.

Business Combination

The Exchange was completed on June 1, 2018 and was accounted for as a reverse acquisition under the acquisition method of accounting as provided by the FASB Accounting Standards Codification 805, Business Combinations. Champion Holdings was deemed to be the acquirer for accounting and financial reporting purposes. The assets acquired and liabilities assumed as a result of the Exchange were recorded at their respective fair values and added to the carrying value of Champion Holdings’ existing assets and liabilities. The Company incurred acquisition-related costs of approximately $6.9 million for the nine months ended December 29, 2018, which were classified as other expense in the condensed consolidated statements of operations. NaN acquisition-related costs were incurred during the three months ended December 29, 2018. Additionally, the Company incurred approximately $6.0 million in equity-based compensation expense related to former Skyline employees during the first quarter of fiscal 2019, which is recorded in selling, general, and administrative expenses in the condensed consolidated statements of operations. These types of costs were 0t incurred during fiscal 2020.

The purchase price of the acquisition was determined with reference to the value of equity (common stock) of the Company based on the closing price on June 1, 2018 of $33.39 per share. The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at June 1, 2018, the closing of the Exchange. The purchase price and the allocation have been used to prepare the accompanying condensed consolidated financial statements.

The purchase price was allocated as follows:

(Dollars in thousands)

 

Allocation

 

Cash

 

$

9,722

 

Trade accounts receivable

 

 

13,876

 

Inventory

 

 

19,028

 

Assets held for sale

 

 

2,086

 

Property, plant, and equipment

 

 

40,220

 

Deferred tax assets, net

 

 

7,034

 

Other assets

 

 

6,706

 

Accounts payable and accrued liabilities

 

 

(36,027

)

Intangibles

 

 

52,065

 

Goodwill

 

 

170,342

 

Total purchase price allocation

 

$

285,052

 

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 not deductible for income tax purposes, was allocated to the U.S. Factory-built Housing reporting unit.

Cash, trade receivables, 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 consist primarily of amounts recognized for the fair value of customer relationships and trade names and were based on an independent appraisal. Customer-based assets include the Company’s established relationships with its customers and the ability of those customers to generate future economic profits for the Company. The Company estimates that these intangible assets have a weighted average useful life of ten years.Fair value estimates of property, plant, and equipment were based on independent appraisals and broker opinions of value, giving consideration to the highest and best use of the assets. Key assumptions used in the

7


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

appraisals were based on a combination of market and cost approaches, as appropriate. Level 3 fair value estimates of $40.2 million related to property, plant, and equipment and $52.1 million related to intangible assets were recognized in the accompanying condensed consolidated balance sheet as a result of the allocation of the purchase price from the Exchange. The Company determined $2.1 million of property acquired in the Exchange met the definition of held for sale at the acquisition date and was classified in other current assets. The fair value less cost to sell of this held for sale property was evaluated each reporting period to determine if it has changed. A loss of $1.0 million was recorded during the first quarter of fiscal 2020 related to this held for sale property based on updated market information. The sale of the property was completed during the third quarter of fiscal 2020 for $1.1 million. Assets held for sale were $2.1 million as of March 30, 2019. For further information on acquired assets measured at fair value, see Note 5, Goodwill and Intangible Assets.

The Company allocated a portion of the purchase price to certain realizable deferred tax assets totaling $27.3 million. Deferred tax assets are primarily federal and stateInventories, net operating loss carryforwards and credits offset by a valuation allowance for certain state net operating loss carryforwards that are not expected to be realized. The deferred tax assets are offset by deferred tax liabilities of $20.3 million resulting from the purchase price allocation step-up in fair value that exceed the historical tax basis.

The statement of operations for the three and nine months ended December 29, 2018 includes $63.2 million and $153.3 million, respectively, of net sales attributable to the acquired Skyline operations.

A summary of the results of operations for the Company, on an as reported and on a pro forma basis, are as follows:

 

 

Nine Months Ended

 

 

 

December 29, 2018

 

(Dollars in thousands)

 

Reported

 

 

Pro forma

 

Net sales

 

$

1,032,368

 

 

$

1,078,172

 

Net loss

 

 

(67,365

)

 

 

(52,256

)

The pro forma results are based on adding the historical results of operations of Champion Holdings and Skyline and adjusting those historical amounts for the amortization of intangibles created in the Exchange; the increase in depreciation as a result of the step-up in fair value of property, plant, and equipment; removing transaction costs directly associated with the Exchange; removing equity-based compensation expense directly resulting from the Exchange; reflecting the financing arrangements entered into in connection with the Exchange, and adjusting those items for income taxes. The pro forma disclosures do not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the Exchange or any integration costs. The pro forma data is intended for informational purposes and is not indicative of the future results of operations.

The Exchange Agreement provided that Champion Holdings was permitted to pay a capital distribution prior to completion of the Exchange to the extent it had cash in excess of debt and other debt-like items and unpaid Exchange fees and expenses. Prior to the completion of the Exchange, Champion Holdings made a capital distribution to its members equal to an aggregate of $65.3 million (of which $22.5 million was reflected as a reduction to retained earnings and $42.8 million was reflected as a reduction to members’ contributed capital).

3.

Inventories

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

 

(Dollars in thousands)

 

December 28,

2019

 

 

March 30,

2019

 

 

December 26,

2020

 

 

March 28,

2020

 

Raw materials

 

$

49,242

 

 

$

48,531

 

 

$

69,664

 

 

$

55,408

 

Work in process

 

 

15,235

 

 

 

13,973

 

 

 

19,412

 

 

 

17,773

 

Finished goods and other

 

 

43,461

 

 

 

60,134

 

 

 

42,047

 

 

 

53,205

 

Total inventories

 

$

107,938

 

 

$

122,638

 

Total inventories, net

 

$

131,123

 

 

$

126,386

 

 

At December 28, 201926, 2020 and March 30, 2019,28, 2020, reserves for obsolete inventory were $4.5$4.6 million and $4.1$4.2 million, respectively.

 

4.3.

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 December 26, 2020and December 28, 2019 and December 29, 2018 was $3.2$3.0 million and $2.9$3.2 million, respectively. Depreciation expense for the nine months ended December 26, 2020and December 28, 2019 was $9.0 million and December 29, 2018 was $9.8 million, and $8.2 million, respectively.

8


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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

 

(Dollars in thousands)

 

December 28,

2019

 

 

March 30,

2019

 

 

December 26,

2020

 

 

March 28,

2020

 

Land and improvements

 

$

35,615

 

 

$

34,264

 

 

$

35,525

 

 

$

35,332

 

Buildings and improvements

 

 

87,072

 

 

 

83,973

 

 

 

87,096

 

 

 

87,222

 

Machinery and equipment

 

 

49,288

 

 

 

42,476

 

 

 

54,423

 

 

 

51,239

 

Construction in progress

 

 

4,124

 

 

 

3,619

 

 

 

1,981

 

 

 

1,810

 

Property, plant, and equipment, at cost

 

 

176,099

 

 

 

164,332

 

 

 

179,025

 

 

 

175,603

 

Less: accumulated depreciation

 

 

(65,155

)

 

 

(55,745

)

 

 

(75,199

)

 

 

(66,312

)

Property, plant, and equipment, net

 

$

110,944

 

 

$

108,587

 

 

$

103,826

 

 

$

109,291

 

 

5.4.

Goodwill and Intangible Assets

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 December 28, 2019 26, 2020and March 30, 2019,28, 2020, the Company had goodwill of $173.5 million and $173.4 million, respectively. The change from March 30, 2019 was a result of the finalization of the allocation of net assets recognized in connection with the Exchange.million.

Intangible Assets

The components of amortizable intangible assets were as follows:

 

(Dollars in thousands)

 

December 28, 2019

 

 

March 30, 2019

 

 

December 26, 2020

 

 

March 28, 2020

 

 

Customer

Relationships

 

 

Trade

Names

 

 

Total

 

 

Customer

Relationships

 

 

Trade

Names

 

 

Total

 

 

Customer

Relationships

 

 

Trade

Names

 

 

Total

 

 

Customer

Relationships

 

 

Trade

Names

 

 

Total

 

Gross carrying amount

 

$

48,743

 

 

$

13,220

 

 

$

61,963

 

 

$

48,782

 

 

$

13,173

 

 

$

61,955

 

 

$

48,845

 

 

$

13,261

 

 

$

62,106

 

 

$

48,370

 

 

$

13,068

 

 

$

61,438

 

Accumulated amortization

 

 

(12,407

)

 

 

(4,842

)

 

 

(17,249

)

 

 

(9,052

)

 

 

(3,967

)

 

 

(13,019

)

 

 

(16,847

)

 

 

(5,987

)

 

 

(22,834

)

 

 

(13,118

)

 

 

(4,963

)

 

$

(18,081

)

Amortizable intangibles, net

 

$

36,336

 

 

$

8,378

 

 

$

44,714

 

 

$

39,730

 

 

$

9,206

 

 

$

48,936

 

 

$

31,998

 

 

$

7,274

 

 

$

39,272

 

 

$

35,252

 

 

$

8,105

 

 

$

43,357

 

 

The Company recognized finite-lived intangibles for customer relationships of $43.1 million and trade names of $9.0 million as a result of the allocation of the purchase price from the Exchange. The fair value of the customer relationship intangible asset was estimated using the multi-period excess earnings method of the income approach. The fair value of the customer relationship intangible asset was determined based on estimates and assumptions of projected cash flows attributable7


Skyline Champion Corporation

Notes to the acquired customer relationships, the annual attrition rate of existing customer relationships, the contributory asset charges attributable to the assets that support the customer relationships, such as net working capital, property, plant, and equipment, trade name, and workforce, the economic life and the discount rate as determined at the time of the final valuation. The fair value of the trade name intangible asset was estimated using the relief-from-royalty method of the income approach. The fair value of the trade names intangible asset was determined based on estimates and assumptions used for the expected life of the intangible asset, the royalty rate and the discount rate that reflects the level of risk associated with the future cash flows as determined at the time of the final valuation. Condensed Consolidated Financial Statements - Continued

During both the three months ended December 26, 2020and December 28, 2019 and December 29, 2018,, amortization of intangible assets was $1.4 million and $1.6 million, respectively.million. During both the nine months ended December 26, 2020and December 28, 2019 and December 29, 2018,, amortization of intangible assets was $4.1 million and $3.3 million, respectively.

million.

 

6.5.

Other Current Liabilities

The components of other current liabilities were as follows:

 

(Dollars in thousands)

 

December 28, 2019

 

 

March 30, 2019

 

 

December 26, 2020

 

 

March 28, 2020

 

Customer deposits

 

$

19,947

 

 

$

27,873

 

 

$

38,096

 

 

$

22,679

 

Accrued volume rebates

 

 

20,766

 

 

 

21,020

 

 

 

17,876

 

 

 

17,469

 

Accrued warranty obligations

 

 

20,035

 

 

 

17,886

 

 

 

19,725

 

 

 

19,179

 

Accrued compensation and payroll taxes

 

 

24,431

 

 

 

32,075

 

 

 

35,200

 

 

 

27,776

 

Accrued insurance

 

 

15,674

 

 

 

16,245

 

 

 

14,291

 

 

 

11,182

 

Other

 

 

17,750

 

 

 

14,462

 

 

 

18,265

 

 

 

15,745

 

Total other current liabilities

 

$

118,603

 

 

$

129,561

 

 

$

143,453

 

 

$

114,030

 

9


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

7.6.

Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Balance at the beginning of the period

 

$

24,437

 

 

$

22,871

 

 

$

23,346

 

 

$

15,430

 

 

$

24,460

 

 

$

24,437

 

 

$

24,969

 

 

$

23,346

 

Warranty assumed in the Exchange

 

 

 

 

 

 

 

 

 

 

 

6,259

 

Warranty expense

 

 

9,727

 

 

 

9,167

 

 

 

28,060

 

 

 

25,834

 

 

 

9,863

 

 

 

10,204

 

 

 

24,616

 

 

 

29,640

 

Cash warranty payments

 

 

(9,169

)

 

 

(8,972

)

 

 

(26,411

)

 

 

(24,457

)

 

 

(8,808

)

 

 

(9,646

)

 

 

(24,070

)

 

 

(27,991

)

Balance at end of period

 

 

24,995

 

 

 

23,066

 

 

 

24,995

 

 

 

23,066

 

 

 

25,515

 

 

 

24,995

 

 

 

25,515

 

 

 

24,995

 

Less: noncurrent portion in other long-term liabilities

 

 

(4,960

)

 

 

(5,700

)

 

 

(4,960

)

 

 

(5,700

)

 

 

(5,790

)

 

 

(4,960

)

 

 

(5,790

)

 

 

(4,960

)

Total current portion

 

$

20,035

 

 

$

17,366

 

 

$

20,035

 

 

$

17,366

 

 

$

19,725

 

 

$

20,035

 

 

$

19,725

 

 

$

20,035

 

 

8.7.

Debt and Floor Plan Payable

Long-term debt consisted of the following:

 

(Dollars in thousands)

 

December 28, 2019

 

 

March 30, 2019

 

 

December 26, 2020

 

 

March 28, 2020

 

Revolving credit facility maturing in 2023

 

$

26,900

 

 

$

41,900

 

 

$

26,900

 

 

$

64,900

 

Obligations under industrial revenue bonds due 2029

 

 

12,430

 

 

 

12,430

 

 

 

12,430

 

 

 

12,430

 

Total debt

 

 

39,330

 

 

 

54,330

 

 

 

39,330

 

 

 

77,330

 

Less: current portion

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

39,330

 

 

$

54,330

 

 

$

39,330

 

 

$

77,330

 

 

On June 5, 2018, theThe Company entered into a credithas an agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreementbanks that provides for a revolving credit facility of up to $100.0 million, including a letter of credit sub-facility of not less than $45.0 million. Initial borrowings under the million (“Credit Agreement were used to repay the Company’s existing $46.9 million term loans (“Term Loans”Agreement”) and replace the Company’s existing cash collateralized stand-alone letter of credit facility.. The revolving credit facility allows the Company to draw down, repay and re-draw loans on the available funds during the term of the Credit Agreement. During the three and nine months ended December 28, 2019, the Company repaid $5.0 million and $15.0 million, respectively, of amounts previously drawn on the revolving credit facility.

The Credit Agreement matures on June 5, 2023 and has no scheduled amortization. The interest rate on borrowings under the Credit Agreement adjusts based on the first lien net leverage of the Company from a high of LIBOR plus 2.25% and ABR plus 1.25% when the first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when the first lien net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.40%0.25% and 0.25%0.40% (depending on the first lien net leverage) in respect of unused commitments under the Credit Agreement. At December 28, 2019 26, 2020the interest rate on borrowings under the Credit Agreement was 3.2%1.7%. At December 28, 2019,26, 2020, letters of credit issued under the Credit Agreement totaled $28.7 million. Total$33.9 million and total available borrowings under the Credit Agreement as of December 28, 2019 were $44.4$39.2 million.

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 December 28, 2019,26, 2020, including related costs and fees, was 3.78%. At March 30, 2019, the weighted average interest rate was 3.62%2.19%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.

8


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

The 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 Credit Agreement as of December 28, 2019.26, 2020.

Floor Plan Payable

The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At December 28, 2019 26, 2020and March 30, 2019,28, 2020, the Company had outstanding borrowings on floor plan financing agreements of $32.4$25.6 million and $33.3$33.9 million, respectively. Total credit line capacity provided under the agreements was $48.0$49.0 million as of December 28, 2019.26, 2020. Borrowings are secured by the homes and are required to be repaid when the Company sells the home to a customer.

10


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

9.8.

Revenue Recognition

The following tables disaggregate the Company’s revenue by sales category for the three and nine months ended December 26, 2020and December 28, 2019 and December 29, 2018::

 

 

Three Months Ended December 28, 2019

 

 

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

 

$

304,568

 

 

$

22,809

 

 

$

 

 

$

327,377

 

 

$

332,200

 

 

$

26,351

 

 

$

 

 

$

358,551

 

Commercial

 

 

250

 

 

 

 

 

 

 

 

 

250

 

 

 

4,158

 

 

 

 

 

 

 

 

 

4,158

 

Transportation

 

 

 

 

 

 

 

 

14,612

 

 

 

14,612

 

 

 

 

 

 

 

 

 

14,872

 

 

 

14,872

 

Total

 

$

304,818

 

 

$

22,809

 

 

$

14,612

 

 

$

342,239

 

 

$

336,358

 

 

$

26,351

 

 

$

14,872

 

 

$

377,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 28, 2019

 

 

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

 

$

944,472

 

 

$

72,916

 

 

$

 

 

$

1,017,388

 

 

$

857,028

 

 

$

66,104

 

 

$

 

 

$

923,132

 

Commercial

 

 

4,781

 

 

 

 

 

 

 

 

 

4,781

 

 

 

11,549

 

 

 

 

 

 

 

 

 

11,549

 

Transportation

 

 

 

 

 

 

 

 

46,416

 

 

 

46,416

 

 

 

 

 

 

 

 

 

38,551

 

 

 

38,551

 

Total

 

$

949,253

 

 

$

72,916

 

 

$

46,416

 

 

$

1,068,585

 

 

$

868,577

 

 

$

66,104

 

 

$

38,551

 

 

$

973,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 29, 2018

 

 

Three Months Ended December 28, 2019

 

(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

 

$

308,013

 

 

$

27,130

 

 

$

 

 

$

335,143

 

 

$

304,568

 

 

$

22,809

 

 

$

 

 

$

327,377

 

Commercial

 

 

1,505

 

 

 

 

 

 

 

 

 

1,505

 

 

 

250

 

 

 

 

 

 

 

 

 

250

 

Transportation

 

 

 

 

 

 

 

 

18,023

 

 

 

18,023

 

 

 

 

 

 

 

 

 

14,612

 

 

 

14,612

 

Total

 

$

309,518

 

 

$

27,130

 

 

$

18,023

 

 

$

354,671

 

 

$

304,818

 

 

$

22,809

 

 

$

14,612

 

 

$

342,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 29, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended December 28, 2019

 

(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

 

$

870,816

 

 

$

79,885

 

 

$

 

 

$

950,701

 

 

$

944,472

 

 

$

72,916

 

 

$

 

 

$

1,017,388

 

Commercial

 

 

11,441

 

 

 

 

 

 

 

 

 

11,441

 

 

 

4,781

 

 

 

 

 

 

 

 

 

4,781

 

Transportation

 

 

 

 

 

 

 

 

70,226

 

 

 

70,226

 

 

 

 

 

 

 

 

 

46,416

 

 

 

46,416

 

Total

 

$

882,257

 

 

$

79,885

 

 

$

70,226

 

 

$

1,032,368

 

 

$

949,253

 

 

$

72,916

 

 

$

46,416

 

 

$

1,068,585

 

 

119


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

10.9.

Leases

The Company has operating leases for land, manufacturing and office facilities, and equipment. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. Lease expense included in the accompanying condensed consolidated statement of operationsincome statements is shown below:

 


 

Three Months Ended

 

(Dollars in thousands)

 

Three Months Ended December 28, 2019

 

 

Nine Months Ended December 28, 2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Operating lease expense

 

$

1,359

 

 

$

4,234

 

 

$

1,362

 

 

$

1,359

 

Short-term lease expense

 

 

402

 

 

 

1,005

 

 

 

266

 

 

 

402

 

Total lease expense

 

$

1,761

 

 

$

5,239

 

 

$

1,628

 

 

$

1,761

 

 

 

Nine Months Ended

 

(Dollars in thousands)

 

December 26,

2020

 

 

December 28,

2019

 

Operating lease expense

 

$

4,102

 

 

$

4,234

 

Short-term lease expense

 

 

1,251

 

 

 

1,005

 

Total lease expense

 

$

5,353

 

 

$

5,239

 

 

Operating lease assets and obligations included in the accompanying condensed consolidated balance sheetsheets are shown below:

(Dollars in thousands)

 

December 28,

2019

 

 

December 26,

2020

 

 

March 28,

2020

 

Right-of-use assets under operating leases:

 

 

 

 

 

 

 

 

 

 

 

 

Other long-term assets

 

$

11,616

 

 

$

12,515

 

 

$

14,808

 

Lease obligations under operating leases:

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities

 

 

3,826

 

 

$

4,305

 

 

$

4,789

 

Other long-term liabilities

 

 

7,790

 

 

 

8,210

 

 

 

10,019

 

Total lease obligation

 

$

11,616

 

 

$

12,515

 

 

$

14,808

 

 

Maturities of lease obligations as of December 28, 2019,26, 2020, are shown below:

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 26,

2020

 

Fiscal 2020 (1)

 

$

1,133

 

Fiscal 2021

 

 

4,155

 

Fiscal 2021 (1)

 

$

1,294

 

Fiscal 2022

 

 

3,090

 

 

 

4,694

 

Fiscal 2023

 

 

2,234

 

 

 

3,754

 

Fiscal 2024

 

 

912

 

 

 

1,803

 

Fiscal 2025

 

 

1,124

 

Thereafter

 

 

2,214

 

 

 

1,879

 

Total undiscounted cash flows

 

 

13,738

 

 

 

14,548

 

Less: imputed interest

 

 

(2,122

)

 

 

(2,033

)

Lease obligations under operating leases

 

$

11,616

 

 

$

12,515

 

(1)

For remaining period in fiscal year.

The weighted averageweighted-average lease term and discount rate for operating leases are shown below:

 

 

 

December 28,26,

20192020

 

Weighted averageWeighted-average remaining lease term (in years)

 

 

5.14.6

 

Weighted averageWeighted-average discount rate

 

 

5.65.5

 

10


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate, which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

Cash flow information related to operating leases is shown below:

 

Nine Months Ended

 

(Dollars in thousands)

 

Nine Months Ended December 28, 2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Non-cash activity:

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

1,711

 

 

$

1,430

 

 

$

1,711

 

Operating cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid related to operating lease obligations

 

$

4,262

 

 

$

4,255

 

 

$

4,262

 

12


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

11.10.

Income Taxes

For the three months ended December 26, 2020 and December 28, 2019, and December 29, 2018, the Company recorded $6.3$5.3 million and $4.4$6.3 million of income tax expense and had an effective tax rate of 27.0%19.7% and 29.7%27.0%, respectively. For the nine months ended December 26, 2020 and December 28, 2019, and December 29, 2018, the Company recorded $20.5$15.5 million and $13.7$20.5 million of income tax expense and had an effective tax rate of 28.2%23.3% and (25.5%)28.2%, respectively. The change inDuring the effective tax rate for the three and nine months ended December 28,26, 2020, the Company completed a U.S. research and development ("R&D") tax credit study for the years 2018 and 2019 compared withthat resulted in the same respective periodsrecognition of the prior year, was primarily due to costs related to the Exchange including non-deductible equity-based compensation for which noa tax benefit could be recognized.of $1.7 million.

The Company’s effective tax rate for both the three and nine months endedDecember 26, 2020 and December 28, 2019 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, and results in foreign jurisdictions. The Company’s effective

At December 26, 2020, the Company had 0 unrecognized tax rate for the three and nine months ended December 29, 2018 differed from the federal statutory rate primarily due to the effect of non-deductible expenses, state and local income taxes, one-time charges related to the Exchange and results in foreign jurisdictions and non-taxable entities.

During the nine months ended December 28, 2019, the Company’s uncertain tax position did not change. During the nine months ended December 29, 2018, the Company’s uncertain tax position decreased by $0.7 million due to expiration of certain statutes of limitations.benefits. The Company estimates a $0.6 million decreasedoes not anticipate any material changes to uncertain tax benefits in the next twelve months due to the expiration of statutes of limitations.months. The Company records interest and penalties related to uncertainunrecognized tax positionsbenefits as a component of income tax expense. Net interest and penalties for the periods presented herein were not significant.

 

 

12.11.

