UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State of Incorporation) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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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.
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).
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:):
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
Emerging growth company |
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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 24, 2022:
SKYLINE CHAMPION CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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)
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January 1, |
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April 3, |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Long-term assets: |
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Property, plant, and equipment, net |
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Goodwill |
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Amortizable intangible assets, net |
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Deferred tax assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Floor plan payable |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt |
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Deferred tax liabilities |
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Other liabilities |
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Total long-term liabilities |
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Stockholders' Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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) |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
Skyline Champion Corporation
Condensed Consolidated Income Statements
(Unaudited, dollars in thousands, except per share amounts)
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Three months ended |
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Nine months ended |
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January 1, |
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December 26, |
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January 1, |
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December 26, |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general, and administrative expenses |
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Operating income |
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Interest expense, net |
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Other expense (income) |
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( |
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( |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
Skyline Champion Corporation
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, dollars in thousands)
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Three months ended |
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Nine months ended |
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January 1, |
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December 26, |
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January 1, |
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December 26, |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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) |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
Skyline Champion Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
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Nine months ended |
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January 1, |
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December 26, |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation |
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Amortization of intangible assets |
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Amortization of deferred financing fees |
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Equity-based compensation |
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Deferred taxes |
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Loss (gain) on disposal of property, plant, and equipment |
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Foreign currency transaction loss (gain) |
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Change in assets and liabilities: |
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Accounts receivable |
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Inventories |
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( |
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Prepaids and other assets |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Additions to property, plant, and equipment |
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( |
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Cash paid for acquisition |
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— |
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Proceeds from maturity of Company owned life insurance policy |
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— |
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Proceeds from disposal of property, plant, and equipment |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities |
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Changes in floor plan financing, net |
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( |
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Payments on deferred financing fees |
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( |
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— |
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Payments on revolving debt facility |
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( |
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( |
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Stock option exercises |
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Tax payments for equity-based compensation |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
Skyline Champion Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, dollars and shares in thousands)
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Three months ended January 1, 2022 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at October 2, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Nine months ended January 1, 2022 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at April 3, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net common stock issued under equity-based compensation plans |
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( |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Three months ended December 26, 2020 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at September 26, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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Balance at December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Nine months ended December 26, 2020 |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Retained |
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Accumulated |
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Total |
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Balance at March 28, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net common stock issued under equity-based compensation plans |
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( |
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( |
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( |
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— |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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Balance at December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Components of accumulated other comprehensive income (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
Nature of Operations: Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the United States (“U.S.”) and Canada. The Company’s operations consist of manufacturing, retail, and transportation activities. The Company operates
COVID-19 Government Financial Assistance: The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. Various government programs were announced to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and state level programs in the United States and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. The Company recognized $
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany balances and transactions. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly state the Company’s consolidated results of operations, cash flows, and financial position. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on May 26, 2021 (the “Fiscal 2021 Annual Report”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes thereto. Actual results could differ from those estimates. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, and condensed consolidated statements of cash flows for the interim periods are not necessarily indicative of the results of operations or cash flows for the full year.
The Company’s allowance for credit losses on financial assets measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current economic conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. Accounts receivable are reflected net of reserves of $
The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2022,” will end on April 2, 2022 and will include 52 weeks. References to “fiscal 2021” refer to the Company’s fiscal year ended April 3, 2021. The three and nine months ended January 1, 2022 and December 26, 2020 each included 13 and 39 weeks, respectively.
There were no accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.
6
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
2. Business Acquisition
ScotBilt Acquisition
On
The preliminary allocation of the purchase price was as follows:
(Dollars in thousands) |
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Cash |
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$ |
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Trade accounts receivable |
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Inventory |
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Property, plant, and equipment |
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Other assets |
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Accounts payable and accrued liabilities |
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( |
) |
Intangibles |
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Goodwill |
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Total purchase price allocation |
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$ |
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Goodwill is primarily attributable to expected synergies from the combination of the companies, including, but not limited to, expected cost synergies through procurement activities and operational improvements through sharing of best practices. Goodwill, which is deductible for income tax purposes, was allocated to the U.S. Factory-built Housing reporting unit.
Cash, trade accounts receivable, inventory, other assets, accounts payable, and accrued liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Intangible assets include $
3. Inventories, net
The components of inventory, net of reserves for obsolete inventory, were as follows:
(Dollars in thousands) |
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January 1, |
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April 3, |
|
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Raw materials |
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$ |
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$ |
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Work in process |
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Finished goods and other |
|
|
|
|
|
|
||
Total inventories, net |
|
$ |
|
|
$ |
|
||
7
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
4. Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements –
The components of property, plant, and equipment were as follows:
(Dollars in thousands) |
|
January 1, |
|
|
April 3, |
|
||
Land and improvements |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Property, plant, and equipment, at cost |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
||
5. Goodwill, Intangible Assets, and Cloud Computing Arrangements
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At January 1, 2022 and April 3, 2021, the Company had goodwill of $
Intangible Assets
The components of amortizable intangible assets were as follows:
(Dollars in thousands) |
|
January 1, 2022 |
|
|
April 3, 2021 |
|
||||||||||||||||||
|
|
Customer |
|
|
Trade |
|
|
Total |
|
|
Customer |
|
|
Trade |
|
|
Total |
|
||||||
Gross carrying amount |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
( |
) |
Amortizable intangibles, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
During the three months ended January 1, 2022 and December 26, 2020, amortization of intangible assets was $
Cloud Computing Arrangements
The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software. At January 1, 2022 and April 3, 2021, the Company had capitalized cloud computing costs of $
8
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
6. Other Current Liabilities
The components of other current liabilities were as follows:
(Dollars in thousands) |
|
January 1, |
|
|
April 3, |
|
||
Customer deposits |
|
$ |
|
|
$ |
|
||
Accrued volume rebates |
|
|
|
|
|
|
||
Accrued warranty obligations |
|
|
|
|
|
|
||
Accrued compensation and payroll taxes |
|
|
|
|
|
|
||
Accrued insurance |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
7. Accrued Warranty Obligations
Changes in the accrued warranty obligations were as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
January 1, |
|
|
December 26, |
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Warranty expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash warranty payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: noncurrent portion in other long-term liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total current portion |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
8. Debt and Floor Plan Payable
Long-term debt consisted of the following:
(Dollars in thousands) |
|
January 1, |
|
|
April 3, |
|
||
Revolving credit facility maturing in 2026 |
|
$ |
— |
|
|
$ |
|
|
Obligations under industrial revenue bonds due 2029 |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Less: current portion |
|
|
— |
|
|
|
— |
|
Total long-term debt |
|
$ |
|
|
$ |
|
||
On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement with a syndicate of banks that provides for a revolving credit facility of up to $
The interest rate on borrowings under the Amended Credit Agreement adjusts based on the consolidated total net leverage of the Company from a high of LIBOR plus
9
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at January 1, 2022, including related costs and fees, was
The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Amended Credit Agreement as of January 1, 2022.
