10-Q 1 sky-20231230.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 30, 2023

or

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

For the transition period from to

Commission file number: 001-04714

Skyline Champion Corporation

(Exact name of registrant as specified in its charter)

 

Indiana

35-1038277

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

755 West Big Beaver Road, Suite 1000

Troy, Michigan

48084

(Address of Principal Executive Offices)

(Zip Code)

 

(248) 614-8211

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

SKY

 

New York Stock Exchange

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

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

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

Number of shares of common stock outstanding as of January 30, 2024: 57,753,517

 

 


 

SKYLINE CHAMPION CORPORATION

FORM 10-Q

 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets as of December 30, 2023 (unaudited) and April 1, 2023

1

Condensed Consolidated Income Statements (unaudited) for the three and nine months ended December 30, 2023 and December 31, 2022

2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended December 30, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 30, 2023 and December 31, 2022

4

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended December 30, 2023 and December 31, 2022

5

Notes to Condensed Consolidated Financial Statements

6

 

 

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

17

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

30

 

 

Item 4. Controls and Procedures

30

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

31

 

 

Item 6. Exhibits

32

 

 

SIGNATURES

33

 

i


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

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

 

 

 

December 30, 2023

 

 

April 1,
2023

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

497,907

 

 

$

747,453

 

Trade accounts receivable, net

 

 

48,659

 

 

 

67,296

 

Inventories, net

 

 

290,542

 

 

 

202,238

 

Other current assets

 

 

33,057

 

 

 

26,479

 

Total current assets

 

 

870,165

 

 

 

1,043,466

 

Long-term assets:

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

287,708

 

 

 

177,125

 

Goodwill

 

 

359,260

 

 

 

196,574

 

Amortizable intangible assets, net

 

 

79,320

 

 

 

45,343

 

Deferred tax assets

 

 

22,255

 

 

 

17,422

 

Other noncurrent assets

 

 

250,711

 

 

 

82,794

 

Total assets

 

$

1,869,419

 

 

$

1,562,724

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Floorplan payable

 

$

80,389

 

 

$

 

Accounts payable

 

 

43,810

 

 

 

44,702

 

Other current liabilities

 

 

215,098

 

 

 

204,215

 

Total current liabilities

 

 

339,297

 

 

 

248,917

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

24,663

 

 

 

12,430

 

Deferred tax liabilities

 

 

6,867

 

 

 

5,964

 

Other liabilities

 

 

76,634

 

 

 

62,412

 

Total long-term liabilities

 

 

108,164

 

 

 

80,806

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Common stock, $0.0277 par value, 115,000 shares authorized 57,636  and 57,108 shares issued as of December 30, 2023 and April 1, 2023, respectively

 

 

1,600

 

 

 

1,585

 

Additional paid-in capital

 

 

563,019

 

 

 

519,479

 

Retained earnings

 

 

868,598

 

 

 

725,672

 

Accumulated other comprehensive loss

 

 

(11,259

)

 

 

(13,735

)

Total stockholders’ equity

 

 

1,421,958

 

 

 

1,233,001

 

Total liabilities and stockholders’ equity

 

$

1,869,419

 

 

$

1,562,724

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

1


 

Skyline Champion Corporation

Condensed Consolidated Income Statements

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

December 30, 2023

 

 

December 31, 2022

 

Net sales

 

$

559,455

 

 

$

582,322

 

 

$

1,488,460

 

 

$

2,115,028

 

Cost of sales

 

 

418,183

 

 

 

408,233

 

 

 

1,101,026

 

 

 

1,437,498

 

Gross profit

 

 

141,272

 

 

 

174,089

 

 

 

387,434

 

 

 

677,530

 

Selling, general, and administrative expenses

 

 

85,091

 

 

 

71,820

 

 

 

219,984

 

 

 

228,017

 

Operating income

 

 

56,181

 

 

 

102,269

 

 

 

167,450

 

 

 

449,513

 

Interest (income), net

 

 

(4,309

)

 

 

(5,409

)

 

 

(24,090

)

 

 

(7,293

)

Other expense (income)

 

 

756

 

 

 

 

 

 

2,821

 

 

 

(634

)

Income before income taxes

 

 

59,734

 