Earnings Per Share

Basic net income (loss) per share (“EPS”) attributable to the Company was computed by dividing net income (loss) attributable to the Company by the average number of common shares outstanding during the period. Certain of the Company’s time-vestingtime-based restricted share awards arewere considered participating securities.securities prior to the completion of the vesting period. The vesting for these time-based shares was completed in the second quarter of fiscal 2021. Diluted earnings per common share is computed based on the more dilutive ofof: (i) the two-classtwo 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 nine months ended December 26, 2020, and the three and nine months ended December 28, 2019, and the three months ended December 29, 2018, 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 as the time-vested restricted share awards were fully vested and no longer considered participating securities during the period. Securities that could potentially dilute basic EPS in the future that were considered antidilutive in the three and nine months ended December 26, 2020 totaled 0.2 million. There were 0 antidilutive securities in the three and nine months ended December 29, 2018 given the net loss recorded for that period. The number of shares used28, 2019.

11


Skyline Champion Corporation

Notes to calculate earnings per share prior to the Exchange was determined based on the exchange ratio, as defined in the Exchange Agreement.Condensed Consolidated Financial Statements - Continued

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

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

 

December 28,

2019

 

 

December 29,

2018

 

 

December 28,

2019

 

 

December 29,

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

17,037

 

 

$

10,513

 

 

$

52,162

 

 

$

(67,365

)

Undistributed earnings allocated to participating securities

 

 

(44

)

 

 

(86

)

 

 

(196

)

 

 

 

Net income (loss) attributable to the Company's common shareholders

 

$

16,993

 

 

$

10,427

 

 

$

51,966

 

 

$

(67,365

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

56,521

 

 

 

56,249

 

 

 

56,457

 

 

 

52,595

 

Dilutive securities

 

 

267

 

 

 

 

 

 

248

 

 

 

 

Diluted weighted average shares outstanding

 

 

56,788

 

 

 

56,249

 

 

 

56,705

 

 

 

52,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

0.30

 

 

$

0.19

 

 

$

0.92

 

 

$

(1.28

)

Diluted net income (loss) per share

 

$

0.30

 

 

$

0.19

 

 

$

0.92

 

 

$

(1.28

)

 

 

Three Months Ended

 

Nine Months Ended

 

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

 

December 26,

2020

 

 

December 28,

2019

 

 

December 26,

2020

 

 

December 28,

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

21,599

 

 

$

17,037

 

 

$

51,013

 

 

$

52,162

 

Undistributed earnings allocated to participating securities

 

 

 

 

 

(44

)

 

 

(62

)

 

 

(196

)

Net income attributable to the Company's common shareholders

 

$

21,599

 

 

$

16,993

 

 

$

50,951

 

 

$

51,966

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

56,702

 

 

 

56,521

 

 

 

56,630

 

 

 

56,457

 

Dilutive securities

 

 

288

 

 

 

267

 

 

 

253

 

 

 

248

 

Diluted weighted-average shares outstanding

 

 

56,990

 

 

 

56,788

 

 

 

56,883

 

 

 

56,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.38

 

 

$

0.30

 

 

$

0.90

 

 

$

0.92

 

Diluted net income per share

 

$

0.38

 

 

$

0.30

 

 

$

0.90

 

 

$

0.92

 

 

13.

Transactions with Related Parties

Prior to the Exchange, the Company was party to a Management Advisory Services Agreement (“Services Agreement”) with Centerbridge Advisors, LLC; MAK Management L.P.; and Sankaty Advisors, LLC (collectively, the “Managers”), affiliates of which collectively owned a majority of the units of Champion Holdings and the Company’s common stock (the “Principal Shareholders”), whereby the Principal Shareholders provided management, consulting, financial and other advisory services to Champion Holdings. Management fee expense during fiscal 2019, recognized prior to the Exchange, was $0.3 million. The Services Agreement was terminated in connection with the Exchange. The

13


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Management fee expense is included in selling, general, and administrative expenses in the accompanying condensed consolidated statements of operation.

14.12.

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 segmentsegments 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 directly 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 includeincludes cash and certain deferred tax items not specifically allocated to another segment.

 

1412


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

Selected financial information by reportable segment was as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

 

December 26,

2020

 

 

December 28,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

304,818

 

 

$

309,518

 

 

$

949,253

 

 

$

882,257

 

 

$

336,358

 

 

$

304,818

 

 

$

868,577

 

 

$

949,253

 

Canadian Factory-built Housing

 

 

22,809

 

 

 

27,130

 

 

 

72,916

 

 

 

79,885

 

 

 

26,351

 

 

 

22,809

 

 

 

66,104

 

 

 

72,916

 

Corporate/Other

 

 

14,612

 

 

 

18,023

 

 

 

46,416

 

 

 

70,226

 

 

 

14,872

 

 

 

14,612

 

 

 

38,551

 

 

 

46,416

 

Consolidated net sales

 

$

342,239

 

 

$

354,671

 

 

$

1,068,585

 

 

$

1,032,368

 

 

$

377,581

 

 

$

342,239

 

 

$

973,232

 

 

$

1,068,585

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing EBITDA

 

$

33,165

 

 

$

30,637

 

 

$

104,624

 

 

$

80,240

 

 

$

35,538

 

 

$

33,165

 

 

$

88,628

 

 

$

104,624

 

Canadian Factory-built Housing EBITDA

 

 

1,786

 

 

 

2,569

 

 

 

9,085

 

 

 

9,123

 

 

 

2,933

 

 

 

1,786

 

 

 

13,790

 

 

 

9,085

 

Corporate/Other EBITDA

 

 

(6,771

)

 

 

(12,741

)

 

 

(26,177

)

 

 

(120,937

)

 

 

(6,407

)

 

 

(6,771

)

 

 

(20,235

)

 

 

(26,177

)

Other income

 

 

(180

)

 

 

 

 

 

(6,993

)

 

 

 

Depreciation

 

 

(3,171

)

 

 

(2,944

)

 

 

(9,826

)

 

 

(8,219

)

 

 

(3,025

)

 

 

(3,171

)

 

 

(8,994

)

 

 

(9,826

)

Amortization

 

 

(1,345

)

 

 

(1,633

)

 

 

(4,069

)

 

 

(3,316

)

 

 

(1,361

)

 

 

(1,345

)

 

 

(4,082

)

 

 

(4,069

)

Consolidated operating income (loss)

 

$

23,664

 

 

$

15,888

 

 

$

73,637

 

 

$

(43,109

)

Consolidated operating income

 

$

27,498

 

 

$

23,664

 

 

$

62,114

 

 

$

73,637

 

Depreciation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

2,659

 

 

$

2,486

 

 

$

8,365

 

 

$

6,946

 

 

$

2,378

 

 

$

2,659

 

 

$

7,167

 

 

$

8,365

 

Canadian Factory-built Housing

 

 

255

 

 

 

237

 

 

 

744

 

 

 

695

 

 

 

246

 

 

 

255

 

 

 

609

 

 

 

744

 

Corporate/Other

 

 

257

 

 

 

221

 

 

 

717

 

 

 

578

 

 

 

401

 

 

 

257

 

 

 

1,218

 

 

 

717

 

Consolidated depreciation

 

$

3,171

 

 

$

2,944

 

 

$

9,826

 

 

$

8,219

 

 

$

3,025

 

 

$

3,171

 

 

$

8,994

 

 

$

9,826

 

Amortization of intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

1,345

 

 

$

1,572

 

 

$

4,069

 

 

$

3,134

 

 

$

1,361

 

 

$

1,345

 

 

$

4,082

 

 

$

4,069

 

Canadian Factory-built Housing

 

 

 

 

 

61

 

 

 

 

 

 

182

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate/Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated amortization of intangible assets

 

$

1,345

 

 

$

1,633

 

 

$

4,069

 

 

$

3,316

 

 

$

1,361

 

 

$

1,345

 

 

$

4,082

 

 

$

4,069

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

1,981

 

 

$

1,463

 

 

$

9,483

 

 

$

4,919

 

 

$

1,234

 

 

$

1,981

 

 

$

3,173

 

 

$

9,483

 

Canadian Factory-built Housing

 

 

414

 

 

 

158

 

 

 

842

 

 

 

572

 

 

 

312

 

 

 

414

 

 

 

554

 

 

 

842

 

Corporate/Other

 

 

306

 

 

 

1,322

 

 

 

1,785

 

 

 

2,136

 

 

 

137

 

 

 

306

 

 

 

508

 

 

 

1,785

 

Consolidated capital expenditures

 

$

2,701

 

 

$

2,943

 

 

$

12,110

 

 

$

7,627

 

 

$

1,683

 

 

$

2,701

 

 

$

4,235

 

 

$

12,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

December 28,

2019

 

 

March 30,

2019

 

 

 

 

 

 

 

 

 

 

December 26,

2020

 

 

March 28,

2020

 

Total Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing (1)

 

 

 

 

 

 

 

 

 

$

474,427

 

 

$

488,878

 

 

 

 

 

 

 

 

 

 

$

482,043

 

 

$

491,110

 

Canadian Factory-built Housing (1)

 

 

 

 

 

 

 

 

 

 

62,430

 

 

 

59,260

 

 

 

 

 

 

 

 

 

 

 

77,113

 

 

 

56,760

 

Corporate/Other (1)

 

 

 

 

 

 

 

 

 

 

187,621

 

 

 

151,816

 

 

 

 

 

 

 

 

 

 

 

266,709

 

 

 

233,830

 

Consolidated total assets

 

 

 

 

 

 

 

 

 

$

724,478

 

 

$

699,954

 

 

 

 

 

 

 

 

 

 

$

825,865

 

 

$

781,700

 

 

(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.

 

 

15.13.

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 their 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 and pre-definedless contractually defined curtailment arrangements.payments. Excluding the resale value of the homes, the contingent repurchase obligation as of December 26, 2020 was estimated to be $148.8 million. The Company accounts for the guarantees under its repurchase agreements with the retailers’ financing

13


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. TheIn addition, the Company has estimated fair value takes into account the estimate of theexpected contingent net loss the Company will incur upon resale of any repurchases. This estimate isThese estimates are based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting retailers for which the Company’s retailers. The reserve for estimated losses underCompany has a contingent repurchase obligation. Based on these repurchase agreements was $0.9and historical loss experience, as well as current economic conditions and forecasts that affect the potential loss exposure, a loss reserve of $0.9 million at December 28, 2019 and $1.0 million at March 30, 2019. Excluding the

15


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

resale value of the homes, the contingent repurchase obligationwas recorded as of December 26, 2020 and March 28, 2019 was estimated to be approximately $147.9 million.2020, respectively. Losses incurred on homes repurchased were immaterialnot significant during each of the three andor nine monthsmonth periods endedDecember 26, 2020 or December 28, 2019 and December 29, 2018.2019.

In addition to the repurchase agreements, the Company has agreed to guarantee a portion of certain retailers’ outstanding loans to a floor plan lender. At December 28, 2019, those guarantees totaled $0.6 million, all of which was outstanding at the end of the period.

At December 28, 2019,26, 2020, the Company was contingently obligated for approximately $28.7$33.9 million under letters of credit, primarily consisting of $12.7$12.6 million to support long-term debt, $15.7$21.0 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are backed byissued from a sub-facility underof the New Credit Agreement. The Company was also contingently obligated for $24.2$34.3 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 I1 of this Report.

Overview

On June 1, 2018, Skyline Champion Corporation (the “Company”) was formed by Skyline Corporation (“Skyline”) and Champion Enterprises Holdings, LLC (“Champion Holdings”) combining their operations pursuant to the Share Contribution & Exchange Agreement (the “Exchange Agreement”), dated as of January 5, 2018, by and between Skyline and Champion Holdings, as described in further detail below. Champion Holdings was formed as a Delaware limited liability company in 2010. Skyline was originally incorporated in Indiana in 1959.  

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(based on revenuerevenue) 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, Shore Park, Silvercrest, Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company operates 33 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 primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 2118 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 and recreational vehicles and other products throughout the U.S. and Canada.

