Skyline Champion Corp [SKY] Filings

10-Q 1 sky-20220702.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 July 2, 2022

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

For the transition period from to

Commission file number: 001-04714

Skyline Champion Corporation

(Exact name of registrant as specified in its charter)


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

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

(248) 614-8211

(Registrant’s telephone number, including area code)

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


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

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

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

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


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

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

Number of shares of common stock outstanding as of July 22, 2022: 56,889,105

SKYLINE CHAMPION CORPORATION

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 2, 2022 (unaudited) and April 2, 2022	1
Condensed Consolidated Income Statements (unaudited) for the three months ended July 2, 2022 and July 3, 2021	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended July 2, 2022 and July 3, 2021	3
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended July 2, 2022 and July 3, 2021	4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 2, 2022 and July 3, 2021	5
Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

Item 4. Controls and Procedures	22

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	23

Item 6. Exhibits	24

SIGNATURES	25

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

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


	July 2, 2022			April 2, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	463,778		$	435,413
Trade accounts receivable, net		128,573			90,536
Inventories, net		292,158			241,334
Other current assets		22,917			14,977
Total current assets		907,426			782,260
Long-term assets:
Property, plant, and equipment, net		144,933			132,985
Goodwill		192,555			191,970
Amortizable intangible assets, net		50,026			51,283
Deferred tax assets		16,302			17,750
Other noncurrent assets		62,090			58,371
Total assets	$	1,373,332		$	1,234,619
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Floor plan payable	$	37,859		$	35,460
Accounts payable		76,133			92,159
Other current liabilities		256,243			222,493
Total current liabilities		370,235			350,112
Long-term liabilities:
Long-term debt		12,430			12,430
Deferred tax liabilities		5,384			5,124
Other liabilities		41,705			41,840
Total long-term liabilities		59,519			59,394

Stockholders' Equity:
Common stock, $0.0277 par value, 115,000 shares authorized, 56,848 and 56,838 shares issued as of July 2, 2022 and April 2, 2022, respectively		1,573			1,573
Additional paid-in capital		506,815			502,846
Retained earnings		444,702			327,902
Accumulated other comprehensive loss		(9,512	)		(7,208	)
Total stockholders’ equity		943,578			825,113
Total liabilities and stockholders’ equity	$	1,373,332		$	1,234,619

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Income Statements

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


	Three months ended
	July 2, 2022			July 3, 2021
Net sales	$	725,881		$	510,197
Cost of sales		496,546			398,667
Gross profit		229,335			111,530
Selling, general, and administrative expenses		72,282			54,023
Operating income		157,053			57,507
Interest expense, net		90			649
Other income		(634	)		(54	)
Income before income taxes		157,597			56,912
Income tax expense		40,446			14,011
Net income	$	117,151		$	42,901
Net income per share:
Basic	$	2.06		$	0.76
Diluted	$	2.04		$	0.75

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)


	Three months ended
	July 2, 2022			July 3, 2021
Net income	$	117,151		$	42,901
Other comprehensive income (loss):
Foreign currency translation adjustments		(2,304	)		878
Total comprehensive income	$	114,847		$	43,779

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)


	Three months ended
	July 2, 2022			July 3, 2021
Cash flows from operating activities
Net income	$	117,151		$	42,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,670			3,257
Amortization of intangible assets		1,946			1,888
Amortization of deferred financing fees		95			127
Equity-based compensation		3,960			1,441
Deferred taxes		1,685			4,079
Loss on disposal of property, plant, and equipment		6			6
Foreign currency transaction loss (gain)		351			(84	)
Change in assets and liabilities:
Accounts receivable		(38,141	)		(3,097	)
Inventories		(48,855	)		(25,129	)
Prepaids and other assets		(11,084	)		(14,992	)
Accounts payable		(15,931	)		8,741
Accrued expenses and other liabilities		32,569			12,767
Net cash provided by operating activities		47,422			31,905
Cash flows from investing activities
Additions to property, plant, and equipment		(9,435	)		(9,221	)
Cash paid for acquisition		(9,553	)		—
Proceeds from disposal of property, plant, and equipment		17			2
Net cash used in investing activities		(18,971	)		(9,219	)
Cash flows from financing activities
Changes in floor plan financing, net		2,398			3,045
Stock option exercises		9			79
Tax payments for equity-based compensation		(351	)		(1,326	)
Net cash provided by financing activities		2,056			1,798
Effect of exchange rate changes on cash and cash equivalents		(2,142	)		673
Net increase in cash and cash equivalents		28,365			25,157
Cash and cash equivalents at beginning of period		435,413			262,581
Cash and cash equivalents at end of period	$	463,778		$	287,738