Floor Plan Payable
The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At January 1, 2022 and April 3, 2021, the Company had outstanding borrowings on floor plan financing agreements of $
10
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
9. Revenue Recognition
The following tables disaggregate the Company’s revenue by sales category for the three and nine months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended January 1, 2022 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
|
|
|
|
|||||||||||||
Manufacturing and retail |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine months ended January 1, 2022 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
|
|
|
|
|||||||||||||
Manufacturing and retail |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three months ended December 26, 2020 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
|
|
|
|
|||||||||||||
Manufacturing and retail |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine months ended December 26, 2020 |
|
|||||||||||||
(Dollars in thousands) |
|
U.S. |
|
|
Canadian |
|
|
Corporate/ |
|
|
Total |
|
||||
|
|
|
|
|||||||||||||
Manufacturing and retail |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Commercial |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transportation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
11
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
10. Income Taxes
For the three months ended January 1, 2022 and December 26, 2020, the Company recorded $
The Company’s effective tax rate for the three and nine months ended January 1, 2022 differs from the federal statutory rate of
At January 1, 2022, the Company had
11. Earnings Per Share
Basic net income per share (“EPS”) attributable to the Company was computed by dividing net income attributable to the Company by the average number of common shares outstanding during the period. Certain of the Company’s time-based restricted share awards were considered participating securities prior to the completion of the vesting period. The vesting for these time-based shares occurred in the second quarter of fiscal 2021. Diluted earnings per common share is computed based on the more dilutive of: (i) the two class method, assuming the participating securities are not exercised or converted; or (ii) the summation of average common shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued. During the nine months ended December 26, 2020, the two-class method was more dilutive. The two-class method was not applicable to the computation for the three months ended December 26,2020, or any subsequent periods, as the time-vested restricted share awards were fully vested and no longer considered participating securities.
The following table sets forth the computation of basic and diluted earnings per common share:
|
|
Three months ended |
|
Nine months ended |
|
|||||||||||
(Dollars and shares in thousands, except per share data) |
|
January 1, |
|
|
December 26, |
|
|
January 1, |
|
|
December 26, |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Undistributed earnings allocated to participating securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net income attributable to the Company's common shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic net income per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted net income per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
12
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
12. Segment Information
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segments primarily based on net sales, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.
The Company operates in
Selected financial information by reportable segment was as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
January 1, |
|
|
December 26, |
|
||||
|
|
|
|
|
|
|
||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other EBITDA |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consolidated operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated depreciation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of U.S. Factory-built Housing intangible assets: |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
January 1, |
|
|
April 3, |
|
||||
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing (1) |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Canadian Factory-built Housing (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated total assets |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
13
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
13. Commitments, Contingencies and Legal Proceedings
Repurchase Contingencies and Guarantees
The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on its agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. Excluding the resale value of the homes, the contingent repurchase obligation as of January 1, 2022 was estimated to be $
At January 1, 2022, the Company was contingently obligated for $
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
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.
14
Item 2. MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Skyline Champion Corporation’s condensed consolidated financial statements and the related notes that appear in Item 1 of this Report.
Overview
Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured offsite construction, company-owned retail locations, and transportation logistics services. The Company is the largest independent publicly traded factory-built solutions provider in North America (based on revenue) and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company operates 35 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed, manufactured and modular houses that are sold mainly to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured homes to consumers primarily in the southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.
Industry and Company Outlook
Since July 2020, U.S. and Canadian housing demand has been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the U.S., including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time home buyers, and the population of households earning less than $60,000 per year. We have also seen a number of market trends pointing to increased sales of accessory dwelling units and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options.
The robust demand environment has resulted in backlog of $1.5 billion as of January 1, 2022 compared to $488.5 million as of December 26, 2020. Generally higher backlog at our manufacturing facilities creates an opportunity to increase production efficiencies. Although the higher demand brings opportunities, it also has resulted in significant increases in raw material and labor costs. In addition, we are experiencing intermittent supply disruption and higher freight costs. Finding and retaining qualified labor continues to be a challenge for our plants which requires us to review our compensation programs and adjust accordingly. We manage our business to anticipate or quickly react to these supply challenges and cost increases and generally are able to pass along increased costs to our customers. Historically, order cancellation rates have been very low, but the longer lead-time caused by larger backlogs and changing prices could result in higher cancellations in future periods.
For the nine months ended January 1, 2022, approximately 78% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the U.S. Department of Housing and Urban Development ("HUD") code construction standard in the U.S. Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by the Manufactured Housing Institute ("MHI"), HUD-code industry home shipments were 71,281 and 61,492 units during the eight months ended November 30, 2021 and 2020, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 19.4% and 16.2%, for the eight months ended November 30, 2021 and 2020, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, current manufactured housing shipments are still at lower levels than the long-term historical average of over 200,000 units a year.