Acquisitions

Industry and ExpansionsCompany Outlook

Over the last severalIn recent years, marketmanufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand for the Company’s products, primarily affordable housingdrivers in the U.S., has continuedUnited States, including underlying growth trends in key homebuyer groups, such as the population over 65 years of age, the population of first-time home buyers, and the population of households earning less than $50,000 per year. More recently, we see a number of market trends pointing to improve. As a result, the Company has focused on operational improvements to make existing manufacturing facilities more profitableincreased sales of Alternative Dwelling Units (“ADUs”) and urban-to-rural migration as customers accommodate working-from-home patterns, as well as executing measuredpeople seeking rent-to-own single-family options. We intend to capitalize on these trends and drivers to grow our business over the medium-to-long-term. We believe that there is an opportunity for continued manufactured and modular construction market expansion of its manufacturingdriven by the foregoing trends and retail footprint.

In response to the increasing demand for affordable housing in the U.S., the Company has increased capacity through strategic acquisitions and expansions of its manufacturing footprint. The Company is focused on growing in strong HUD-markets across the U.S.drivers, as well as further expanding into the Northeastconstruction labor shortages in certain regions (which tend to adversely and Midwest U.S. modular housing markets. During June 2019, the Company began production at its newestdisproportionally impact supply and cost of site-built homes when compared to manufactured housing facility in Leesville, Louisiana. During fiscal 2019, the Company completed its expansion of its Corona, California facility by adding a second production line and expanded its Leola, Pennsylvania campus by adding an additional plant. Production at the Leola facility began in April 2019. The Exchange added eight plants to the Company’s manufacturing footprint in fiscal 2019 (described in more detail below). In April 2017, the Company completed the purchase of a factory-built housing plant in Mansfield, Texas. In January 2017, the Company restarted operations at the Liverpool, Pennsylvania location, which was one of five modular manufacturing facilities acquired through a series of transactions with Innovative Building Systems, LLC and its subsidiaries. (“IBS” or the “IBS Acquisition”). The other facilities acquired from IBS are idle and provide the Company with opportunity to add capacity.

The Company has also focused on expansion of its company-owned retail operations, opening three additional retail sales centers during fiscal 2018 and five during fiscal 2017. Management believes retail expansion provides an opportunity to increase the Company’s presence in market segments that are not currently served through its independent retail network, while also providing for expansionhousing) and increased utilizationaffordability of existing manufacturing operations.

These acquisitions and investments are part of a strategyfactory-built homes relative 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 consolidated results for periods subsequent to their respective acquisition dates.

Combination with Skyline

On January 5, 2018, Champion Holdings and Skyline entered into an Exchange Agreement pursuant to which the two companies agreed to combine their operations. The Exchange was completed on June 1, 2018 and was accounted for as a reverse acquisition under the acquisition method of accounting as provided by FASB Accounting Standards Codification 805, Business Combinations (“ASC 805”). Champion Holdings was determined to be the acquirer for accounting and financial reporting purposes. The assets acquired and liabilities assumed by Champion Holdings as a result of the Exchange were recorded at their respective fair values and added to the carrying value of Champion Holdings existing assets and liabilities. As Champion Holdings is the accounting acquirer, the Company’s financial results for the nine months ending December 29, 2018 are comprised of the results of 1) Champion Holdings for the period between April 1, 2018 and May 31, 2018 and 2) the Company, after giving effect to the Exchange, from June 1, 2018 through December 29, 2018.


Industry and Company Outlooksite-built homes.

For the nine months ended December 28, 2019,26, 2020, approximately 77% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the Federal HUD-code construction standard in the U.S. Industry shipments of HUD-code homes were 87,897

86,769 during the eleven months ended November 30, 20192020 compared to 90,55687,897 units shipped in same period of the prior year. The Company’s HUD market share during those periodsthe eleven-month period ended November 30, 2020 was 17.1%15.7% versus 15.4%17.1% in the comparable period of the prior year. Industry sales of HUD-code homesAnnual industry shipments have generally increased each calendar year since 2009 when only 50,000 HUD-codeHUD code manufactured homes were sold. Fewer factory-built homes were soldshipped, the lowest level since the industry began recording statistics in 2009 than in any year since 1959. While HUD-code factory-built home shipments of HUD code manufactured homes have improved modestly over the past fewin recent years, the industry continues tomanufactured housing’s most recent annual shipment levels still operate at relatively lowlower levels compared to historical shipment statistics. For instance,than the long-term historical average for manufactured home shipments since 1960 is approximately 222,000of over 200,000 units per year.annually.

For the nine months ended December 28, 2019,26, 2020, approximately 17% of the Company’s U.S. manufacturing sales were modular. The industry reportshistorically reported U.S. modular market shipments quarterly and three months in arrears. However, reporting of industry shipment data is unavailable, and is expected to remain unavailable for the foreseeable future. Industry shipments of modular homes in the U.S. were 10,843 during the first nine months of14,690 in calendar year 2019, which was 7.1% lower than the 11,669 units shipped in the comparable period of the prior year.2019. The Company’s modular market share during these periodsthis period was 14.0%13.9%.

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 12.1%, respectively. Modular home sales acrossduration of the industryimpact 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. As of December 26, 2020, only one manufacturing facility remained temporarily idled due to labor availability constraints. During the second and third quarters of 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 third quarter of fiscal 2021, the Company was able to increase daily production rates over the levels achieved in the prior year period as direct labor staffing levels increased and production efficiencies improved. As of December 26, 2020, availability of labor and certain materials have improved compared to earlier in fiscal 2021, but 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.


Since the start of the fiscal year, the Company’s retail operations have adjusted their operating procedures to comply with local and state mandates; and have generally remained open but have shifted physical visits to a larger on-line presence. The Company consolidated its retail footprint by closing three retail sales centers during the second quarter of fiscal 2021 in an effort to optimize costs while taking advantage of an increase in distribution through digital marketing efforts. We have strong local independent retailers to serve customers in those areas.

In 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. The Company’s U.S. operations incurred $2.2 million of expense related to those extended benefits. Various government programs have been stable since 2009.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. CEWS provides a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $6.2 million for payroll subsidies under CEWS during the nine months ended December 26, 2020. No payroll subsidy was recognized under CEWS during the three months ended December 26, 2020. The Company also recognized $0.2 million and $0.8 million during the three and nine months ended December 26, 2020 for wage subsidies under the CARES Act and other state level programs in the United States. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through December 26, 2020, the Company has deferred $11.6 million of payroll taxes that will be paid beginning in December 2021.

UNAUDITED RESULTSINCOME STATEMENTS FOR THE THIRD QUARTER OF OPERATIONS FOR Q3 FISCAL 20202021 VS. 20192020

 

 

Three Months Ended

 

 

Three Months Ended

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

 

 

 

 

 

 

Results of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

342,239

 

 

$

354,671

 

 

$

377,581

 

 

$

342,239

 

Cost of sales

 

 

273,338

 

 

 

289,935

 

 

 

305,797

 

 

 

273,338

 

Gross profit

 

 

68,901

 

 

 

64,736

 

 

 

71,784

 

 

 

68,901

 

Selling, general, and administrative expenses

 

 

45,237

 

 

 

48,848

 

 

 

44,286

 

 

 

45,237

 

Operating income

 

 

23,664

 

 

 

15,888

 

 

 

27,498

 

 

 

23,664

 

Interest expense, net

 

 

328

 

 

 

813

 

 

 

795

 

 

 

328

 

Other expense

 

 

 

 

 

125

 

Other income

 

 

(180

)

 

 

 

Income before income taxes

 

 

23,336

 

 

 

14,950

 

 

 

26,883

 

 

 

23,336

 

Income tax expense

 

 

6,299

 

 

 

4,437

 

 

 

5,284

 

 

 

6,299

 

Net income

 

$

17,037

 

 

$

10,513

 

 

$

21,599

 

 

$

17,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

17,037

 

 

$

10,513

 

 

$

21,599

 

 

$

17,037

 

Income tax expense

 

 

6,299

 

 

 

4,437

 

 

 

5,284

 

 

 

6,299

 

Interest expense, net

 

 

328

 

 

 

813

 

 

 

795

 

 

 

328

 

Depreciation and amortization

 

 

4,516

 

 

 

4,577

 

 

 

4,386

 

 

 

4,516

 

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

 

 

965

 

 

 

3,662

 

 

 

 

 

 

965

 

Foreign currency transaction (gain) loss

 

 

(68

)

 

 

155

 

Acquisition integration costs

 

 

560

 

 

 

1,998

 

 

 

 

 

 

560

 

Restructuring costs and other

 

 

108

 

 

 

252

 

Other

 

 

 

 

 

40

 

Adjusted EBITDA

 

$

29,745

 

 

$

26,407

 

 

$

32,064

 

 

$

29,745

 

As a percent of net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

20.1

%

 

 

18.3

%

 

 

19.0

%

 

 

20.1

%

Selling, general, and administrative expenses

 

 

13.2

%

 

 

13.8

%

 

 

11.7

%

 

 

13.2

%

Operating income

 

 

6.9

%

 

 

4.5

%

 

 

7.3

%

 

 

6.9

%

Net income

 

 

5.0

%

 

 

3.0

%

 

 

5.7

%

 

 

5.0

%

Adjusted EBITDA

 

 

8.7

%

 

 

7.4

%

 

 

8.5

%

 

 

8.7

%

 


NET SALES

The following table summarizes net sales for the three months ended December 28, 201926, 2020 and December 29, 2018:28, 2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Net sales

 

$

342,239

 

 

$

354,671

 

 

$

(12,432

)

 

 

(3.5

%)

 

$

377,581

 

 

$

342,239

 

 

$

35,342

 

 

 

10.3

%

U.S. manufacturing and retail net sales

 

$

304,818

 

 

$

309,518

 

 

$

(4,700

)

 

 

(1.5

%)

 

$

336,358

 

 

$

304,818

 

 

$

31,540

 

 

 

10.3

%

U.S. homes sold

 

 

5,033

 

 

 

5,019

 

 

 

14

 

 

 

0.3

%

 

 

5,343

 

 

 

5,033

 

 

 

310

 

 

 

6.2

%

U.S. manufacturing and retail average home selling price

 

$

60.6

 

 

$

61.7

 

 

$

(1.1

)

 

 

(1.8

%)

 

$

63.0

 

 

$

60.6

 

 

$

2.4

 

 

 

4.0

%

Canadian manufacturing net sales

 

$

22,809

 

 

$

27,130

 

 

$

(4,321

)

 

 

(15.9

%)

 

$

26,351

 

 

$

22,809

 

 

$

3,542

 

 

 

15.5

%

Canadian homes sold

 

 

276

 

 

 

329

 

 

 

(53

)

 

 

(16.1

%)

 

 

318

 

 

 

276

 

 

 

42

 

 

 

15.2

%

Canadian manufacturing average home selling price

 

$

82.6

 

 

$

82.5

 

 

$

0.1

 

 

 

0.1

%

 

$

82.9

 

 

$

82.6

 

 

$

0.3

 

 

 

0.4

%

Corporate/Other net sales

 

$

14,612

 

 

$

18,023

 

 

$

(3,411

)

 

 

(18.9

%)

 

$

14,872

 

 

$

14,612

 

 

$

260

 

 

 

1.8

%

U.S. manufacturing facilities in operation at end of period

 

 

33

 

 

 

31

 

 

 

2

 

 

 

6.5

%

U.S. manufacturing facilities in operation at end of period*

 

 

33

 

 

 

33

 

 

 

 

 

 

 

 

 

U.S. retail sales centers in operation at end of period

 

 

21

 

 

 

21

 

 

 

 

 

 

%

 

 

18

 

 

 

21

 

 

 

 

 

 

 

 

 

Canadian manufacturing facilities in operation at end of period

 

 

5

 

 

 

5

 

 

 

 

 

 

%

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

*One of the Company’s manufacturing facilities is temporarily idled as of December 26, 2020, but still considered operational.