 

 

107,678

 

 

 

188,719

 

 

 

457,440

 

Income tax expense

 

 

12,764

 

 

 

24,865

 

 

 

44,811

 

 

 

113,384

 

Net income

 

$

46,970

 

 

$

82,813

 

 

$

143,908

 

 

$

344,056

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.81

 

 

$

1.45

 

 

$

2.51

 

 

$

6.04

 

Diluted

 

$

0.81

 

 

$

1.44

 

 

$

2.49

 

 

$

6.00

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

2


 

Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

December 30, 2023

 

 

December 31, 2022

 

Net income

 

$

46,970

 

 

$

82,813

 

 

$

143,908

 

 

$

344,056

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,408

 

 

 

1,008

 

 

 

2,476

 

 

 

(6,591

)

Total comprehensive income

 

$

49,378

 

 

$

83,821

 

 

$

146,384

 

 

$

337,465

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3


 

Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

 

 

 

Nine months ended

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

143,908

 

 

$

344,056

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

24,017

 

 

 

19,341

 

Amortization of deferred financing fees

 

 

255

 

 

 

266

 

Equity-based compensation

 

 

15,231

 

 

 

11,631

 

Deferred taxes

 

 

(3,115

)

 

 

3,581

 

Loss (gain) on disposal of property, plant, and equipment

 

 

145

 

 

 

(143

)

Foreign currency transaction loss

 

 

(184

)

 

 

844

 

Loss on equity method investment

 

 

217

 

 

 

 

Change in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

39,340

 

 

 

42,847

 

Floor plan receivables

 

 

(4,978

)

 

 

 

Inventories

 

 

47,696

 

 

 

30,470

 

Other assets

 

 

(10,756

)

 

 

(9,895

)

Accounts payable

 

 

(15,309

)

 

 

(52,663

)

Accrued expenses and other liabilities

 

 

(17,850

)

 

 

(26,291

)

Net cash provided by operating activities

 

 

218,617

 

 

 

364,044

 

Cash flows from investing activities

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(40,986

)

 

 

(38,177

)

Cash paid for equity method investment

 

 

(2,250

)

 

 

 

Cash paid for investment in ECN common stock

 

 

(78,858

)

 

 

 

Cash paid for investment in ECN preferred stock

 

 

(64,520

)

 

 

 

Investment in floor plan loans

 

 

(18,466

)

 

 

 

Proceeds from floor plan loans

 

 

14,646

 

 

 

 

Acquisitions, net of cash acquired

 

 

(284,545

)

 

 

(6,810

)

Proceeds from disposal of property, plant, and equipment

 

 

556

 

 

 

224

 

Net cash used in investing activities

 

 

(474,423

)

 

 

(44,763

)

Cash flows from financing activities

 

 

 

 

 

 

Changes in floor plan financing, net

 

 

4,474

 

 

 

(35,460

)

Payments on long term debt

 

 

(67

)

 

 

 

Stock option exercises

 

 

506

 

 

 

596

 

Tax payments for equity-based compensation

 

 

(983

)

 

 

(1,363

)

Net cash provided by (used in) financing activities

 

 

3,930

 

 

 

(36,227

)

Effect of exchange rate changes on cash and cash equivalents

 

 

2,330

 

 

 

(6,019

)

Net (decrease) increase in cash and cash equivalents

 

 

(249,546

)

 

 

277,035

 

Cash and cash equivalents at beginning of period

 

 

747,453

 

 

 

435,413

 

Cash and cash equivalents at end of period

 

$

497,907

 

 

$

712,448

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4


 

Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)

 

 

 

Three months ended December 30, 2023

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

Balance at September 30, 2023

 

 

57,162

 

 

$

1,587

 

 

$

530,645

 

 

$

821,628

 

 

$

(13,667

)

 

$

1,340,193

 

Net income

 

 

 

 

 

 

 

 

 

 

 

46,970

 

 

 

 

 

 

46,970

 

Equity-based compensation

 

 

 

 

 

 

 

 

4,288

 

 

 

 

 

 

 

 

 

4,288

 

Net common stock issued under equity-based compensation plans

 

 

19

 

 

 

 

 

 

247

 

 

 

 

 

 

 

 