Acquisitions and Expansions
Over the last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve. As a result, the Company has focused on operational improvements to make existing manufacturing facilities more profitable as well as executing measured expansion of its manufacturing and retail footprints. The Company has increased capacity through strategic acquisitions and expansions of its manufacturing operations. The Company is focused on growing in strong housing markets across the U.S.
On June 21, 2021, the Company acquired two idle facilities in Navasota, Texas in order to strengthen its production capabilities in the Texas market. The Company began certification of the manufacturing operations at one of these facilities in the third quarter of fiscal 2022, and expects to begin delivering products from that facility in the fourth fiscal quarter. On February 28, 2021, the Company acquired ScotBilt, which operates two manufacturing facilities in Georgia that provide affordable housing throughout Alabama, Florida, Georgia and the Carolinas. The operations of ScotBilt are included in the financial results of the Company since the date of the acquisition. On January 14, 2021, the Company
15
acquired two idled facilities in Pembroke, North Carolina, which provides an opportunity to further expand its manufacturing footprint in the South and Southeast markets. The Company is currently assessing prospects for initiating production in one or both of these facilities.
The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations. These acquisitions and investments are included in the Company's consolidated results for periods subsequent to their respective acquisition dates.
COVID-19 Pandemic
The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.
The Company has prioritized the safety and well-being of its employees and customers and has implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand. By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members, and social distancing protocols. During fiscal 2021, the Company experienced intermittent closures due to COVID-19 outbreaks at the facilities or surrounding communities causing higher than normal absenteeism. In the second half of fiscal 2021, the Company was able to increase daily production rates over the levels achieved in the prior fiscal year period as direct labor staffing levels increased and production efficiencies improved. Although the Company has generally been able to navigate the production challenges caused by the pandemic in fiscal 2022, availability of labor and certain materials remain subject to disruption and uncertainty. Prices for key raw materials have experienced increased volatility and, overall, manufacturing costs have trended higher than prior periods.
As part of the initial response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and waived premium payments on healthcare benefits for furloughed employees. The Company’s U.S. operations incurred $2.2 million of expense related to the extended benefits during the nine months ended December 26, 2020. Various government programs were enacted to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the U.S. and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. CEWS provided a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $6.2 million for payroll subsidies under CEWS and $0.6 million for payroll subsidies under the CARES Act during the nine months ended December 26, 2020. No payroll subsidy was recognized under CEWS or Cares Act during the three months ended December 26, 2020. In addition, the CARES Act allowed for deferring payment of certain payroll taxes. Through December 2020 the Company deferred $11.8 million of payroll taxes . The Company repaid $5.9 million in the current quarter, with the remaining amount expected to be paid in December 2022.
16
UNAUDITED INCOME STATEMENTS FOR THE THIRD QUARTER OF FISCAL 2022 VS. 2021
|
|
Three months ended |
|
|||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
||
|
|
|
|
|||||
Results of Operations Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
534,690 |
|
|
$ |
377,581 |
|
Cost of sales |
|
|
377,451 |
|
|
|
305,797 |
|
Gross profit |
|
|
157,239 |
|
|
|
71,784 |
|
Selling, general, and administrative expenses |
|
|
65,825 |
|
|
|
44,286 |
|
Operating income |
|
|
91,414 |
|
|
|
27,498 |
|
Interest expense, net |
|
|
508 |
|
|
|
795 |
|
Other income (expense) |
|
|
7 |
|
|
|
(180 |
) |
Income before income taxes |
|
|
90,899 |
|
|
|
26,883 |
|
Income tax expense |
|
|
23,277 |
|
|
|
5,284 |
|
Net income |
|
$ |
67,622 |
|
|
$ |
21,599 |
|
|
|
|
|
|
|
|
||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
||
Net income |
|
$ |
67,622 |
|
|
$ |
21,599 |
|
Income tax expense |
|
|
23,277 |
|
|
|
5,284 |
|
Interest expense, net |
|
|
508 |
|
|
|
795 |
|
Depreciation and amortization |
|
|
5,250 |
|
|
|
4,386 |
|
Adjusted EBITDA |
|
$ |
96,657 |
|
|
$ |
32,064 |
|
As a percent of net sales: |
|
|
|
|
|
|
||
Gross profit |
|
|
29.4 |
% |
|
|
19.0 |
% |
Selling, general, and administrative expenses |
|
|
12.3 |
% |
|
|
11.7 |
% |
Operating income |
|
|
17.1 |
% |
|
|
7.3 |
% |
Net income |
|
|
12.6 |
% |
|
|
5.7 |
% |
Adjusted EBITDA |
|
|
18.1 |
% |
|
|
8.5 |
% |
NET SALES
The following table summarizes net sales for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
Net sales |
|
$ |
534,690 |
|
|
$ |
377,581 |
|
|
$ |
157,109 |
|
|
|
41.6 |
% |
U.S. manufacturing and retail net sales |
|
$ |
484,319 |
|
|
$ |
336,358 |
|
|
$ |
147,961 |
|
|
|
44.0 |
% |
U.S. homes sold |
|
|
5,832 |
|
|
|
5,343 |
|
|
|
489 |
|
|
|
9.2 |
% |
U.S. manufacturing and retail average home selling price |
|
$ |
83.0 |
|
|
$ |
63.0 |
|
|
$ |
20.0 |
|
|
|
31.7 |
% |
Canadian manufacturing net sales |
|
$ |
36,910 |
|
|
$ |
26,351 |
|
|
$ |
10,559 |
|
|
|
40.1 |
% |
Canadian homes sold |
|
|
336 |
|
|
|
318 |
|
|
|
18 |
|
|
|
5.7 |
% |
Canadian manufacturing average home selling price |
|
$ |
109.9 |
|
|
$ |
82.9 |
|
|
$ |
27.0 |
|
|
|
32.6 |
% |
Corporate/Other net sales |
|
$ |
13,461 |
|
|
$ |
14,872 |
|
|
$ |
(1,411 |
) |
|
|
(9.5 |
%) |
U.S. manufacturing facilities in operation at end of period |
|
|
35 |
|
|
|
33 |
|
|
|
|
|
|
|
||
U.S. retail sales centers in operation at end of period |
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
||
Canadian manufacturing facilities in operation at end of period |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
||
Net sales for the three months ended January 1, 2022 were $534.7 million, an increase of $157.1 million, or 41.6%, over the three months ended December 26, 2020. The following is a summary of the change by operating segment.