 

Net sales for the three months ended December 28, 201926, 2020 were $342.2$377.6 million, a decreasean increase of $12.4$35.3 million, or 3.5% compared to10.3% over the three months ended December 29, 2018.28, 2019. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Sales of homesNet sales for the Company’s U.S. manufacturing and retail operations decreasedincreased by $4.7$31.5 million, or 1.5% for the three months ended December 28, 2019 compared to the same period in the prior year.10.3%. The decreaseincrease was due to a 1.8% decreasean increase in the number of homes sold of 6.2% and an increase in average home selling prices resulting fromprice of 4.0%. The increase in the number of homes sold is due to strong demand which has resulted in increased production levels at many of Company’s manufacturing locations. The average selling price increased due to pricing actions enacted in response to rising material costs, partially offset by a shift in product mix. Product mix fluctuations result from consumer preferences regarding the sizesizes and styles of homes selected for purchase, as well as opting for homeoptions and upgrade packages, as well as regional housing dynamics. The Company sold more single section homes in the three months ended December 28, 2019 compared to the same period in the prior year. Single section homes have a lower average selling price than multi-section homes.  

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreasedincreased by $4.3$3.5 million, or 15.9%15.5% for the three months ended December 28, 201926, 2020 compared to the same period in the prior year. The decrease wasyear, primarily due to a 16.1% decrease15.2% increase in the number of homes sold. Netsold and an increase of 0.4% in the average home selling price. The increase in the number of homes sold is due to stronger demand compared to the same period last year which has resulted in increased production levels at the Company’s Canadian manufacturing locations. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $0.2$0.1 million asdue to fluctuations in the translation of Canadian dollar weakened compared to the U.S. dollar during the third quarter of fiscal 20202021 as compared to the same period of the prior 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 December 28, 2019,26, 2020, net sales decreased $3.4increased $0.3 million, or 18.9%1.8%. The decreaseincrease was primarily attributable to lowerhigher net sales in the Company’s transportation business primarily as a result of fewer shipments associated with reducedfrom increased manufactured home and RV demand in the U.S.shipments.

 

 

GROSS PROFIT

The following table summarizes gross profit for the three months ended December 26, 2020 and December 28, 2019 and December 29, 2018:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

61,200

 

 

$

57,118

 

 

$

4,082

 

 

 

7.1

%

 

$

62,943

 

 

$

61,200

 

 

$

1,743

 

 

 

2.8

%

Canadian Factory-built Housing

 

 

4,512

 

 

 

5,046

 

 

 

(534

)

 

 

(10.6

%)

 

 

5,372

 

 

 

4,512

 

 

 

860

 

 

 

19.1

%

Corporate/Other

 

 

3,189

 

 

 

2,572

 

 

 

617

 

 

 

24.0

%

 

 

3,469

 

 

 

3,189

 

 

 

280

 

 

 

8.8

%

Total gross profit

 

$

68,901

 

 

$

64,736

 

 

$

4,165

 

 

 

6.4

%

 

$

71,784

 

 

$

68,901

 

 

$

2,883

 

 

 

4.2

%

Gross profit as a percent of net sales

 

 

20.1

%

 

 

18.3

%

 

 

 

 

 

 

 

 

 

 

19.0

%

 

 

20.1

%

 

 

 

 

 

 

 

 


 

Gross profit as a percent of net sales during the three months ended December 28, 201926, 2020 was 20.1%19.0% compared to 18.3%20.1% during the three months ended December 29, 2018.28, 2019. 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 $4.1$1.7 million, or 7.1%2.8%, during the three months ended December 28, 201926, 2020 compared to the same period in the prior year.year primarily due to increased sales volume. Gross profit was 20.1% as a percent of segment net sales was 18.7% for the three months ended December 28, 201926, 2020 compared to 18.5%20.1% in the same period of the prior year. Gross profit expansion was drivenyear primarily due to increased material costs caused by procurement and operational synergies related to the Exchange, refinement of product offerings, and plant operating improvements, all of which weremarket volatility in certain commodities including forest products, partially offset by direct labor inflation.efficiencies and increased leverage of fixed costs caused by higher sales volumes.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment decreased $0.5increased by $0.9 million, or 10.6%,19.1% during the three months ended December 28, 201926, 2020 compared to the same period in the prior year. Gross profit as a percent of net segment sales was 19.8%20.4% for the three months ended December 28, 2019,26, 2020, compared to 18.6%19.8% in the same period of the prior year. Although the Canadian Factory-built Housing segment saw lower volume compared to the prior period, margins improvedThe increase is primarily due to lowerhigher sales volume, as well as pricing actions taken to offset material cost inputs.inflation.

Corporate/Other:

Gross profit for the Corporate/Other segment increased $0.6$0.3 million, or 24.0%8.8%, during the three months ended December 28, 201926, 2020 compared to the same period inof the prior year. Corporate/Other gross profit improved as a percent of segment net sales to 21.8% from 14.3 %. Gross margins for the Company’s transportation business improved as a percent of salesyear, primarily due to a changechanges in revenue mix and lower variable expenses.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 December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Selling, general, and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

32,039

 

 

$

30,539

 

 

$

1,500

 

 

 

4.9

%

 

$

31,324

 

 

$

32,039

 

 

$

(715

)

 

 

(2.2

%)

Canadian Factory-built Housing

 

 

2,980

 

 

 

2,787

 

 

 

193

 

 

 

6.9

%

 

 

2,682

 

 

 

2,980

 

 

 

(298

)

 

 

(10.0

%)

Corporate/Other

 

 

10,218

 

 

 

15,522

 

 

 

(5,304

)

 

 

(34.2

%)

 

 

10,280

 

 

 

10,218

 

 

 

62

 

 

 

0.6

%

Total selling, general, and administrative expenses

 

$

45,237

 

 

$

48,848

 

 

$

(3,611

)

 

 

(7.4

%)

 

$

44,286

 

 

$

45,237

 

 

$

(951

)

 

 

(2.1

%)

Selling, general, and administrative expense as a percent of net sales

 

 

13.2

%

 

 

13.8

%

 

 

 

 

 

 

 

 

 

 

11.7

%

 

 

13.2

%

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses were $45.2$44.3 million for the three months ended December 28, 2019,26, 2020, a decrease of $3.6$1.0 million compared to the same period in the prior 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 $1.5decreased $0.7 million, or 4.9%2.2%, during the three months ended December 28, 201926, 2020 as compared to the same period in the prior year. Selling, general, and administrative expenses, asAs a percent of segment net sales, was 10.5%selling, general, and administrative expenses decreased to 9.3% for the three months ended December 28, 201926, 2020 compared to 9.9%10.5% during the comparable period inof the prior year. The increasedecrease resulted from a reduction in selling, general,costs for travel and administrativemarketing-related expenses waspartially offset by increased sales commissions and incentive compensation, which is generally based on sales volume or a combinationmeasure of (i) additional headcount and investment to support capacity expansion at newly opened manufacturing facilities and (ii) increases in salaries and benefits to maintain competitive compensation packages to retain and recruit team members.profitability.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased $0.2decreased $0.3, or 10.0%, million or 6.9%, during thefor three months ended December 28, 2019 as26, 2020 when compared to the same period of the prior year. As a percent of segment net sales, selling, general, and administrative expenses for the Canadian segment was 10.2% and 13.1% for the three months ended December 26, 2020 and December 28, 2019, compared to 10.3% for the same period in the prior year.respectively. The increasedecrease as a percentage of net sales iswas a result of increased leverage of fixed costs due to the decrease inincreased sales volume.volumes.

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 decreased $5.3increased $0.1


million, or 34.2%0.6%, during the three months ended December 28, 201926, 2020 as compared to the same period of the prior year. The decrease is primarily due toIncreases in professional fees and other administrative costs were mostly offset by a decreasereduction in equity-basedequity compensation expense and integration costs related tofrom the Exchange,2018 combination of Skyline Corporation and the benefitoperating assets of run rate synergies from the Exchange.Champion Enterprises Holding, LLC (the “2018 Combination”).

INTEREST EXPENSE, NET

The following table summarizes the components of interest expense, net for the three months ended December 28, 201926, 2020 and December 29, 2018:28, 2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Interest expense

 

$

1,111

 

 

$

1,308

 

 

$

(197

)

 

 

(15.1

%)

 

$

946

 

 

$

1,111

 

 

$

(165

)

 

 

(14.9

%)

Interest income

 

 

(783

)

 

 

(495

)

 

 

(288

)

 

 

58.2

%

Less: Interest income

 

 

151

 

 

 

783

 

 

 

(632

)

 

 

(80.7

%)

Interest expense, net

 

$

328

 

 

$

813

 

 

$

(485

)

 

 

(59.7

%)

 

$

795

 

 

$

328

 

 

$

467

 

 

 

142.4

%

Average outstanding floor plan payable

 

$

32,178

 

 

$

35,973

 

 

 

 

 

 

 

 

 

 

$

24,304

 

 

$

32,178

 

 

 

 

 

 

 

 

 

Average outstanding long-term debt

 

$

42,663

 

 

$

59,330

 

 

 

 

 

 

 

 

 

 

$

64,663

 

 

$

42,663

 

 

 

 

 

 

 

 

 

 

Interest expense, net was $0.3$0.8 million for the three months ended December 28, 2019, a decrease26, 2020, an increase of $0.5 million compared to the same period inof the prior year. The decreasenet increase in expense was related to: (i) higherdue to a reduction in interest income recognized duringearned on the period as a result of higher averageCompany’s cash balances invested in short termshort-term facilities and (ii) lower outstanding balancereduced interest expense on the credit facilityCompany’s borrowings, both due to a reduction in interest rates.

OTHER INCOME

The following table summarizes other income for the three months ended December 26, 2020 and floor plan payable as comparedDecember 28, 2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Other income

 

$

(180

)

 

$

 

 

$

(180

)

 

 

100.0

%

Other income for the three months ended December 26, 2020 related to payroll tax subsidies provided by certain U.S. government sponsored financial assistance programs enacted in response to the same period in the prior year.pandemic.

INCOME TAX EXPENSE

The following table summarizes income tax expense for the three months ended December 28, 201926, 2020 and December 29, 2018:28, 2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

$

6,299

 

 

$

4,437

 

 

$

1,862

 

 

 

42.0

%

 

$

5,284

 

 

$

6,299

 

 

$

(1,015

)

 

 

(16.1

%)

Effective tax rate

 

 

27.0

%

 

 

29.7

%

 

 

 

 

 

 

 

 

 

 

19.7

%

 

 

27.0

%

 

 

 

 

 

 

 

 

 

Income tax expense for the three months ended December 28, 201926, 2020 was $5.3 million, representing an effective tax rate of 19.7%, compared to income tax expense of $6.3 million, representing an effective tax rate of 27.0%, compared to income tax expense of $4.4 million, representing an effective tax rate of 29.7%, for the three months ended December 29, 2018.

28, 2019. During the third quarter of fiscal 2021, the Company completed a U.S. R&D tax credit study for the years 2018 and 2019 that resulted in recognition of a tax benefit of $1.7 million. The Company’schange in the effective tax rate for the three months ended December 26, 2020 compared with the same period of the prior year, was primarily due to an increase in tax credits, certain U.S. tax law changes and results in foreign jurisdictions.

The Company’s effective tax rate for both the three months ended December 26, 2020 and December 28, 2019 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, and results in foreign jurisdictions. The Company’s effective tax rate for the three months ended December 29, 2018 differed from the federal statutory rate of 21.0% primarily due to the effect of non-deductible expenses, state and local income taxes, one-time charges related to the Exchange including non-deductible equity-based compensation and results of operations in foreign jurisdictions and non-taxable entities.