 

247

 

Common stock issued for business combination

 

 

455

 

 

 

13

 

 

 

27,839

 

 

 

 

 

 

 

 

 

27,852

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,408

 

 

 

2,408

 

Balance at December 30, 2023

 

 

57,636

 

 

$

1,600

 

 

$

563,019

 

 

$

868,598

 

 

$

(11,259

)

 

$

1,421,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended December 30, 2023

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

Balance at April 1, 2023

 

 

57,108

 

 

$

1,585

 

 

$

519,479

 

 

$

725,672

 

 

$

(13,735

)

 

$

1,233,001

 

Net income

 

 

 

 

 

 

 

 

 

 

 

143,908

 

 

 

 

 

 

143,908

 

Equity-based compensation

 

 

 

 

 

 

 

 

15,231

 

 

 

 

 

 

 

 

 

15,231

 

Net common stock issued under equity-based compensation plans

 

 

73

 

 

 

2

 

 

 

470

 

 

 

(982

)

 

 

 

 

 

(510

)

Common stock issued for business combination

 

 

455

 

 

 

13

 

 

 

27,839

 

 

 

 

 

 

 

 

 

27,852

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,476

 

 

 

2,476

 

Balance at December 30, 2023

 

 

57,636

 

 

$

1,600

 

 

$

563,019

 

 

$

868,598

 

 

$

(11,259

)

 

$

1,421,958

 

 

 

 

 

Three months ended December 31, 2022

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

Balance at October 1, 2022

 

 

56,925

 

 

$

1,580

 

 

$

511,250

 

 

$

587,720

 

 

$

(14,807

)

 

$

1,085,743

 

Net income

 

 

 

 

 

 

 

 

 

 

 

82,813

 

 

 

 

 

 

82,813

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,878

 

 

 

 

 

 

 

 

 

3,878

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,008

 

 

 

1,008

 

Balance at December 31, 2022

 

 

56,925

 

 

$

1,580

 

 

$

515,128

 

 

$

670,533

 

 

$

(13,799

)

 

$

1,173,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended December 31, 2022

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
Paid in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total

 

Balance at April 2, 2022

 

 

56,838

 

 

$

1,573

 

 

$

502,846

 

 

$

327,902

 

 

$

(7,208

)

 

$

825,113

 

Net income

 

 

 

 

 

 

 

 

 

 

 

344,056

 

 

 

 

 

 

344,056

 

Equity-based compensation

 

 

 

 

 

 

 

 

11,631

 

 

 

 

 

 

 

 

 

11,631

 

Net common stock issued under equity-based compensation plans

 

 

87

 

 

 

7

 

 

 

651

 

 

 

(1,425

)

 

 

 

 

 

(767

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,591

)

 

 

(6,591

)

Balance at December 31, 2022

 

 

56,925

 

 

$

1,580

 

 

$

515,128

 

 

$

670,533

 

 

$

(13,799

)

 

$

1,173,442

 

 

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

See accompanying Notes to Condensed Consolidated Financial Statements.

5


 

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Business

Nature of Operations: Skyline Champion Corporation's (the “Company”) operations consist of manufacturing, retail, construction services, and transportation activities. At December 30, 2023, the Company operated 43 manufacturing facilities throughout the United States (“U.S.”) and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. In addition to its core home building business, the Company provides construction services to install and set-up factory-built homes. The Company’s retail operations consist of 73 sales centers that sell manufactured houses to consumers across the U.S. The Company’s transportation business engages independent owners/drivers to transport recreational vehicles throughout the U.S. and Canada and manufactured houses in certain regions of the U.S. The Company also has a holding company located in the Netherlands.

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 30, 2023 (the “Fiscal 2023 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 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 2024,” will end on March 30, 2024 and will include 52 weeks. References to “fiscal 2023” refer to the Company’s fiscal year ended April 1, 2023. The three and nine months ended December 30, 2023 and December 31, 2022 each included 13 and 39 weeks, respectively.

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 $1.7 million at both December 30, 2023 and April 1, 2023.