17
U.S. Factory-built Housing:
Net sales for the Company’s U.S. manufacturing and retail operations increased by $148.0 million, or 44.0%, for the three months ended January 1, 2022 compared to the three months ended December 26, 2020. The change was primarily due to an increase in the number of homes sold during the period of 9.2%, an increase in the average home selling price of 31.7%, and the impact of the acquisition of ScotBilt. Demand for our products has increased significantly in recent periods and we have been able to increase production in response to that demand. The average selling price increased during the period due to pricing actions enacted in response to rising material, freight, and labor costs as well as a shift in product mix to larger homes with more features and amenities. Generally, we are able to pass the increase in input costs along to our customers.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales increased by $10.6 million, or 40.1% for the three months ended January 1, 2022 compared to the same period in the prior fiscal year, primarily due to a 5.7% increase in the number of homes sold and a 32.6% increase in average home selling price. The increase in volume was due to an increase in homes sold driven by strong demand. The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. On a constant currency basis, net sales for the Canadian segment were also favorably impacted by approximately $1.8 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the three months ended January 1, 2022 as compared to the same period of the prior fiscal year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the three months ended January 1, 2022, net sales decreased $1.4 million, or 9.5%, primarily attributable to lower revenue from the shipment of recreational vehicles.
GROSS PROFIT
The following table summarizes gross profit for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
143,333 |
|
|
$ |
62,943 |
|
|
$ |
80,390 |
|
|
|
127.7 |
% |
Canadian Factory-built Housing |
|
|
10,251 |
|
|
|
5,372 |
|
|
|
4,879 |
|
|
|
90.8 |
% |
Corporate/Other |
|
|
3,655 |
|
|
|
3,469 |
|
|
|
186 |
|
|
|
5.4 |
% |
Total gross profit |
|
$ |
157,239 |
|
|
$ |
71,784 |
|
|
$ |
85,455 |
|
|
|
119.0 |
% |
Gross profit as a percent of net sales |
|
|
29.4 |
% |
|
|
19.0 |
% |
|
|
|
|
|
|
||
Gross profit as a percent of sales during the three months ended January 1, 2022 was 29.4% compared to 19.0% during the three months ended December 26, 2020. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment increased by $80.4 million, or 127.7%, during the three months ended January 1, 2022 compared to the same period in the prior fiscal year. Gross profit was 29.6% as a percent of segment net sales for the three months ended January 1, 2022, compared to 18.7% in the same period of the prior fiscal year. Margin improvement was driven primarily by price increases in response to rising input costs and the timing of certain price adjustments for raw materials under our buying programs. We have also focused on product simplification and material SKU rationalization to improve operational efficiencies to better leverage increased production and manufacturing fixed costs.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment increased by $4.9 million, or 90.8%, during the three months ended January 1, 2022, compared to the same period in the prior fiscal year, primarily due to increased sales volume. Gross profit as a percent of net sales was 27.8% for the three months ended January 1, 2022, compared to 20.4% in the same period of the prior fiscal year. Margin improvement was driven by price increases in response to rising material and labor costs, as well as direct labor and manufacturing efficiencies, and increased leverage of manufacturing fixed costs.
18
Corporate/Other:
Gross profit for the Corporate/Other segment increased $0.2 million, or 5.4%, during the three months ended January 1, 2022, compared to the same period of the prior fiscal year, as a result of changes in revenue mix.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
49,208 |
|
|
$ |
31,324 |
|
|
$ |
17,884 |
|
|
|
57.1 |
% |
Canadian Factory-built Housing |
|
|
2,958 |
|
|
|
2,682 |
|
|
|
276 |
|
|
|
10.3 |
% |
Corporate/Other |
|
|
13,659 |
|
|
|
10,280 |
|
|
|
3,379 |
|
|
|
32.9 |
% |
Total selling, general, and administrative expenses |
|
$ |
65,825 |
|
|
$ |
44,286 |
|
|
$ |
21,539 |
|
|
|
48.6 |
% |
Selling, general, and administrative expense as a percent of net sales |
|
|
12.3 |
% |
|
|
11.7 |
% |
|
|
|
|
|
|
||
Selling, general, and administrative expenses were $65.8 million for the three months ended January 1, 2022, an increase of $21.5 million, or 48.6%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased $17.9 million, or 57.1%, during the three months ended January 1, 2022, as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales increased to 10.2% for the three months ended January 1, 2022, compared to 9.3% during the comparable period of the prior fiscal year. The increase in expenses resulted from the following factors: (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from increased headcount as we staffed to respond to the growth in housing demand; and (iii) the impact of the acquisition of the ScotBilt operations.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased $0.3 million, or 10.3%, for the three months ended January 1, 2022 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales decreased to 8.0% for the three months ended January 1, 2022, compared to 10.2% during the comparable period of the prior fiscal year. The higher expenses are a result of an increase in incentive compensation which is generally based on a measure of profitability.