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 December 28, 201926, 2020 and December 29, 2018:

28, 2019:

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

Net income

 

$

17,037

 

 

$

10,513

 

 

$

6,524

 

 

 

62.1

%

Income tax expense

 

 

6,299

 

 

 

4,437

 

 

 

1,862

 

 

 

42.0

%

Interest expense, net

 

 

328

 

 

 

813

 

 

 

(485

)

 

 

(59.7

%)

Depreciation and amortization

 

 

4,516

 

 

 

4,577

 

 

 

(61

)

 

 

(1.3

%)

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

 

 

965

 

 

 

3,662

 

 

 

(2,697

)

 

 

(73.6

%)

Foreign currency transaction (gain) loss

 

 

(68

)

 

 

155

 

 

 

(223

)

 

*

 

Acquisition integration costs

 

 

560

 

 

 

1,998

 

 

 

(1,438

)

 

 

(72.0

%)

Restructuring costs and other

 

 

108

 

 

 

252

 

 

 

(144

)

 

 

(57.1

%)

Adjusted EBITDA

 

$

29,745

 

 

$

26,407

 

 

$

3,338

 

 

 

12.6

%


 


 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

Net income

 

$

21,599

 

 

$

17,037

 

 

$

4,562

 

 

 

26.8

%

Income tax expense

 

 

5,284

 

 

 

6,299

 

 

 

(1,015

)

 

 

(16.1

%)

Interest expense, net

 

 

795

 

 

 

328

 

 

 

467

 

 

*

 

Depreciation and amortization

 

 

4,386

 

 

 

4,516

 

 

 

(130

)

 

 

(2.9

%)

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

 

 

 

 

 

965

 

 

 

(965

)

 

*

 

Acquisition integration costs

 

 

 

 

 

560

 

 

 

(560

)

 

*

 

Other

 

 

 

 

 

40

 

 

 

(40

)

 

*

 

Adjusted EBITDA

 

$

32,064

 

 

$

29,745

 

 

$

2,319

 

 

 

7.8

%

* indicates that the calculated percentage is not meaningful

 

Adjusted EBITDA for the three months ended December 28, 201926, 2020 was $29.7$32.1 million, an increase of $3.3$2.3 million from the same period of the prior year. The increase is primarily a result of higher operating income after adjusting for the effect of integration costs and equity-based compensation incurred in the prior year. The increase in operating income is primarily due to improved gross profits generated by lower material cost inputs and procurement and operational synergies related toincreased sales volume. See the Exchange. Seedefinition of Adjusted EBITDA definition below for additional information regarding the definition and use of this metric in evaluating the Company’s results.metric.

 

 



UNAUDITED RESULTS OF OPERATIONSINCOME STATEMENTS FOR THE FIRST NINE MONTHS OF FISCAL 20202021 VS. 20192020

 

 

Nine Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

 

 

 

 

 

 

Results of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,068,585

 

 

$

1,032,368

 

 

$

973,232

 

 

$

1,068,585

 

Cost of sales

 

 

849,594

 

 

 

853,472

 

 

 

784,652

 

 

 

849,594

 

Gross profit

 

 

218,991

 

 

 

178,896

 

 

 

188,580

 

 

 

218,991

 

Selling, general, and administrative expenses

 

 

145,354

 

 

 

222,005

 

 

 

126,466

 

 

 

145,354

 

Operating income (loss)

 

 

73,637

 

 

 

(43,109

)

Operating income

 

 

62,114

 

 

 

73,637

 

Interest expense, net

 

 

1,019

 

 

 

2,712

 

 

 

2,601

 

 

 

1,019

 

Other expense

 

 

 

 

 

7,845

 

Income (loss) before income taxes

 

 

72,618

 

 

 

(53,666

)

Other income

 

 

(6,993

)

 

 

 

Income before income taxes

 

 

66,506

 

 

 

72,618

 

Income tax expense

 

 

20,456

 

 

 

13,699

 

 

 

15,493

 

 

 

20,456

 

Net income (loss)

 

$

52,162

 

 

$

(67,365

)

Net income

 

$

51,013

 

 

$

52,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

52,162

 

 

$

(67,365

)

Net income

 

$

51,013

 

 

$

52,162

 

Income tax expense

 

 

20,456

 

 

 

13,699

 

 

 

15,493

 

 

 

20,456

 

Interest expense, net

 

 

1,019

 

 

 

2,712

 

 

 

2,601

 

 

 

1,019

 

Depreciation and amortization

 

 

13,895

 

 

 

11,535

 

 

 

13,076

 

 

 

13,895

 

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

 

 

3,606

 

 

 

97,589

 

 

 

1,358

 

 

 

3,606

 

Foreign currency transaction (gain) loss

 

 

(93

)

 

 

188

 

Transaction costs

 

 

 

 

 

6,905

 

Acquisition integration costs

 

 

1,938

 

 

 

5,500

 

 

 

 

 

 

1,938

 

Equity-offering costs

 

 

 

 

 

816

 

Fair market value adjustment for asset classified as held for sale

 

 

986

 

 

 

 

 

 

 

 

 

986

 

Restructuring costs and other

 

 

343

 

 

 

1,362

 

Other

 

 

 

 

 

250

 

Adjusted EBITDA

 

$

94,312

 

 

$

72,941

 

 

$

83,541

 

 

$

94,312

 

As a percent of net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

20.5

%

 

 

17.3

%

 

 

19.4

%

 

 

20.5

%

Selling, general, and administrative expenses

 

 

13.6

%

 

 

21.5

%

 

 

13.0

%

 

 

13.6

%

Operating income (loss)

 

 

6.9

%

 

 

(4.2

%)

Net income (loss)

 

 

4.9

%

 

 

(6.5

%)

Operating income

 

 

6.4

%

 

 

6.9

%

Net income

 

 

5.2

%

 

 

4.9

%

Adjusted EBITDA

 

 

8.8

%

 

 

7.1

%

 

 

8.6

%

 

 

8.8

%

 


NET SALES

The following table summarizes net sales for the nine months ended December 28, 201926, 2020 and December 29, 2018:28, 2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,068,585

 

 

$

1,032,368

 

 

$

36,217

 

 

 

3.5

%

 

$

973,232

 

 

$

1,068,585

 

 

$

(95,353

)

 

 

(8.9

%)

U.S. manufacturing and retail net sales

 

$

949,253

 

 

$

882,257

 

 

$

66,996

 

 

 

7.6

%

 

$

868,577

 

 

$

949,253

 

 

$

(80,676

)

 

 

(8.5

%)

U.S. homes sold

 

 

15,507

 

 

 

14,606

 

 

 

901

 

 

 

6.2

%

 

 

14,060

 

 

 

15,507

 

 

 

(1,447

)

 

 

(9.3

%)

U.S. manufacturing and retail average home selling price

 

$

61.2

 

 

$

60.4

 

 

$

0.8

 

 

 

1.3

%

 

$

61.8

 

 

$

61.2

 

 

$

0.6

 

 

 

1.0

%

Canadian manufacturing net sales

 

$

72,916

 

 

$

79,885

 

 

$

(6,969

)

 

 

(8.7

%)

 

$

66,104

 

 

$

72,916

 

 

$

(6,812

)

 

 

(9.3

%)

Canadian homes sold

 

 

872

 

 

 

1,003

 

 

 

(131

)

 

 

(13.1

%)

 

 

812

 

 

 

872

 

 

 

(60

)

 

 

(6.9

%)

Canadian manufacturing average home selling price

 

$

83.6

 

 

$

79.6

 

 

$

4.0

 

 

 

5.0

%

 

$

81.4

 

 

$

83.6

 

 

$

(2.2

)

 

 

(2.6

%)

Corporate/Other net sales

 

$

46,416

 

 

$

70,226

 

 

$

(23,810

)

 

 

(33.9

%)

 

$

38,551

 

 

$

46,416

 

 

$

(7,865

)

 

 

(16.9

%)

U.S. manufacturing facilities in operation at end of period

 

 

33

 

 

 

31

 

 

 

2

 

 

 

6.5

%

U.S. manufacturing facilities in operation at end of period*

 

 

33

 

 

 

33

 

 

 

 

 

 

 

 

 

U.S. retail sales centers in operation at end of period

 

 

21

 

 

 

21

 

 

 

 

 

 

%

 

 

18

 

 

 

21

 

 

 

 

 

 

 

 

 

Canadian manufacturing facilities in operation at end of period

 

 

5

 

 

 

5

 

 

 

 

 

 

%

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

*One of the Company’s manufacturing facilities is temporarily idled as of December 26, 2020, but still considered operational.

 

Net sales for the nine months ended December 28, 201926, 2020 were $1,069$973.2 million, an increasea decrease of $36.2$95.4 million, or 3.5%8.9% over the nine months ended December 29, 2018.28, 2019. The following is a summary of the change by operating segment.


U.S. Factory-built Housing:

The U.S. Factory-built Housing segment accounted for the Company’s overall netNet sales growth for the nine months ended December 28, 2019 compared to the same period in the prior year. Sales of homes for the Company’s U.S. manufacturing and retail operations increaseddecreased by $67.0$80.7 million, or 7.6%8.5%. The decrease was primarily due to a decrease in the number of homes sold during the nine months ended December 28, 2019 increased26, 2020 of 9.3%, partially offset by 901 units, or 6.2%. Net sales increased by $50.4 million due to the inclusion of the Skyline operations for all nine months of fiscal 2020 compared to the same period of the prior year which only included seven months of Skyline operations. The remainder of the increase was due to a combination of factors which included additional manufacturing capacity, plant operating improvements, and an increase in the average home selling price which was driven primarilyof 1.0%. U.S. housing sales volumes were severely impacted by COVID-19-related factors in the first few months of the fiscal year. Production facilities operated at reduced levels as compared to the prior year due to employee hiring constraints, social-distancing protocols and, in some areas, reduced demand. Production and demand levels began to return to more normal pre-COVID-19 levels during the second quarter and production levels have continued to increase during the third quarter. The average home selling price increased due to a shift in product mix. Product mix fluctuations result from consumer preferences regardingversus the sizes and styles of homes selected for purchase, opting for home upgrade packages, as well as regional housing dynamics.  same period last year.

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreased by $7.0$6.8 million, or 8.7%9.3% for the nine months ended December 28, 201926, 2020 compared to the same period in the prior year, primarily due to a 13.1%6.9% decrease in the number of homes sold, partially offset bycoupled with a 5.0% increase2.6% decrease in average home selling price. The decrease in volume was due to reduced demand and production primarily from oil-related demand drivers and the impacts of COVID-19 for first few months of the fiscal year. Production and demand levels began to return to more normal pre-COVID-19 levels during the second quarter and production levels have continued to increase during the third quarter. The decrease in average selling price which wasis due to a result of pricing actions taken by the Company as well as shiftsshift in product mix. The number of homes sold decreased due to the decline in housing demand in the British Columbia and Alberta provinces versus the same period in the prior year. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $1.5$0.9 million asdue to fluctuations in the translation of Canadian dollar weakened compared to the U.S. dollar during the first nine months of fiscal 20202021 as compared to the same period of the prior year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the nine months ended December 28, 2019,26, 2020, net sales decreased $23.8$7.9 million, or 33.9%16.9%. The decrease was primarily attributable to lower net sales in the Company’s transportation business primarily as a result of lower shipments associated with reducedcaused by COVID-19-related manufacturing shutdowns in both the RV demandand manufactured housing industries experienced mainly in the U.S. Midwest and Northeast regions in the first few months of the fiscal year. As production in the RV and manufactured housing industries started to normalize to pre-COVID-19 levels, shipments of these products also started to increase during the second and third quarters of fiscal 2021.

