Champion Homes, Inc. [SKY] Filings

10-Q 1 sky-20240629.htm 10-Q 10-Q

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 June 29, 2024

☐ 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

Champion Homes, Inc.

(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 July 30, 2024: 57,579,729

CHAMPION HOMES, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 29, 2024 (unaudited) and March 30, 2024	1
Condensed Consolidated Income Statements (unaudited) for the three months ended June 29, 2024 and July 1, 2023	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended June 29, 2024 and July 1, 2023	3
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended June 29, 2024 and July 1, 2023	4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended June 29, 2024 and July 1, 2023	5
Notes to Condensed Consolidated Financial Statements	6

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk	23

Item 4. Controls and Procedures	23

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 5. Other Information	24

Item 6. Exhibits	25

SIGNATURES	26

EXPLANATORY NOTE

On August 1, 2024, Skyline Champion Corporation changed its name to Champion Homes, Inc., which we refer to in this Quarterly Report on Form 10-Q as the “name change.” Unless the context otherwise requires, references herein to the “Company,” “we,” “us,” or “our” refer to Skyline Champion Corporation for periods ending on or before the name change and to Champion Homes, Inc. for any references to the Company after the name change.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Champion Homes, Inc.

Condensed Consolidated Balance Sheets

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


	June 29, 2024			March 30, 2024
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	548,933		$	495,063
Trade accounts receivable, net		72,706			64,632
Inventories, net		319,958			318,737
Other current assets		34,331			39,870
Total current assets		975,928			918,302
Long-term assets:
Property, plant, and equipment, net		293,390			290,930
Goodwill		357,973			357,973
Amortizable intangible assets, net		73,459			76,369
Deferred tax assets		27,645			26,878
Other noncurrent assets		258,735			252,889
Total assets	$	1,987,130		$	1,923,341
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Floorplan payable	$	92,858		$	91,286
Accounts payable		61,448			50,820
Other current liabilities		264,388			247,495
Total current liabilities		418,694			389,601
Long-term liabilities:
Long-term debt		24,684			24,669
Deferred tax liabilities		7,060			6,905
Other liabilities		85,945			79,796
Total long-term liabilities		117,689			111,370

Stockholders' Equity:
Common stock, $0.0277 par value, 115,000 shares authorized, 57,579 and 57,815 shares issued as of June 29, 2024 and March 30, 2024, respectively		1,598			1,605
Additional paid-in capital		574,365			568,203
Retained earnings		889,837			866,485
Accumulated other comprehensive loss		(15,053	)		(13,923	)
Total stockholders’ equity		1,450,747			1,422,370
Total liabilities and stockholders’ equity	$	1,987,130		$	1,923,341

See accompanying Notes to Condensed Consolidated Financial Statements.

Champion Homes, Inc.

Condensed Consolidated Income Statements

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


	Three months ended
	June 29, 2024			July 1, 2023
Net sales	$	627,779		$	464,769
Cost of sales		463,564			335,096
Gross profit		164,215			129,673
Selling, general, and administrative expenses		108,827			70,439
Operating income		55,388			59,234
Interest (income), net		(4,249	)		(9,301	)
Other (income)		(1,219	)		—
Income before income taxes		60,856			68,535
Income tax expense		13,719			17,266
Net income before equity in net loss of affiliates		47,137			51,269
Equity in net loss of affiliates		1,343			—
Net income	$	45,794		$	51,269
Net income per share:
Basic	$	0.79		$	0.90
Diluted	$	0.79		$	0.89

See accompanying Notes to Condensed Consolidated Financial Statements.

Champion Homes, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)


	Three months ended
	June 29, 2024			July 1, 2023
Net income	$	45,794		$	51,269
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(1,130	)		2,183
Total comprehensive income	$	44,664		$	53,452

See accompanying Notes to Condensed Consolidated Financial Statements.