Floor plan receivables consist of loans the Company purchased from Triad Financial Services, Inc. ("Triad") in the first quarter of fiscal 2024 for $18.5 million, of which approximately $3.8 million remains outstanding at December 30, 2023, and amounts loaned by the Company through that financial institution to certain independent retailers for purchases of homes manufactured by the Company, of which $5.2 million was outstanding at December 30, 2023, both of which are carried net of payments received and recorded at amortized cost. The Company intends to hold the floor plan receivables until maturity or payoff. These loans are serviced by the financial institution, to which we pay a servicing fee. Upon execution of the financing arrangement, the loans are generally payable at the earlier of the sale of the underlying home or two years from the origination date. At December 30, 2023, floor plan receivables are included in Other Current Assets and Other Noncurrent Assets in the Condensed Consolidated Balance Sheets.

The floor plan receivables are collateralized by the related homes, mitigating loss exposure. The Company and the financial institution evaluate the credit worthiness of each independent retailer prior to credit approval, including reviewing the independent retailer’s payment history, financial condition, and the overall economic environment. We evaluate the risk of credit loss in aggregate on existing loans with similar terms, based on historic experience and current economic conditions, as well as individual retailers with past due balances or other indications of heightened credit risk. The allowance for credit losses related to floor plan receivables was not material as of December 30, 2023. Loans are considered past due if any required interest or curtailment payment remains unpaid 30 days after the due date. Receivables are placed on non-performing status if any interest or installment payments are past due over 90 days. Loans are placed on nonaccrual status when interest payments are past due over 90 days. At December 30, 2023, there were no floor plan receivables on nonaccrual status and the weighted-average age of the floor plan receivables was eight months.

 

6


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

Interest income from floor plan receivables is recognized on an accrual basis and is included in Interest Income in the accompanying Condensed Consolidated Income Statements. Interest income from floor plan receivables for the three and nine months ended December 30, 2023 was $0.3 million and $0.9 million, respectively. There were no floor plan receivables as of December 31, 2022 or related interest income for the three and nine months then ended.

Recently issued accounting pronouncements: In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

 

2. Business Combinations

Regional Homes Acquisition

On October 13, 2023, the Company acquired all of the outstanding equity interests in Regional Enterprises, LLC and related companies (collectively, "Regional Homes") for total purchase consideration of $350.9 million, net of assumed indebtedness and preliminary working capital adjustments. The purchase consideration consisted of cash of $317.2 million, the issuance of 455,098 shares of common stock equal to approximately $27.9 million, and contingent consideration with an estimated fair value of $5.9 million. The contingent consideration is related to an earnout provision in the event certain conditions are met per the terms of the purchase agreement, with a maximum earnout amount of $25.0 million. The initial fair value of the earnout was established using a Monte Carlo simulation method and the resulting liability is recorded in Other Liabilities in the accompanying condensed consolidated balance sheets. Subsequent to the acquisition date, the Company adjusted the preliminary purchase price by $5.0 million pursuant to the working capital provisions included within the purchase agreement. The Company accounted for the acquisition as a business combination under the acquisition method of accounting provided by FASB ASC 805, Business Combinations ("ASC 805"). As such, the purchase price was allocated to the net assets acquired, inclusive of intangible assets, with the excess fair value recorded to goodwill. The purchase price allocation is based upon preliminary valuation information available to determine the fair value of certain assets and liabilities, including goodwill, and is subject to change as additional information is obtained about the facts and circumstances that existed at the valuation date. The Company expects to finalize the fair values of the assets acquired and liabilities assumed during the one-year measurement period.

 

7


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

The following table presents the consideration transferred and the preliminary purchase price allocation as of December 30, 2023:

 

Description

 

Amount

 

Fair value of consideration transferred

 

 

 

Fair value of Skyline Champion common stock issued as consideration (455,098 shares at $61.20)

 

$

27,852

 

Cash consideration

 

 

317,164

 

Preliminary working capital adjustment

 

 

5,000

 

Estimated earn out consideration

 

 

5,904

 

Total consideration

 

$

355,920

 

Preliminary purchase price allocations:

 

 

 

Cash and cash equivalents

 

$

37,619

 

Trade accounts receivable

 

 

20,654

 

Inventories

 

 

135,669

 

Other current assets

 

 

3,212

 

Property, plant, and equipment,

 

 

86,174

 

Amortizable intangible assets

 