 

 


GROSS PROFIT

The following table summarizes gross profit for the nine months ended December 28, 201926, 2020 and December 29, 2018:28, 2019:

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

194,876

 

 

$

153,147

 

 

$

41,729

 

 

 

27.2

%

 

$

165,899

 

 

$

194,876

 

 

$

(28,977

)

 

 

(14.9

%)

Canadian Factory-built Housing

 

 

15,091

 

 

 

14,988

 

 

 

103

 

 

 

0.7

%

 

 

12,941

 

 

 

15,091

 

 

 

(2,150

)

 

 

(14.2

%)

Corporate/Other

 

 

9,024

 

 

 

10,761

 

 

 

(1,737

)

 

 

(16.1

%)

 

 

9,740

 

 

 

9,024

 

 

 

716

 

 

 

7.9

%

Total gross profit

 

$

218,991

 

 

$

178,896

 

 

$

40,095

 

 

 

22.4

%

 

$

188,580

 

 

$

218,991

 

 

$

(30,411

)

 

 

(13.9

%)

Gross profit as a percent of net sales

 

 

20.5

%

 

 

17.3

%

 

 

 

 

 

 

 

 

 

 

19.4

%

 

 

20.5

%

 

 

 

 

 

 

 

 

 

Gross profit as a percent of sales during the nine months ended December 28, 201926, 2020 was 20.5%19.4% compared to 17.3%20.5% during the nine months ended December 29, 2018.28, 2019. 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 increaseddecreased by $41.7$29.0 million, or 27.2%14.9%, during the nine months ended December 28, 201926, 2020 compared to the same period in the prior year. The increase in gross profit is due to the increase in sales volumes and improved margins. Gross profit was 20.5%19.1% as a percent of segment net sales for the nine months ended December 28, 201926, 2020 compared to 17.4%20.5% in the same period of the prior year. GrossThe decrease in gross profit expansion was drivenis due to increased material costs from market volatility in certain commodities, primarily forest products, reduced leverage of manufacturing fixed costs caused by favorable material pricing, refinement of product offerings, plant operating improvements,reduced sales volumes, as well as the supplemental COVID-19-related sick pay and procurement and operational synergies relatedhealth benefits provided to the Exchange, all of which were partially offset by labor inflation.employees totaling approximately $2.2 million.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment remained flatdecreased by $2.2 million, or 14.2% during the nine months ended December 28, 201926, 2020 compared to the same period in the prior year.year primarily due to lower sales volume. Gross profit as a percent of net sales


was 20.7%19.6% for the nine months ended December 28, 2019,26, 2020, compared to 18.8%20.7% in the same period of the prior year. Although the Canadian Factory-built Housing segment saw lower volume compared to the prior period, margins improvedyear due to lower costincreased material costs from market volatility in certain commodities, primarily forest products, and reduced leverage of material.manufacturing fixed costs caused by reduced sales volumes.

Corporate/Other:

Gross profit for the Corporate/Other segment decreased $1.7increased $0.7 million, or 16.1%7.9%, during the nine months ended December 28, 201926, 2020 compared to the same period inof the prior year, primarily due to lowerincreased net sales volume. Corporate/Other grossin the Company’s transportation operations. Gross profit improved as a percent of segment net sales to 19.4%25.3% from 15.3%. Gross margins for the Company’s transportation business improved19.4% as a percentresult of sales due to a changechanges in revenue mix and lower variable expenses. A portionexpansion of the change in revenue mix is due in part to less brokered business to other providers at lower margins in response to the decline in revenue caused by the softening market demand for RVs.storage offerings.

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 nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Factory-built Housing

 

$

102,686

 

 

$

82,987

 

 

$

19,699

 

 

 

23.7

%

 

$

89,301

 

 

$

102,686

 

 

$

(13,385

)

 

 

(13.0

%)

Canadian Factory-built Housing

 

 

6,749

 

 

 

6,753

 

 

 

(4

)

 

 

(0.1

%)

 

 

5,971

 

 

 

6,749

 

 

 

(778

)

 

 

(11.5

%)

Corporate/Other

 

 

35,919

 

 

 

132,265

 

 

 

(96,346

)

 

 

(72.8

%)

 

 

31,194

 

 

 

35,919

 

 

 

(4,725

)

 

 

(13.2

%)

Total selling, general, and administrative expenses

 

$

145,354

 

 

$

222,005

 

 

$

(76,651

)

 

 

(34.5

%)

 

$

126,466

 

 

$

145,354

 

 

$

(18,888

)

 

 

(13.0

%)

Selling, general, and administrative expense as a percent of net sales

 

 

13.6

%

 

 

21.5

%

 

 

 

 

 

 

 

 

 

 

13.0

%

 

 

13.6

%

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses were $145.4$126.5 million for the nine months ended December 28, 2019,26, 2020, a decrease of $76.7$18.9 million compared to the same period in the prior year, primarily due to equity-based compensation expense recognized in the prior year, as explained below.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 $19.7decreased $13.4 million, or 23.7%13.0%, during the nine months ended December 28, 201926, 2020 as compared to the same period in the prior year. Selling, general, and administrative expenses, as a percent of segment net sales was 10.8%decreased to 10.3% for the nine months ended December 28, 201926, 2020 compared to 9.4%10.8% during the comparable period inof the prior year. The first nine months of fiscal 2019 only included seven months of Skyline operations, while the same period in the current year included nine months of Skyline operations. The additional two months of Skyline activity, as well as intangible amortization related to the Exchange, increased selling, general, and administrative expenses by $4.5 million. The Company recorded additional SG&A costs for the Leesville, LA capacity expansion of $2.4 million during the nine months ended December 28, 2019. The remainder of the increasedecrease in selling, general, and administrative expenses wasresulted from a combination of factors which includeinclude: (i) highera reduction in travel and trade show expenses; (ii) lower sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability,profitability; and (ii) an increase(iii) lower wage expense from headcount reductions and furloughs in salaries and benefitsresponse to maintain competitive compensation packages to retain and recruit team members.COVID-19.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment remained flatdecreased $0.8 million, or 11.5%, for the nine months ended December 28, 201926, 2020 when compared to the same period of the prior year. AsSelling, general, and administrative expenses, as a percent of segment net sales decreased to 9.0% for the nine months ended December 26, 2020 compared to 9.3% during the comparable period of the prior year. The decrease in selling, general, and administrative expenses for the Canadian segment was 9.3%resulted from a reduction in travel and 8.5% for the nine months ended December 28, 2019other administrative costs, as well as lower wage expense from headcount reductions and December 29, 2018, respectively. Selling, general, and administrative expense as a percentage of net sales increasedfurloughs in the current period dueresponse to the decrease in net sales.COVID-19.

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 decreased $96.3$4.7 million, or 72.8%13.2%, during the nine months ended December 28, 201926, 2020 as compared to the same period of the prior year. The decrease is mainlydue to a reduction in equity compensation costs, incentive and travel expenses as well as no longer incurring costs related to integration activities from the 2018 Combination, and a change in equity-based compensation expensefair value adjustment of $93.9 million related to the Exchange and secondary offerings that occurredan asset classified as held for sale recorded in the prior year, as well as a reduction in acquisition integration and restructuring costs of $4.4 million. This decrease was partially offset by a fair market value adjustment charge of $1.0 million related to property acquired in the Exchange.year.


INTEREST EXPENSE, NET

The following table summarizes the components of interest expense, net for the nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

3,577

 

 

$

4,007

 

 

$

(430

)

 

 

(10.7

%)

 

$

3,007

 

 

$

3,577

 

 

$

(570

)

 

 

(15.9

%)

Interest income

 

 

(2,558

)

 

 

(1,295

)

 

 

(1,263

)

 

 

97.5

%

Less: Interest income

 

 

406

 

 

 

2,558

 

 

 

(2,152

)

 

 

(84.1

%)

Interest expense, net

 

$

1,019

 

 

$

2,712

 

 

$

(1,693

)

 

 

(62.4

%)

 

$

2,601

 

 

$

1,019

 

 

$

1,582

 

 

 

155.3

%

Average outstanding floor plan payable

 

$

31,880

 

 

$

31,596

 

 

 

 

 

 

 

 

 

 

$

27,560

 

 

$

31,880

 

 

 

 

 

 

 

 

 

Average outstanding long-term debt

 

$

47,663

 

 

$

59,258

 

 

 

 

 

 

 

 

 

 

$

73,108

 

 

$

47,663

 

 

 

 

 

 

 

 

 

 

Interest expense, net was $1.0$2.6 million for the nine months ended December 28, 2019, a decrease26, 2020, an increase of $1.7$1.6 million compared to the same period inof the prior year. The decreasenet increase in expense was primarily relateddue to higher average revolver balances combined with a reduction of interest income recognized duringearned on the period as a result of higher averageCompany’s cash balances invested in short term facilities. In addition, the Company incurredshort-term facilities and reduced interest expense on the Company’s borrowings, both due to (i) a lower weighted averagereduction in interest rate on its revolving credit facility of 3.7% as compared to 4.8%, and (ii) lower average outstanding balances on its credit facilities as compared to the same period in the prior year.rates.

 

OTHER EXPENSEINCOME

The following table summarizes other expenseincome for the nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

$

 

 

$

7,845

 

 

$

(7,845

)

 

 

(100.0

%)

Other income

 

$

(6,993

)

 

$

 

 

$

(6,993

)

 

 

100.0

%

 


Other expenseincome for the nine months ended December 29, 2018 primarily consists26, 2020 was $7.0 million which was a result of $6.9 million of expenses related to legal, accounting, and advisory services associated with the Exchange. The Company also incurred $0.8 million of expenses for legal, accounting, and advisory services relatedwage subsidies provided by government sponsored financial assistance programs that were enacted in responses to the secondary offerings.COVID-19 pandemic. The programs included a Canadian wage subsidy benefit of $6.2 million and U.S. federal and state wage subsidy benefits of $0.8 million.

 

 

INCOME TAX EXPENSE

The following table summarizes income tax expense for the nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

$

20,456

 

 

$

13,699

 

 

$

6,757

 

 

 

49.3

%

 

$

15,493

 

 

$

20,456

 

 

$

(4,963

)

 

 

(24.3

%)

Effective tax rate

 

 

28.2

%

 

 

(25.5

%)

 

 

 

 

 

 

 

 

 

 

23.3

%

 

 

28.2

%

 

 

 

 

 

 

 

 

 

Income tax expense for the nine months ended December 28, 201926, 2020 was $15.5 million, representing an effective tax rate of 23.3%, compared to income tax expense of $20.5 million, representing an effective tax rate of 28.2%, compared to income tax expense of $13.7 million, representing an effective tax rate of (25.5%), for the nine months ended December 29, 2018.28, 2019. During the third quarter of fiscal 2021, the Company completed a U.S. R&D tax credit study for the years 2018 and 2019 that resulted in recognition of a tax benefit of $1.7 million. The change in the effective tax rate for the nine months ended December 26, 2020 compared with the same respective period of the prior year was primarily due to an increase in tax credits, certain U.S. tax law changes and results in foreign jurisdictions.

The Company’s effective tax rate for the nine months endedDecember 26, 2020 and December 28, 2019 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, and results in foreign jurisdictions. The Company’s effective tax rate for the nine months ended December 29, 2018 differed from the federal statutory rate of 21.0% primarily due the effect of non-deductible expenses, state and local income taxes, one-time charges related to the Exchange including non-deductible equity-based compensation and results of operations in foreign jurisdictions and non-taxable entities.



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 nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

$

Change

 

 

%

Change

 

 

December 26,

2020

 

 

December 28,

2019

 

 

$

Change

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

52,162

 

 

$

(67,365

)

 

$

119,527

 

 

*

 

Net income

 

$

51,013

 

 

$

52,162

 

 

$

(1,149

)

 

 

(2.2

%)

Income tax expense

 

 

20,456

 

 

 

13,699

 

 

 

6,757

 

 

 

49.3

%

 

 

15,493

 

 

 

20,456

 

 

 

(4,963

)

 

 

(24.3

%)

Interest expense, net

 

 

1,019

 

 

 

2,712

 

 

 

(1,693

)

 

 

(62.4

%)

 

 

2,601

 

 

 

1,019

 

 

 

1,582

 

 

*

 

Depreciation and amortization

 

 

13,895

 

 

 

11,535

 

 

 

2,360

 

 

 

20.5

%

 

 

13,076

 

 

 

13,895

 

 

 

(819

)

 

 

(5.9

%)

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

 

 

3,606

 

 

 

97,589

 

 

 

(93,983

)

 

 

(96.3

%)

 

 

1,358

 

 

 

3,606

 

 

 

(2,248

)

 

 

(62.3

%)

Foreign currency transaction (gain) loss

 

 

(93

)

 

 

188

 

 

 

(281

)

 

*

 

Transaction costs

 

 

 

 

 

6,905

 

 

 

(6,905

)

 

*

 

Acquisition integration costs

 

 

1,938

 

 

 

5,500

 

 

 

(3,562

)

 

 

(64.8

%)

 

 

 

 

 

1,938

 

 

 

(1,938

)

 

*

 

Equity-offering costs

 

 

 

 

 

816

 

 

 

(816

)

 

*

 

Fair market value adjustment for asset classified as held for sale

 

 

986

 

 

 

 

 

 

986

 

 

*

 

 

 

 

 

 

986

 

 

 

(986

)

 

*

 

Restructuring costs and other

 

 

343

 

 

 

1,362

 

 

 

(1,019

)

 

 

(74.8

%)

Other

 

 

 

 

 

250

 

 

 

(250

)

 

*

 

Adjusted EBITDA

 

$

94,312

 

 

$

72,941

 

 

$

21,371

 

 

 

29.3

%

 

$

83,541

 

 

$

94,312

 

 

$

(10,771

)

 

 

(11.4

%)

* indicates that the calculated percentage is not meaningful

 

Adjusted EBITDA for the nine months ended December 28, 201926, 2020 was $94.3$83.5 million, an increasea decrease of $21.4$10.8 million from the same period of the prior year. The increasedecrease is primarily a result of increasedlower operating income after adjusting for the effecteffects of increased depreciation and amortization, transaction-related expenses, integration costs restructuring costs and equity-based compensationthe fair market value adjustment for an asset classified as held for sale incurred in connection with the Exchange.prior year. The increasedecrease in operating income is primarily due to an increasea decrease in sales volume from the inclusion of the Skyline operations and an improvementa decrease in gross profit marginsmargin, partially offset by higher selling, general, and administrative costs. See Adjusted EBITDA definition below for additional information regarding the definition and use of this metric in evaluating the Company’s results.lower SG&A expenses.