Champion Homes, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)


	Three months ended
	June 29, 2024			July 1, 2023

Cash flows from operating activities
Net income	$	45,794		$	51,269
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,612			7,592
Amortization of deferred financing fees		93			69
Equity-based compensation		6,090			5,428
Deferred taxes		(653	)		(997	)
Loss on disposal of property, plant, and equipment		43			1
Foreign currency transaction loss (gain)		212			(207	)
Equity in net loss of affiliates		1,343			—
Dividends from equity method investment		522			—
Change in fair value of contingent consideration		7,912			—
Change in assets and liabilities:
Accounts receivable		(8,088	)		16,676
Floor plan receivables		(10,603	)		—
Inventories		(1,375	)		6,173
Other assets		5,541			(6,974	)
Accounts payable		10,950			1,375
Accrued expenses and other liabilities		16,223			(5,548	)
Net cash provided by operating activities		84,616			74,857
Cash flows from investing activities
Additions to property, plant, and equipment		(10,712	)		(10,341	)
Investment in floor plan loans		—			(18,466	)
Proceeds from floor plan loans		1,606			3,184
Proceeds from disposal of property, plant, and equipment		24			8
Net cash used in provided by investing activities		(9,082	)		(25,615	)
Cash flows from financing activities
Changes in floor plan financing, net		1,573			—
Payments on long term debt		(1	)		—
Payments on repurchase of common stock		(20,000	)		—
Stock option exercises		75			—
Tax payments for equity-based compensation		(2,251	)		(961	)
Net cash used in financing activities		(20,604	)		(961	)
Effect of exchange rate changes on cash and cash equivalents		(1,060	)		1,983
Net increase in cash and cash equivalents		53,870			50,264
Cash and cash equivalents at beginning of period		495,063			747,453
Cash and cash equivalents at end of period	$	548,933		$	797,717

See accompanying Notes to Condensed Consolidated Financial Statements.

Champion Homes, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)


	Three months ended June 29, 2024
	Common Stock
	Shares			Amount			Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at March 30, 2024		57,815		$	1,605		$	568,203	$	866,485		$	(13,923	)	$	1,422,370
Net income		—			—			—		45,794			—			45,794
Equity-based compensation		—			—			6,090		—			—			6,090
Net common stock issued under equity-based compensation plans		56			2			72		(2,242	)		—			(2,168	)
Common stock repurchases		(292	)		(9	)		—		(20,200	)		—			(20,209	)
Foreign currency translation adjustments		—			—			—		—			(1,130	)		(1,130	)
Balance at June 29, 2024		57,579		$	1,598		$	574,365	$	889,837		$	(15,053	)	$	1,450,747



	Three months ended July 1, 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		—		—		—		51,269			—			51,269
Equity-based compensation		—		—		5,428		—			—			5,428
Net common stock issued under equity-based compensation plans		25		1		—		(961	)		—			(960	)
Foreign currency translation adjustments		—		—		—		—			2,183			2,183
Balance at July 1, 2023		57,133	$	1,586	$	524,907	$	775,980		$	(11,552	)	$	1,290,921

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

See accompanying Notes to Condensed Consolidated Financial Statements.

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Business

Nature of Operations: The operations of Champion Homes, Inc., formerly known as Skyline Champion Corporation (the “Company”), consist of manufacturing, retail, construction services, and transportation activities. At June 29, 2024, the Company operated 43 manufacturing facilities throughout the United States (“U.S.”) and 5 manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 72 sales centers that sell manufactured houses to consumers across the U.S. The Company's construction services business provides installation and set-up services of factory built homes. 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.

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 29, 2024 (the “Fiscal 2024 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 2025,” will end on March 29, 2025 and will include 52 weeks. References to “fiscal 2024” refer to the Company’s fiscal year ended March 30, 2024. The three months ended June 29, 2024 and July 1, 2023 each included 13 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 $1.8 million and $1.9 million at June 29, 2024 and March 30, 2024, respectively.

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 $1.1 million remains outstanding at June 29, 2024, and amounts loaned by the Company through that financial institution to certain independent retailers for purchases of homes manufactured by the Company, of which $24.2 million was outstanding at June 29, 2024, 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 floor plan loans are generally payable at the earlier of the sale of the underlying home or two years from the origination date. At June 29, 2024, floor plan receivables are included in other current assets and other noncurrent assets in the accompanying 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 June 29, 2024. 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 June 29, 2024, there were no floor plan receivables on nonaccrual status and the weighted-average age of the floor plan receivables was six months.