 

41,800

 

Other noncurrent assets

 

 

9,199

 

Floorplan payable

 

 

(75,916

)

Accounts payable

 

 

(14,427

)

Other current liabilities

 

 

(35,452

)

Long-term debt

 

 

(12,233

)

Other liabilities

 

 

(3,065

)

Identifiable net assets acquired

 

 

193,234

 

Goodwill

 

 

162,686

 

Total purchase price

 

$

355,920

 

 

Goodwill, which is deductible for income tax purposes, is primarily attributable to expected synergies from the combination of companies and was allocated to reporting units within the Company's U.S. Factory-built Housing segment, which includes its U.S. manufacturing and retail operations.

 

Cash, trade accounts receivable, other assets, floor plan and accounts payable, long-term debt and other liabilities are generally stated at historical carrying values as they approximate fair value. Retail inventories are reflected at manufacturer wholesale prices. Intangible assets include $16.9 million in customer relationships and $24.9 million in trade names and are based on an independent appraisal. The fair value of customer relationships was determined using the multi-period excess earnings method and fair value of the trade name was determined using the relief-from-royalty method. The Company estimates that each intangible asset has a weighted average useful life of ten years from the acquisition date. Fair value estimates of property, plant, and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were drawn from a combination of market, cost, and sales comparison approaches, as appropriate. Level 3 fair value estimates of $86.2 million related to property, plant, and equipment and $41.8 million related to intangible assets were recorded in the accompanying consolidated balance sheet as of the acquisition date. For further information on acquired assets measured at fair value, see Note 5, Goodwill and Intangible Assets.

 

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

 

The Company's consolidated net sales and net income for the three and nine months ended December 30, 2023 included $119.7 million and $5.7 million, respectively, from Regional Homes. The following unaudited pro forma information presents a summary of the operating results as if the acquisition of Regional Homes had been completed on April 3, 2022, which is the beginning of the comparable annual reporting period:

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

December 30, 2023

 

 

December 31, 2022

 

 

December 30, 2023

 

 

December 31, 2022

 

Pro forma net sales

 

$

568,045

 

 

$

679,444

 

 

$

1,750,936

 

 

$

2,492,411

 

Pro forma net income

 

$

47,058

 

 

$

87,672

 

 

$

159,351

 

 

$

379,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

The pro forma results for the three and nine months ended December 30, 2023 and December 31, 2022 reflect amortization of intangible assets, depreciation of property, plant and equipment, reduction of interest expense to reflect the new capital structure, elimination of sales between the Company and Regional Homes, the impact of the fair value step up of Regional Homes' inventory, and the tax effects of the related adjustments. The unaudited pro forma financial information has been prepared for comparative purposes only and it is not necessarily indicative of the results of operations as they would have been had the acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results.

 

Other Acquisitions

 

In May 2022, the Company acquired certain operating assets from Manis Custom Builders, Inc. ("Manis"). In July 2022, the Company acquired 12 Factory Expo retail sales centers from Alta Cima Corporation. The purchase price and net assets acquired for both transactions were not material to the accompanying condensed consolidated financial statements.

3. Inventories, net

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

 

(Dollars in thousands)

 

December 30, 2023

 

 

April 1,
2023

 

Raw materials

 

$

98,780

 

 

$

100,379

 

Work in process

 

 

21,774

 

 

 

23,157

 

Finished goods and other

 

 

169,988

 

 

 

78,702

 

Total inventories, net

 

$

290,542

 

 

$

202,238

 

 

At December 30, 2023 and April 1, 2023, reserves for obsolete inventory were $10.3 million and $7.9 million, respectively.

 

4. Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended December 30, 2023 and December 31, 2022 was $6.9 million and $3.8 million, respectively. Depreciation expense for the nine months ended December 30, 2023 and December 31, 2022 was $16.2 million and $11.7 million, respectively.