The Company defines Adjusted EBITDA as net income or loss plusplus: (a) the provision for income taxes,taxes; (b) interest expense, net,net; (c) depreciation and amortization,amortization; (d) gain or loss from discontinued operations,operations; (e) foreign currency gains and losses, (f) equity-based compensation awards granted prior to December 31, 2018,2018; (f) restructuring charges; (g) restructuring charges and other, (h) impairment of assets,assets; and (i)(h) 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, net sales, operating income, or earnings per share prepared on a U.S. GAAP basis. The Company believes that Adjusted EBITDA is commonly used by investors to evaluate its performance and that of its competitors. However, the Company’s use of Adjusted EBITDA may vary from that of others in its industry.


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 inferenceimplication 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;

 

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.

Because ofGiven 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.

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 December 28, 201926, 2020 totaled $133.1$488.5 million compared to $181.3$133.1 million at December 29, 2018.28, 2019. The reductionincrease in backlog is driven by a decreaseincreased demand for single-family homes which has resulted in order levels that have significantly outpaced production in both the U.S. and Canada. Production levels vary widely by plant, but have, on


average, surpassed last year’s average production rates from customers. The timingthroughout the third quarter of customerfiscal 2021. Increasing production rates to keep pace with orders are drivenis limited by manufacturer delivery times which are shorter, generally, than the sameindividual plant capacity, time last year. In addition, backlog for Canadian operations was lower in the current period due to continued softness in the western Canada housing markets.train new employees, employee attendance and accessibility of materials. Production may also be limited by additional instances of COVID-19 related impacts, including intermittent facility shutdowns.

Liquidity and Capital Resources

Sources and Uses of Cash

The following table presents summary cash flow information for the nine months ended December 26, 2020 and December 28, 2019 and December 29, 2018:2019:

 

 

Nine Months Ended

 

 

Nine Months Ended

 

(Dollars in thousands)

 

December 28,

2019

 

 

December 29,

2018

 

 

December 26,

2020

 

 

December 28,

2019

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

73,077

 

 

$

51,918

 

 

$

103,816

 

 

$

73,077

 

Investing activities

 

 

(10,966

)

 

 

2,396

 

 

 

(1,213

)

 

 

(10,966

)

Financing activities

 

 

(17,968

)

 

 

(60,815

)

 

 

(47,938

)

 

 

(17,968

)

Effect of exchange rate changes on cash, cash equivalents

 

 

510

 

 

 

(1,130

)

 

 

2,940

 

 

 

510

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

44,653

 

 

 

(7,631

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

126,634

 

 

 

136,616

 

Cash, cash equivalents, and restricted cash at end of period

 

$

171,287

 

 

$

128,985

 

Net increase in cash and cash equivalents

 

 

57,605

 

 

 

44,653

 

Cash and cash equivalents at beginning of period

 

 

209,455

 

 

 

126,634

 

Cash and cash equivalents at end of period

 

$

267,060

 

 

$

171,287

 

 

The Company’s primary sources of liquidity are cash flows from operations and existing cash balances, and borrowings under available credit facilities. The Company has $44.4 million of unused borrowing capacity under its revolving credit facility.balances. Cash balances and cash flow from operations for the next year are expected to be adequate to fundcover working capital expenditures.requirements, capital expenditures, and debt payment obligations. The Company does not have any scheduled long-term debt maturities in the next twelve months. The Company’s revolving credit facility includes a leverage ratio covenant that requires the Company’s first lien debt levels to remain less than 2.75 times of the consolidated trailing twelve-month EBITDA. The Company anticipates compliance with its debt covenants and projects its level of cash availability is projected to be in excess of cash needed to operate the business for the next year. In the event operating cash flow isand 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 $103.8 million during the nine months ended December 26, 2020 compared to $73.1 million during the nine months ended December 28, 20192019. The increase of $30.7 million in cash from operating activities is primarily due to increased deposits from customers, deferral of certain payroll tax obligations resulting from the CARES Act regulations, and the benefit of the CEWS subsidy received, partially offset by slightly lower net income compared to $51.9the same period of the prior year.

Cash used in investing activities was $1.2 million for the nine months ended December 26, 2020 compared to $11.0 million during the nine months ended December 29, 2018. Cash was generated by operating income (before non-cash charges) from higher sales and operating margins compared28, 2019. The decrease in cash used for investing activities is primarily related to the prior year. Additionally, there were no transaction expenses incurred for the Skyline acquisition or secondary offering costs through the third quarter of fiscal 2020 compared to $7.7 milliona decrease in capital expenditures in the samecurrent period which is primarily due to deferral of non-essential spending as well as non-recurring spending incurred in the prior year which contributedrelated to: (i) expansion of production capacity at the Leesville, Louisiana manufacturing facility; and (ii) investment in equipment to facilitate improvement in safety and operating efficiencies. In addition, the positive increase in cash provided by operating activities compared to the prior period.      


Cash used in investing activities was $11.0 million for the nine months ended December 28, 2019, primarily related to the $12.1Company received $1.2 million of capital expenditures, partially offset byproceeds from the maturity of a Company owned life insurance policy and $1.8 million of proceeds from the sale of fixed assets during fiscal 2021. The Company received proceeds of $1.1 million from the disposition of a held for sale property. The expenditures for capital items are part of the Company’s focus on safety and operating efficiency initiatives as well as the expansion of production capacity with the investmentproperty in the new Leesville, Louisiana manufacturing facility. fiscal 2020.

Cash provided by investingused in financing activities was $2.4$47.9 million for the nine months ended December 26, 2020 compared to $18.0 million during the nine months ended December 29, 2018 as a result of cash acquired in the Exchange of $9.7 million and payments received on notes receivable of $0.3 million, partially offset by capital expenditures of $7.6 million.

28, 2019. Cash used in financing activities was $18.0 million forduring the first nine months ended December 28, 2019, primarilyof fiscal 2021 was related to the $15.0a $38.0 million repayment on the revolving credit facility, $2.1 million for tax paymentsnet repayments of equity based compensation, and $0.9 million, net repayment on the floor plan payable balance.balance of $8.3 million and payments for remittance of employee taxes associated with share-based compensation programs of $1.7 million. Cash used in financing activities forduring the first nine months ended December 29, 2018of fiscal 2020 was $60.8 million, primarily as a result of distributionsrelated to Champion Holdings’ members of $65.3 million prior to completion of the Exchange and $2.2$15.0 million of additional payments made for deferred financing fees. The Company borrowed $46.9 million underrepayments on the revolving credit agreement duringfacility, a $2.1 million payment for remittance of employee taxes associated with share-based compensation programs and a $0.9 million net repayment of the nine months ended December 29, 2018 and utilized the proceeds to repay term loans. Additionally, the Company borrowed $9.1 million from its floor plan financing arrangements.  payable balance.

 

 

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 Company’sFiscal 2020 Annual Report, on Form 10-K for fiscal 2019 (the “Fiscal 2019 Annual Report”), under the heading "Critical“Critical Accounting Policies." There have been no significant changes in our significant accounting policies or critical accounting estimates discussed in the 2019Fiscal 2020 Annual Report, on Form 10-K, with the exception of adoption of the new lease standard describedaccounting pronouncements as discussed in Note 10, “Leases,1, “Basis of Presentation – Recently Issued Accounting Pronouncements. to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “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 considered 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 important factors,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 statementsstatements. These risks and uncertainties include regional, national, and international economic, financial, public health and labor conditions, and the following:

 

local, regional, nationalthe COVID-19 pandemic, which has had, and international economicis likely to continue to have, significant adverse effects on us, including the effect of governmental restrictions, lockdowns, and financial market conditions and the impact they may haveorders or regulations on the Company and our customers and our assessment of that impact;operations;

 

the impact of recent political instability and social unrest on economic conditions generally;

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

demand fluctuations in the U.S. and Canadian housing industry;

 

supply-related issues;

labor-related issues;

the impactpossible unavailability of customeradditional capital when needed;

competition and competitive pressures;

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

 

regulations pertaining toquality problems, including the housingquality of parts sourced from suppliers and park model RV industries;related liability and reputational issues;

 

general or seasonal weather conditions affecting sales;data security breaches, cybersecurity attacks, and other information technology disruptions, exacerbated by the COVID-19 pandemic;

 

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 possible mergers and acquisitions;

the prices and availability of materials;

 

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

 

changes in interest and foreign exchange rates;

 

more stringent credit standards or financing terms may be imposed by lenders on us, our dealers or customers;insurance coverage and cost issues;

 

the ability to service debt;possibility that all or part of our goodwill might become impaired;

 

the impact of inflation;

the impact of labor costs, shortage, and turnover;

competitive pressures on pricing and promotional costs;

the availability of insurance coverage and changes in insurance costs;


the timely development and acceptance of new products and services and perceived overall value of these products and services by others;

greater than expected costspossibility that our risk management practices may leave us exposed to unidentified or difficulties related to the integration of new products and lines of business;

acquisitions and the integration of acquired businesses;

the effect of changes in laws and regulations with which we must comply;

the effect of changes in accounting policies and practices and auditing requirements;unanticipated risks; and

 

management’s abilityother risks described in Part I — Item 1A, “Risk Factors,” included in the Fiscal 2020 Annual Report, as well as the risks and information provided from time to attract and retain executive officers and key personnel.time in our other periodic reports filed with the SEC.

TheIf any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements in this Report are madeproves 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 hereof, and we do notof this report. We assume anyno obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.hereof, except as required by law.

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 20192020 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There werehave been no significant changes in the Company’s market risk to the market risk information included in the 2019 Annual Report on Form 10-K.such risks since March 28, 2020.

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 Rules 13a-15(e) or 15d-15(e) of the Exchange Act) at December 28, 2019.26, 2020. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 28, 2019.26, 2020.

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’Company’s internal control over financial reporting.


PART II – OTHER INFORMATION

Item 1.

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 15,13 “Commitments, Contingencies and Legal Proceedings – Legal Proceedings,” to the condensed consolidated financial statements included in this Report.

Item 1A.

RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors described in Part 1, Item 1A., “Risk Factors,” in our Fiscal 2019 Annual Report, which could materially affect our business, financial condition or future results. There have been no material changes to the disclosure on these matters set forth in the Fiscal 2019 Annual Report.


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 20022002..

 

 

 

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 20022002..

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as Adopted Pursuantadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002..

 

 

 

101 (SCH)(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.File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

 

 

 

 

 

Filed herewith.


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

 

January 29, 2020February 2, 2021

Mark Yost

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Laurie Hough

 

Executive Vice President, Chief Financial Officer and Treasurer

 

January 29, 2020February 2, 2021

Laurie Hough

 

(Principal Financial Officer)

 

 

 

3231