Corporate/Other:
Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other increased $3.4 million, or 32.9%, during the three months ended January 1, 2022, compared to the same period of the prior fiscal year, due to an increase in equity compensation, as well as $2.2 million of costs related to investments made to enhance our customer buying experience and supporting systems.
19
INTEREST EXPENSE, NET
The following table summarizes the components of interest expense, net for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
Interest expense |
|
$ |
701 |
|
|
$ |
946 |
|
|
$ |
(245 |
) |
|
|
(25.9 |
%) |
Less: Interest income |
|
|
(193 |
) |
|
|
(151 |
) |
|
|
(42 |
) |
|
|
27.8 |
% |
Interest expense, net |
|
$ |
508 |
|
|
$ |
795 |
|
|
$ |
(287 |
) |
|
|
(36.1 |
%) |
Average outstanding floor plan payable |
|
$ |
32,942 |
|
|
$ |
24,304 |
|
|
|
|
|
|
|
||
Average outstanding long-term debt |
|
$ |
12,430 |
|
|
$ |
64,663 |
|
|
|
|
|
|
|
||
Interest expense, net was $0.5 million for the three months ended January 1, 2022, a decrease of $0.3 million compared to the same period of the prior fiscal year. The net decrease in expense was primarily due to lower average outstanding borrowings on long-term debt, offset in part by higher average borrowings on floor plan payables. The Company repaid the outstanding balance on its revolving credit facility during the second quarter of fiscal 2022.
INCOME TAX EXPENSE
The following table summarizes income tax expense for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Income tax expense |
|
$ |
23,277 |
|
|
$ |
5,284 |
|
|
$ |
17,993 |
|
|
|
340.5 |
% |
Effective tax rate |
|
|
25.6 |
% |
|
|
19.7 |
% |
|
|
|
|
|
|
||
Income tax expense for the three months ended January 1, 2022 was $23.3 million, representing an effective tax rate of 25.6%, compared to income tax expense of $5.3 million, representing an effective tax rate of 19.7% for the three months ended December 26, 2020. The change in the effective tax rate for the three months ended January 1, 2022 compared with the same period of the prior year, was primarily due to the recognition of a tax benefit of $1.7 million during the third quarter of fiscal 2021 related to a U.S. R&D tax credit study.
The Company’s effective tax rate for the three months ended January 1, 2022 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, results in foreign jurisdictions, and tax benefits related to equity compensation. The Company’s effective tax rate for the three months ended December 26, 2020 differed from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, tax credits (including the R&D study), and results in foreign jurisdictions.
ADJUSTED EBITDA
The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for the three months ended January 1, 2022 and December 26, 2020:
|
|
Three months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
Net income |
|
$ |
67,622 |
|
|
$ |
21,599 |
|
|
$ |
46,023 |
|
|
|
213.1 |
% |
Income tax expense |
|
|
23,277 |
|
|
|
5,284 |
|
|
|
17,993 |
|
|
|
340.5 |
% |
Interest expense, net |
|
|
508 |
|
|
|
795 |
|
|
|
(287 |
) |
|
|
(36.1 |
%) |
Depreciation and amortization |
|
|
5,250 |
|
|
|
4,386 |
|
|
|
864 |
|
|
|
19.7 |
% |
Adjusted EBITDA |
|
$ |
96,657 |
|
|
$ |
32,064 |
|
|
$ |
64,593 |
|
|
|
201.5 |
% |
Adjusted EBITDA for the three months ended January 1, 2022 was $96.7 million, an increase of $64.6 million from the same period of the prior fiscal year. The increase is primarily a result of higher operating income due to increases in net sales volume and gross margins, partially offset by higher SG&A expenses.
20
UNAUDITED INCOME STATEMENTS FOR THE FIRST NINE MONTHS OF FISCAL 2022 VS. 2021
|
|
Nine months ended |
|
|||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
||
|
|
|
|
|||||
Results of Operations Data: |
|
|
|
|
|
|
||
Net sales |
|
$ |
1,569,112 |
|
|
$ |
973,232 |
|
Cost of sales |
|
|
1,171,016 |
|
|
|
784,652 |
|
Gross profit |
|
|
398,096 |
|
|
|
188,580 |
|
Selling, general, and administrative expenses |
|
|
181,188 |
|
|
|
126,466 |
|
Operating income |
|
|
216,908 |
|
|
|
62,114 |
|
Interest expense, net |
|
|
2,002 |
|
|
|
2,601 |
|
Other income |
|
|
(36 |
) |
|
|
(6,993 |
) |
Income before income taxes |
|
|
214,942 |
|
|
|
66,506 |
|
Income tax expense |
|
|
53,696 |
|
|
|
15,493 |
|
Net income |
|
$ |
161,246 |
|
|
$ |
51,013 |
|
|
|
|
|
|
|
|
||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
||
Net income |
|
$ |
161,246 |
|
|
$ |
51,013 |
|
Income tax expense |
|
|
53,696 |
|
|
|
15,493 |
|
Interest expense, net |
|
|
2,002 |
|
|
|
2,601 |
|
Depreciation and amortization |
|
|
15,533 |
|
|
|
13,076 |
|
Equity-based compensation (for awards granted prior to December 31, 2018) |
|
|
— |
|
|
|
1,358 |
|
Adjusted EBITDA |
|
$ |
232,477 |
|
|
$ |
83,541 |
|
As a percent of net sales: |
|
|
|
|
|
|
||
Gross profit |
|
|
25.4 |
% |
|
|
19.4 |
% |
Selling, general, and administrative expenses |
|
|
11.5 |
% |
|
|
13.0 |
% |
Operating income |
|
|
13.8 |
% |
|
|
6.4 |
% |
Net income |
|
|
10.3 |
% |
|
|
5.2 |
% |
Adjusted EBITDA |
|
|
14.8 |
% |
|
|
8.6 |
% |
NET SALES
The following table summarizes net sales for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Net sales |
|
$ |
1,569,112 |
|
|
$ |
973,232 |
|
|
$ |
595,880 |
|
|
|
61.2 |
% |
U.S. manufacturing and retail net sales |
|
$ |
1,413,338 |
|
|
$ |
868,577 |
|
|
$ |
544,761 |
|
|
|
62.7 |
% |
U.S. homes sold |