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

 

(Dollars in thousands)

 

December 30, 2023

 

 

April 1,
2023

 

Land and improvements

 

$

71,919

 

 

$

41,749

 

Buildings and improvements

 

 

168,562

 

 

 

119,226

 

Machinery and equipment

 

 

126,315

 

 

 

91,007

 

Construction in progress

 

 

41,815

 

 

 

30,010

 

Property, plant, and equipment, at cost

 

 

408,611

 

 

 

281,992

 

Less: accumulated depreciation

 

 

(120,903

)

 

 

(104,867

)

Property, plant, and equipment, net

 

$

287,708

 

 

$

177,125

 

 

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 December 30, 2023 and April 1, 2023, the Company had goodwill of $359.3

 

9


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

million and $196.6 million, respectively. The change in goodwill is attributed to the acquisition of Regional Homes. At December 30, 2023, there were no accumulated impairment losses related to goodwill.

Intangible Assets

The components of amortizable intangible assets were as follows:

 

(Dollars in thousands)

 

December 30, 2023

 

 

April 1, 2023

 

 

 

Customer
Relationships
& Other

 

 

Trade
Names

 

 

Total

 

 

Customer
Relationships
& Other

 

 

Trade
Names

 

 

Total

 

Gross carrying amount

 

$

83,035

 

 

$

46,446

 

 

$

129,481

 

 

$

66,013

 

 

$

21,497

 

 

$

87,510

 

Accumulated amortization

 

 

(38,100

)

 

 

(12,061

)

 

 

(50,161

)

 

 

(32,103

)

 

 

(10,064

)

 

 

(42,167

)

Amortizable intangibles, net

 

$

44,935

 

 

$

34,385

 

 

$

79,320

 

 

$

33,910

 

 

$

11,433

 

 

$

45,343

 

 

During the three months ended December 30, 2023 and December 31, 2022, amortization of intangible assets was $2.8 million and $3.0 million, respectively. During the nine months ended December 30, 2023 and December 31, 2022, amortization of intangible assets was $7.8 million and $7.7 million, respectively.

Cloud Computing Arrangements

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software. At December 30, 2023 and April 1, 2023, the Company had capitalized cloud computing costs, net of amortization of $25.9 million and $25.0 million, respectively. Cloud computing costs are included in other noncurrent assets in the accompanying condensed consolidated balance sheets. Amortization of capitalized cloud computing costs for the three and nine months ended December 30, 2023 was $0.3 million and $0.7 million, respectively. Amortization of capitalized cloud computing costs for the three and nine months ended December 31, 2022 was $0.2 million and $0.6 million, respectively.

 

6. Investment in ECN Capital Corporation

In September 2023, the Company entered into a share subscription agreement with ECN Capital Corp. ("ECN") and made a $137.8 million equity investment in ECN on a private placement basis. The Company purchased 33.6 million common shares, representing approximately 12% of the total outstanding common shares of ECN, and 27.5 million mandatory convertible preferred shares (the “Preferred Shares”). The Preferred Shares receive cumulative cash dividends at an annual rate of 4.0%. Following the private placement, the Company owns approximately 19.9% of the voting shares of ECN.

The Company's interest in the common stock investment in ECN is accounted for under the equity method and the Company’s share of the earnings or losses of ECN are recorded on a three-month lag. For the three and nine months ended December 30, 2023, the Company's share of ECN's losses of $0.2 million are reflected in Other expense (income) in the accompanying condensed consolidated income statements. There were no earnings or losses recognized related to the equity method investment for the three and nine months ended December 31, 2022. At December 30, 2023, the investment in the common stock of ECN totaled $78.7 million, including $3.1 million of capitalized transaction costs, and is included in Other Noncurrent Assets in the accompanying Condensed Consolidated Balance Sheets.

The Company's investment in the Preferred Shares is included in Other Noncurrent Assets in the accompanying condensed consolidated balance sheets. The investment is measured using the measurement alternative for equity investments without a readily determinable fair value. The carrying amount of $65.1 million at December 30, 2023 represents the purchase price, capitalized transaction costs of $2.5 million and accrued dividends. There have been no adjustments to the carrying amount or impairment of the investment. For the three and nine months ended December 30, 2023, the Company has reflected dividend income of $0.6 million in Other expense (income) on the accompanying condensed consolidated income statements from the dividend income on the investment in ECN Preferred Shares. There was no dividend income from the ECN Preferred Shares for the three and nine months ended December 31, 2022.