Champion Homes, Inc.

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 months ended June 29, 2024 and July 1, 2023 was $0.5 million and $0.3 million, respectively.

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 statement 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 statement 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 $316.9 million, net of assumed indebtedness and working capital adjustments. The purchase consideration consisted of net cash of $279.5 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. In the first quarter of fiscal 2025, the method and timing of measuring the earnout was amended, which resulted in a charge of $7.9 million which is reflected in selling, general, and administrative expense in the accompanying Condensed Consolidated Income Statements. 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.

The following table presents the consideration transferred and the purchase price allocation:


Description	Amount
Fair value of consideration transferred
Fair value of Champion Homes, Inc. common stock issued as consideration (455,098 shares at $61.20)	$	27,852
Cash consideration, net of cash acquired		279,545
Working capital adjustment		3,644
Estimated earn out consideration		5,904
Total consideration	$	316,945
Preliminary purchase price allocations:
Trade accounts receivable		16,300
Inventories		138,933
Other current assets		3,002
Property, plant, and equipment, net		86,174
Amortizable intangible assets, net		41,800
Other noncurrent assets		10,640
Floor plan payable		(75,916	)
Accounts payable		(14,427	)
Other current liabilities		(35,662	)
Long-term debt		(12,233	)
Other liabilities		(3,065	)
Identifiable net assets acquired		155,546
Goodwill		161,399
Total purchase price	$	316,945

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

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 estimated 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, Intangible Assets and Cloud Computing Arrangements.

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.

3. Inventories, net

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


(Dollars in thousands)	June 29, 2024		March 30, 2024
Raw materials	$	101,828	$	101,429
Work in process		23,880		23,436
Finished goods and other		194,250		193,872
Total inventories, net	$	319,958	$	318,737

At June 29, 2024 and March 30, 2024, reserves for obsolete inventory were $10.0 million and $10.1 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 June 29, 2024 and July 1, 2023 was $7.7 million and $4.6 million, respectively.

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


(Dollars in thousands)	June 29, 2024			March 30, 2024
Land and improvements	$	72,447		$	72,188
Buildings and improvements		185,534			183,109
Machinery and equipment		149,609			142,870
Construction in progress		21,397			20,469
Property, plant, and equipment, at cost		428,987			418,636
Less: accumulated depreciation		(135,597	)		(127,706	)
Property, plant, and equipment, net	$	293,390		$	290,930

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

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 June 29, 2024 and March 30, 2024, the Company had goodwill of $358.0 million. Goodwill is allocated to reporting units included in the U.S. Factory-built Housing segment, which include the Company’s U.S. manufacturing and retail operations. At June 29, 2024, there were no accumulated impairment losses related to goodwill.

Intangible Assets

The components of amortizable intangible assets were as follows:


(Dollars in thousands)	June 29, 2024									March 30, 2024
	Customer Relationships & Other			Trade Names			Total			Customer Relationships & Other			Trade Names			Total
Gross carrying amount	$	82,856		$	46,373		$	129,229		$	82,909		$	46,393		$	129,302
Accumulated amortization		(41,606	)		(14,164	)		(55,770	)		(39,825	)		(13,108	)		(52,933	)
Amortizable intangibles, net	$	41,250		$	32,209		$	73,459		$	43,084		$	33,285		$	76,369

During the three months ended June 29, 2024 and July 1, 2023, amortization of intangible assets was $2.9 million and $3.0 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 June 29, 2024 and March 30, 2024, the Company had capitalized cloud computing costs, net of amortization of $25.5 million and $25.7 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 both the three months ended June 29, 2024 and July 1, 2023 was $0.2 million.

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 months ended June 29, 2024, the Company's share of ECN's losses was $1.2 million. There were no earnings or losses recognized related to the equity method investment for the three months ended July 1, 2023. Dividends received on the investment in common stock of ECN are reflected as a reduction to the investment balance and are presented on the Condensed Consolidated Statements of Cash Flows using the nature of the distribution approach. At June 29, 2024, the investment in the common stock of ECN totaled $70.1 million, including $3.1 million of capitalized transaction costs, and is included in other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The aggregate value of the Company’s investment in the common stock of ECN based on quoted market price of ECN’s common stock at June 29, 2024 was approximately $41.0 million. We assess our investment in ECN common stock for other than temporary impairment on a quarterly basis or when events or circumstances suggest that the carrying amount of the investment may be impaired. We do not consider the difference in the fair market value of ECN common stock and our investment balance to be other than temporary at June 29, 2024.