|
|
18,106 |
|
|
|
14,060 |
|
|
|
4,046 |
|
|
|
28.8 |
% |
U.S. manufacturing and retail average home selling price |
|
$ |
78.1 |
|
|
$ |
61.8 |
|
|
$ |
16.3 |
|
|
|
26.4 |
% |
Canadian manufacturing net sales |
|
$ |
113,242 |
|
|
$ |
66,104 |
|
|
$ |
47,138 |
|
|
|
71.3 |
% |
Canadian homes sold |
|
|
1,079 |
|
|
|
812 |
|
|
|
267 |
|
|
|
32.9 |
% |
Canadian manufacturing average home selling price |
|
$ |
105.0 |
|
|
$ |
81.4 |
|
|
$ |
23.6 |
|
|
|
29.0 |
% |
Corporate/Other net sales |
|
$ |
42,532 |
|
|
$ |
38,551 |
|
|
$ |
3,981 |
|
|
|
10.3 |
% |
U.S. manufacturing facilities in operation at end of period |
|
|
35 |
|
|
|
33 |
|
|
|
|
|
|
|
||
U.S. retail sales centers in operation at end of period |
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
||
Canadian manufacturing facilities in operation at end of period |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
||
Net sales for the nine months ended January 1, 2022 were $1,569.1 million, an increase of $595.9 million, or 61.2%, over the nine months ended December 26, 2020. The following is a summary of the change by operating segment.
21
U.S. Factory-built Housing:
Net sales for the Company’s U.S. manufacturing and retail operations increased by $544.8 million, or 62.7%, for the nine months ended January 1, 2022 compared to the nine months ended December 26, 2020. The increase was primarily due to an increase in the number of homes sold during the period of 4,046 and an increase in the average selling price of 26.4%. The increase in the number of homes sold was a result of increased production levels at many of the Company’s manufacturing locations in response to strong demand for our products, as well as the addition of production volume through the acquisition of ScotBilt. The average selling price increased over the prior year due to pricing actions enacted in response to rising material and labor costs. Generally, we are able to pass increases in input costs along to our customers. The improvement this year is also a result of a negative impact to sales in the prior fiscal year caused by COVID-19 related plant shutdowns and higher than normal absenteeism.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales increased by $47.1 million, or 71.3%, for the nine months ended January 1, 2022 compared to the same period in the prior fiscal year, primarily due to an increase in homes sold of 267 and a 29.0% increase in average home selling price. The increase in volume was due to an increase in production rates in response to strong housing demand. The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. In addition, on a constant currency basis, net sales for the Canadian segment were favorably impacted by approximately $8.4 million due to fluctuations in the translation of the Canadian dollar to the U.S. dollar during the first nine months of fiscal 2022 as compared to the same period of the prior fiscal year. Net sales during the nine months ended December 26, 2020 were negatively impacted by COVID-19 related plant shutdowns and higher than normal absenteeism.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the nine months ended January 1, 2022, net sales increased $4.0 million, or 10.3%, primarily attributable to an increase in shipments of manufactured homes and recreational vehicles.
GROSS PROFIT
The following table summarizes gross profit for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
359,148 |
|
|
$ |
165,899 |
|
|
$ |
193,249 |
|
|
|
116.5 |
% |
Canadian Factory-built Housing |
|
|
27,444 |
|
|
|
12,941 |
|
|
|
14,503 |
|
|
|
112.1 |
% |
Corporate/Other |
|
|
11,504 |
|
|
|
9,740 |
|
|
|
1,764 |
|
|
|
18.1 |
% |
Total gross profit |
|
$ |
398,096 |
|
|
$ |
188,580 |
|
|
$ |
209,516 |
|
|
|
111.1 |
% |
Gross profit as a percent of net sales |
|
|
25.4 |
% |
|
|
19.4 |
% |
|
|
|
|
|
|
||
Gross profit as a percent of sales during the nine months ended January 1, 2022 was 25.4% compared to 19.4% during the nine months ended December 26, 2020. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment increased by $193.2 million, or 116.5%, during the nine months ended January 1, 2022 compared to the same period in the prior fiscal year. Gross profit was 25.4% as a percent of segment net sales for the nine months ended January 1, 2022 compared to 19.1% in the same period of the prior fiscal year. The increase in gross profit is due to operational efficiencies and increased leverage of manufacturing fixed costs resulting from higher production volumes and higher average selling prices during fiscal 2022. Higher input costs for materials and labor have generally been offset to date by increasing the prices of our products. The improvement is also a result of less COVID-19 related sick-pay and health benefits which were provided in the prior fiscal year.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment increased by $14.5 million, or 112.1% during the nine months ended January 1, 2022 compared to the same period in the prior fiscal year primarily due to increased sales volumes and the price of our products. Gross profit as a percent of net sales was 24.2% for the nine months ended January 1, 2022, compared to 19.6% in the same period of the prior
22
fiscal year. The increase in gross profit as a percent of sales is primarily due to operational leverage from the increase in homes sold, partially offset by higher material costs.