Amounts due to ECN, a related party, were not material at December 30, 2023. ECN, through its wholly-owned subsidiary Triad Financial Services ("Triad"), provides loan servicing for the Company's floor plan receivables, for which we pay a fee that was immaterial for the period subsequent to the investment in ECN. Triad also provides floor plan financing of the Company's products to independent retailers. At December 30, 2023, the Company had repurchase commitments of $61.8 million on retailer floor plan loans outstanding with Triad.

 

10


Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

 

 

7. Other Current Liabilities

The components of other current liabilities were as follows:

 

(Dollars in thousands)

 

December 30, 2023

 

 

April 1,
2023

 

Customer deposits

 

$

73,044

 

 

$

69,285

 

Accrued volume rebates

 

 

28,508

 

 

 

25,084

 

Accrued warranty obligations

 

 

40,681

 

 

 

28,576

 

Accrued compensation and payroll taxes

 

 

33,853

 

 

 

41,422

 

Accrued insurance

 

 

15,896

 

 

 

15,075

 

Other

 

 

23,116

 

 

 

24,773

 

Total other current liabilities

 

$

215,098

 

 

$

204,215

 

 

8. Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:

 

 

 

Three months ended

 

 

Nine months ended

 

(Dollars in thousands)

 

December 30, 2023

 

 

December 31, 2022

 

 

December 30, 2023

 

 

December 31, 2022

 

Balance at beginning of period

 

$

37,362

 

 

$

35,755

 

 

$

35,961

 

 

$

32,832

 

Warranty expense

 

 

17,494

 

 

 

12,958

 

 

 

45,327

 

 

 

40,718

 

Acquired warranty obligations

 

 

11,043

 

 

 

 

 

 

11,043

 

 

 

 

Cash warranty payments

 

 

(15,833

)

 

 

(12,575

)

 

 

(42,265

)

 

 

(37,412

)

Balance at end of period

 

 

50,066

 

 

 

36,138

 

 

 

50,066

 

 

 

36,138

 

Less: noncurrent portion in other long-term liabilities

 

 

(9,385

)

 

 

(7,026

)

 

 

(9,385

)

 

 

(7,026

)

Total current portion

 

$

40,681

 

 

$

29,112

 

 

$

40,681

 

 

$

29,112

 

 

9. Debt and Floor Plan Payable

Long-term debt consisted of the following:

 

(Dollars in thousands)

 

December 30, 2023

 

 

April 1,
2023

 

Obligations under industrial revenue bonds due 2029

 

$

12,430

 

 

$

12,430

 

Notes payable to Romeo Juliet, LLC, due 2026

 

 

5,314

 

 

 

 

Notes payable to Romeo Juliet, LLC, due 2039

 

 

2,036

 

 

 

 

Note payable to United Bank, due 2026

 

 

4,883

 

 

 

 

Revolving credit facility maturing in 2026

 

 

 

 

 

 

Total long-term debt

 

$

24,663

 

 

$

12,430

 

 

On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement with a syndicate of banks that provides for a revolving credit facility of up to $200.0 million, including a $45.0 million letter of credit sub-facility ("Amended Credit Agreement"). The Amended Credit Agreement replaced the Company's previously existing $100.0 million revolving credit facility. The Amended Credit Agreement allows the Company to draw down, repay and re-draw loans on the available facility during the term, subject to certain terms and conditions, matures in July 2026, and has no scheduled amortization.

On May 18, 2023, the Company further amended the Amended Credit Agreement, which removed references to the London Interbank Offer Rate ("LIBOR") and clarified language pertaining to the Secured Overnight Financing Rate ("SOFR") in regards to the interest rate on borrowings. The interest rate on borrowings under the Amended Credit Agreement is based on SOFR plus a SOFR adjustment, plus an interest rate spread. The interest rate spread adjusts based on the consolidated total net leverage of the Company from a high of 1.875% when the consolidated total net leverage ratio is equal to or greater than 2.25:1.00, to a low of 1.125% when the consolidated total net leverage ratio is below 0.50:1.00. Alternatively for same day borrowings, the interest rate is based on an Alternative Base Rate ("ABR") plus an interest rate spread that ranges from a high of 0.875% to a low of 0.125% based on the consolidated total net leverage ratio. In addition, the Company is