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 $64.5 million at June 29, 2024 represents the purchase price and capitalized transaction costs of $2.5 million. There have been no adjustments to the carrying amount or impairment of the investment. For the three months ended June 29, 2024, the

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

Company has reflected dividend income of $1.2 million in other (income) on the accompanying Condensed Consolidated Income Statements from the investment in ECN Preferred Shares. There was no dividend income from the ECN Preferred Shares for the three months ended July 1, 2023.

ECN, a related party, 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 three months ended June 29, 2024. Triad also provides floor plan financing of the Company's products to independent retailers. At June 29, 2024, the Company had repurchase commitments of $100.9 million on retailer floor plan loans outstanding with Triad.

7. Other Current Liabilities

The components of other current liabilities were as follows:


(Dollars in thousands)	June 29, 2024		March 30, 2024
Customer deposits	$	81,405	$	80,833
Accrued volume rebates		23,030		21,169
Accrued warranty obligations		42,418		39,176
Accrued compensation and payroll taxes		40,565		35,063
Accrued insurance		14,473		12,772
Accrued product liability - water intrusion		34,500		34,500
Other		27,997		23,982
Total other current liabilities	$	264,388	$	247,495

8. Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:


	Three months ended
(Dollars in thousands)	June 29, 2024			July 1, 2023
Balance at beginning of period	$	50,869		$	35,961
Warranty expense		18,688			12,856
Cash warranty payments		(15,446	)		(13,727	)
Balance at end of period		54,111			35,090
Less: noncurrent portion in other long-term liabilities		(11,693	)		(7,385	)
Total current portion	$	42,418		$	27,705

9. Debt and Floor Plan Payable

Long-term debt consisted of the following:


(Dollars in thousands)	June 29, 2024		March 30, 2024
Obligations under industrial revenue bonds due 2029	$	12,430	$	12,430
Notes payable to Romeo Juliet, LLC, due 2026		5,314		5,314
Notes payable to Romeo Juliet, LLC, due 2039		2,036		2,036
Note payable to United Bank, due 2026		4,904		4,889
Revolving credit facility maturing in 2026		—		—
Total long-term debt	$	24,684	$	24,669

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 funds during the term, subject to certain terms and conditions, matures in July 2026, and has no scheduled amortization.

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

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 obligated to pay an unused line fee ranging between 0.15% and 0.3% depending on the consolidated total net leverage ratio, in respect of unused commitments under the Amended Credit Agreement. At June 29, 2024 the interest rate under the Amended Credit Agreement was 6.56% and letters of credit issued under the Amended Credit Agreement totaled $31.5 million. Available borrowing capacity under the Amended Credit Agreement as of June 29, 2024 was $168.5 million.

The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buy-backs, 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 June 29, 2024.

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 June 29, 2024, including related costs and fees, was 5.35%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029 and are secured by the assets of certain manufacturing facilities.

As part of the acquisition of Regional Homes, the Company assumed notes payable to Romeo Juliet, LLC, a subsidiary of Wells Fargo Community Investment Holdings, Inc. ("WFC"). The weighted-average interest rate on those notes at June 29, 2024 was 5.42%. The notes are secured by certain assets of Regional Homes. In addition, the Company assumed a note payable to United Bank with an interest rate of 3.85% that is secured by a note receivable from HHB Investment Fund, LLC, a subsidiary of WFC.

Floor Plan Payable

The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At June 29, 2024 and March 30, 2024, the Company had outstanding borrowings on floor plan financing agreements of $92.9 million and $91.3 million, respectively. Total credit line capacity provided under the agreements was $223.0 million as of June 29, 2024. The weighted average interest rate on the floor plan payable was 7.36% at June 29, 2024. Borrowings are secured by the homes and are required to be repaid when the Company sells the related home to a customer.