Corporate/Other:
Gross profit for the Corporate/Other segment increased $1.8 million, or 18.1%, during the nine months ended January 1, 2022 compared to the same period of the prior fiscal year, primarily due to increased net sales and the product mix within the Company’s transportation operations.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Selling, general, and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Factory-built Housing |
|
$ |
132,977 |
|
|
$ |
89,301 |
|
|
$ |
43,676 |
|
|
|
48.9 |
% |
Canadian Factory-built Housing |
|
|
8,654 |
|
|
|
5,971 |
|
|
|
2,683 |
|
|
|
44.9 |
% |
Corporate/Other |
|
|
39,557 |
|
|
|
31,194 |
|
|
|
8,363 |
|
|
|
26.8 |
% |
Total selling, general, and administrative expenses |
|
$ |
181,188 |
|
|
$ |
126,466 |
|
|
$ |
54,722 |
|
|
|
43.3 |
% |
Selling, general, and administrative expense as a percent of net sales |
|
|
11.5 |
% |
|
|
13.0 |
% |
|
|
|
|
|
|
||
Selling, general, and administrative expenses were $181.2 million for the nine months ended January 1, 2022, an increase of $54.7 million, or 43.3%, compared to the same period in the prior fiscal year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Selling, general, and administrative expenses for the U.S. Factory-built Housing segment increased $43.7 million, or 48.9%, during the nine months ended January 1, 2022 as compared to the same period in the prior fiscal year. Selling, general, and administrative expenses, as a percent of segment net sales decreased to 9.4% for the nine months ended January 1, 2022 compared to 10.3% during the comparable period of the prior fiscal year. The increase in expenses resulted from the following factors: (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from headcount increases to support increased sales; (iii) an increase in travel expenses compared to the same period in the prior fiscal year; and (iv) the impact of the acquisition of the ScotBilt operations.
Canadian Factory-built Housing:
Selling, general, and administrative expenses for the Canadian Factory-built Housing segment increased $2.7 million, or 44.9%, for the nine months ended January 1, 2022 when compared to the same period of the prior fiscal year. Selling, general, and administrative expenses as a percent of segment net sales decreased to 7.6% for the nine months ended January 1, 2022 compared to 9.0% during the comparable period of the prior fiscal year. The increase in selling, general, and administrative expenses resulted from an increase in commissions and incentive compensation as well as wage expense from additional headcount to support the increase in sales.
Corporate/Other:
Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other increased $8.4 million, or 26.8%, during the nine months ended January 1, 2022 as compared to the same period of the prior fiscal year due to $4.2 million of costs related to investments made to enhance our customer buying experience and supporting systems and an increase in incentive, equity compensation costs, and wage expense from additional headcount.
23
INTEREST EXPENSE, NET
The following table summarizes the components of interest expense, net for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Interest expense |
|
$ |
2,502 |
|
|
$ |
3,007 |
|
|
$ |
(505 |
) |
|
|
(16.8 |
%) |
Less: Interest income |
|
|
(500 |
) |
|
|
(406 |
) |
|
|
(94 |
) |
|
|
23.2 |
% |
Interest expense, net |
|
$ |
2,002 |
|
|
$ |
2,601 |
|
|
$ |
(599 |
) |
|
|
(23.0 |
%) |
Average outstanding floor plan payable |
|
$ |
30,278 |
|
|
$ |
27,560 |
|
|
|
|
|
|
|
||
Average outstanding long-term debt |
|
$ |
12,430 |
|
|
$ |
73,108 |
|
|
|
|
|
|
|
||
Interest expense, net was $2.0 million for the nine months ended January 1, 2022, a decrease of $0.6 million, or 23.0%, compared to the same period of the prior fiscal year. The net decrease in expense was primarily due to lower average outstanding borrowings on long-term debt, offset in part by higher average borrowings on floor plan payables. The Company repaid the outstanding balance on its revolving credit facility during the second quarter of fiscal 2022.
OTHER EXPENSE (INCOME)
The following table summarizes other income for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Other income |
|
$ |
(36 |
) |
|
$ |
(6,993 |
) |
|
$ |
6,957 |
|
|
|
(99.5 |
%) |
Other income decreased $7.0 million, or 99.5%, during the nine months ended January 1, 2022, compared to the same period of the prior fiscal year. The decrease is due to a reduction in the wage subsidies provided by government sponsored financial assistance programs that were enacted in response to the COVID-19 pandemic during fiscal 2021. 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 recognized in the nine months ended December 26, 2020 which did not recur in the current year.
INCOME TAX EXPENSE
The following table summarizes income tax expense for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Income tax expense |
|
$ |
53,696 |
|
|
$ |
15,493 |
|
|
$ |
38,203 |
|
|
|
246.6 |
% |
Effective tax rate |
|
|
25.0 |
% |
|
|
23.3 |
% |
|
|
|
|
|
|
||
Income tax expense for the nine months ended January 1, 2022 was $53.7 million, representing an effective tax rate of 25.0%, compared to income tax expense of $15.5 million, representing an effective tax rate of 23.3% for the nine months ended December 26, 2020. The change in the effective tax rate for the nine months ended January 1, 2022 compared with the same period of the prior year, was primarily due to the recognition of a tax benefit of $1.7 million during the third quarter of fiscal 2021 related to a U.S. R&D tax credit study.
The Company’s effective tax rate for the nine months ended January 1, 2022 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes, non-deductible expenses, tax credits, results in foreign jurisdictions, and tax benefits related to equity compensation. The Company’s effective tax rate for the nine months ended December 26, 2020 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, tax credits (including the R&D study), and results in foreign jurisdictions.