10. Revenue Recognition

The following tables disaggregate the Company’s revenue by sales category:


	Three months ended June 29, 2024
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total
Manufacturing	$	380,294	$	20,799	$	—	$	401,093
Retail		219,239		—		—	$	219,239
Transportation		—		—		7,447		7,447
Total	$	599,533	$	20,799	$	7,447	$	627,779

	Three months ended July 1, 2023
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total
Manufacturing	$	345,257	$	26,120	$	—	$	371,377
Retail		83,528		—		—		83,528
Transportation		—		—		9,864		9,864
Total	$	428,785	$	26,120	$	9,864	$	464,769

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

11. Income Taxes

For the three months ended June 29, 2024 and July 1, 2023, the Company recorded $13.7 million and $17.3 million of income tax expense and had an effective tax rate of 22.5% and 25.2%, respectively.

The Company’s effective tax rate for the three months ended June 29, 2024 and July 1, 2023, 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, and results in foreign jurisdictions.

At June 29, 2024, the Company had no unrecognized tax benefits.

12. Earnings Per Share

Basic net income per share 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. Diluted earnings per share is calculated using our weighted-average outstanding common shares, including the dilutive effect of stock awards as determined under the treasury stock method.

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


	Three months ended
(Dollars and shares in thousands, except per share data)	June 29, 2024		July 1, 2023
Numerator:
Net income attributable to the Company's common shareholders	$	45,794	$	51,269
Denominator:
Basic weighted-average shares outstanding		57,865		57,183
Dilutive securities		470		475
Diluted weighted-average shares outstanding		58,335		57,658

Basic net income per share	$	0.79	$	0.90
Diluted net income per share	$	0.79	$	0.89

13. 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, before elimination of inter-company shipments, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.

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

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

Selected financial information by reportable segment was as follows:


	Three months ended
(Dollars in thousands)	June 29, 2024			July 1, 2023
Net sales:
U.S. Factory-built Housing	$	599,533		$	428,785
Canadian Factory-built Housing		20,799			26,120
Corporate/Other		7,447			9,864
Consolidated net sales	$	627,779		$	464,769
Operating income:
U.S. Factory-built Housing EBITDA	$	79,021		$	74,233
Canadian Factory-built Housing EBITDA		2,879			4,764
Corporate/Other EBITDA		(16,024	)		(12,171	)
Other (income)		(1,219	)		—
Depreciation		(7,702	)		(4,633	)
Amortization		(2,910	)		(2,959	)
Equity in net loss of affiliates		1,343			—
Consolidated operating income	$	55,388		$	59,234
Depreciation:
U.S. Factory-built Housing	$	7,104		$	4,128
Canadian Factory-built Housing		437			356
Corporate/Other		161			149
Consolidated depreciation	$	7,702		$	4,633

Amortization of U.S. Factory-built Housing intangible assets:	$	2,910		$	2,959
Capital expenditures:
U.S. Factory-built Housing	$	9,527		$	9,678
Canadian Factory-built Housing		426			466
Corporate/Other		759			197
Consolidated capital expenditures	$	10,712		$	10,341

(Dollars in thousands)	June 29, 2024			March 30, 2024

Total Assets:
U.S. Factory-built Housing (1)	$	1,239,898		$	1,239,338
Canadian Factory-built Housing (1)		133,030			132,420
Corporate/Other (1)		614,202			551,583
Consolidated total assets	$	1,987,130		$	1,923,341

(1)

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

14. 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 significantly reduced by the potential resale value of any products that are subject to repurchase and is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. Based on these repurchase agreements and our historical loss experience, we established an associated loss reserve which was $1.8 million at June 29, 2024 and March 30, 2024, respectively. Excluding the resale value of the homes, the contingent repurchase obligation as of June 29, 2024 was estimated to be $280.0 million. Losses incurred on homes repurchased were immaterial during the three months ended June 29, 2024 and July 1, 2023.

Champion Homes, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

At June 29, 2024, the Company was contingently obligated for $31.5 million under letters of credit, consisting of $12.6 million to support long-term debt, $18.5 million to support the casualty insurance program, and $0.3