24
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 January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|
|
|
|
|
|
|||||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
|
$ |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
$ |
161,246 |
|
|
$ |
51,013 |
|
|
$ |
110,233 |
|
|
|
216.1 |
% |
Income tax expense |
|
|
53,696 |
|
|
|
15,493 |
|
|
|
38,203 |
|
|
|
246.6 |
% |
Interest expense, net |
|
|
2,002 |
|
|
|
2,601 |
|
|
|
(599 |
) |
|
|
(23.0 |
%) |
Depreciation and amortization |
|
|
15,533 |
|
|
|
13,076 |
|
|
|
2,457 |
|
|
|
18.8 |
% |
Equity-based compensation (for awards granted prior to December 31, 2018) |
|
|
— |
|
|
|
1,358 |
|
|
|
(1,358 |
) |
|
|
(100.0 |
%) |
Adjusted EBITDA |
|
$ |
232,477 |
|
|
$ |
83,541 |
|
|
$ |
148,936 |
|
|
|
178.3 |
% |
Adjusted EBITDA for the nine months ended January 1, 2022 was $232.5 million, an increase of $148.9 million, from the same period of the prior fiscal year. The increase is primarily a result of higher operating income due to increases in net sales volume and gross margins, partially offset by higher SG&A expenses and the reduction in wage subsidies received in the prior year.
The Company defines Adjusted EBITDA as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) equity based compensation for awards granted prior to December 31, 2018; (f) non-cash restructuring charges and impairment of assets; and (g) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP and should not be considered an alternative to, or more meaningful than, net income or loss prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
In evaluating Adjusted EBITDA, investors should be aware that, in the future, the Company may incur expenses similar to those adjusted for in this presentation. This presentation of Adjusted EBITDA should not be construed as an implication that the Company’s future results will be unaffected by unusual or nonrecurring items.
Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
Adjusted EBITDA:
Also about Adjusted EBITDA:
Given these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using non-GAAP financial measures only on a supplemental basis.
25
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 January 1, 2022 totaled $1.5 billion compared to $488.5 million at December 26, 2020. The increase in backlog was driven by increased demand for single-family homes, which resulted in order levels that significantly outpaced production in both the U.S. and Canada. Our ability to increase production rates to keep pace with orders is limited by individual plant capacity, the availability of and time needed to train new employees, employee attendance and availability of materials, including certain allocations of raw materials by our suppliers. We may experience greater order cancellations in the future as a result of higher prices and the longer time required to manufacture and deliver our products.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table presents summary cash flow information for the nine months ended January 1, 2022 and December 26, 2020:
|
|
Nine months ended |
|
|||||
(Dollars in thousands) |
|
January 1, |
|
|
December 26, |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
164,406 |
|
|
$ |
103,816 |
|
Investing activities |
|
|
(22,921 |
) |
|
|
(1,213 |
) |
Financing activities |
|
|
(21,355 |
) |
|
|
(47,938 |
) |
Effect of exchange rate changes on cash, cash equivalents |
|
|
(578 |
) |
|
|
2,940 |
|
Net increase in cash and cash equivalents |
|
|
119,552 |
|
|
|
57,605 |
|
Cash and cash equivalents at beginning of period |
|
|
262,581 |
|
|
|
209,455 |
|
Cash and cash equivalents at end of period |
|
$ |
382,133 |
|
|
$ |
267,060 |
|
The Company’s primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements and capital expenditures. The Company does not have any scheduled long-term debt maturities in the next twelve months. On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement which provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility. At January 1, 2022, $169.6 million was available for borrowing under the Amended Credit Agreement. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise operating strategies accordingly.
Cash provided by operating activities was $164.4 million for the nine months ended January 1, 2022 compared to $103.8 million for the nine months ended December 26, 2020. Cash provided by operating activities increased due to higher net income in the current year, partially offset by an increase in inventory from higher material costs and higher stocking levels to mitigate supply chain challenges, an increase in prepaid and other assets primarily from the capitalization of $15.4 million of cloud computing costs in fiscal 2022, and a $5.9 million payment of payroll taxes which were deferred in the prior fiscal year under the CARES Act regulations.
Cash used in investing activities was $22.9 million for the nine months ended January 1, 2022 compared to $1.2 million for the nine months ended December 26, 2020. The increase was primarily related to an increase in capital expenditures in the current period. The Company acquired two idle manufacturing facilities in Texas and made investments in plant improvements to facilitate increased production or operational efficiencies. The Company deferred all non-essential spending in the first half of fiscal 2021 due to COVID-19 concerns.
Cash used in financing activities was $21.4 million for the nine months ended January 1, 2022 compared to $47.9 million for the nine months ended December 26, 2020. The decrease in cash used for financing was primarily related to lower repayments during fiscal 2022 of the Company's previously existing revolving credit facility. The Company also saw an increase in floor plan financing during fiscal 2022, which had decreased in fiscal 2021 in response to lowering financed retail inventories in response to the pandemic.
Critical Accounting Policies
For a discussion of our critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements, see Part II, Item 7 of the Fiscal 2021 Annual Report, under the heading “Critical
26
Accounting Policies.” There have been no significant changes in our significant accounting policies or critical accounting estimates discussed in the Fiscal 2021 Annual Report.
Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 1, “Basis of Presentation – Recently Issued Accounting Pronouncements,” to the condensed consolidated financial statements included in this Report.
Forward-Looking Statements
Some of the statements in this Report are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:
If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.
27
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company’s interest rate and foreign exchange risks, see Part II, Item 7A of the Fiscal 2021 Annual Report, under the heading "Quantitative and Qualitative Disclosures about Market Risk." There have been no significant changes in such risks since April 3, 2021.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) of the Exchange Act at January 1, 2022. Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of January 1, 2022.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
28
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and other matters. For additional information on legal proceedings, see Note 13 “Commitments, Contingencies and Legal Proceedings – Legal Proceedings,” to the condensed consolidated financial statements included in this Report.
29
Item 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32 |
|
|
|
|
|
101 (INS) |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101(SCH) |
|
Inline XBRL Taxonomy Extension Schema Document. |
101(CAL)
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101(DEF)
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
101(LAB)
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
101(PRE)
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
|
|
|
† Filed herewith.
30
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 |
|
February 3, 2022 |
Mark Yost |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Laurie Hough |
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
February 3, 2022 |
Laurie Hough |
|
(Principal Financial Officer) |
|
|
31