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)



	Three months ended July 2, 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		—		—		—		117,151			—			117,151
Equity-based compensation		—		—		3,960		—			—			3,960
Net common stock issued under equity-based compensation plans		10		—		9		(351	)		—			(342	)
Foreign currency translation adjustments		—		—		—		—			(2,304	)		(2,304	)
Balance at July 2, 2022		56,848	$	1,573	$	506,815	$	444,702		$	(9,512	)	$	943,578


	Three months ended July 3, 2021
	Common Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at March 28, 2020		56,640	$	1,569	$	491,668	$	82,898		$	(7,524	)	$	568,611
Net income		—		—		—		42,901			—			42,901
Equity-based compensation		—		—		1,441		—			—			1,441
Net common stock issued under equity-based compensation plans		59		2		82		(1,332	)		—			(1,248	)
Foreign currency translation adjustments		—		—		—		—			878			878
Balance at July 3, 2021		56,699	$	1,571	$	493,191	$	124,467		$	(6,646	)	$	612,583

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

See accompanying Notes to Condensed Consolidated Financial Statements.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Business

Nature of Operations: Skyline Champion Corporation's (the “Company”) operations consist of manufacturing, retail and transportation activities. At July 2, 2022, the Company operated 37 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. The Company’s retail operations consist of 19 sales centers that sell manufactured houses to consumers primarily in the Southern U.S. The Company’s transportation business engages independent owners/drivers to transport recreational vehicles throughout the U.S. and Canada and manufactured houses in certain regions of the U.S. 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 24, 2022 (the “Fiscal 2022 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 $1.7 million at both July 2, 2022 and April 2, 2022. At both July 2, 2022 and April 2, 2022, other notes receivable are reflected net of reserves of $0.4 million.

The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2023,” will end on April 1, 2023 and will include 52 weeks. References to “fiscal 2022” refer to the Company’s fiscal year ended April 2, 2022. The three months ended July 2, 2022 and July 3, 2021 each included 13 weeks.

In May, 2022, the Company acquired Manis Custom Builders, Inc. ("Manis") for $9.6 million. The net assets acquired were not material to the accompanying consolidated financial statements.

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.

2. Inventories, net

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


(Dollars in thousands)	July 2, 2022		April 2, 2022
Raw materials	$	133,640	$	141,238
Work in process		30,531		26,523
Finished goods and other		127,987		73,573
Total inventories, net	$	292,158	$	241,334

At July 2, 2022 and April 2, 2022, reserves for obsolete inventory were $5.7 million and $4.8 million, respectively.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

3. Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended July 2, 2022 and July 3, 2021 was $3.7 million and $3.3 million, respectively.

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


(Dollars in thousands)	July 2, 2022			April 2, 2022
Land and improvements	$	40,502		$	39,815
Buildings and improvements		110,338			104,085
Machinery and equipment		73,244			69,518
Construction in progress		14,789			10,280
Property, plant, and equipment, at cost		238,873			223,698
Less: accumulated depreciation		(93,940	)		(90,713	)
Property, plant, and equipment, net	$	144,933		$	132,985

4. 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 July 2, 2022 and April 2, 2022, the Company had goodwill of $192.6 million and $192.0 million, respectively.

Intangible Assets

The components of amortizable intangible assets were as follows:


(Dollars in thousands)	July 2, 2022									April 2, 2022
	Customer Relationships			Trade Names			Total			Customer Relationships			Trade Names			Total
Gross carrying amount	$	62,168		$	21,696		$	83,864		$	61,986		$	21,419		$	83,405
Accumulated amortization		(25,094	)		(8,744	)		(33,838	)		(23,819	)		(8,303	)	$	(32,122	)
Amortizable intangibles, net	$	37,074		$	12,952		$	50,026		$	38,167		$	13,116		$	51,283

During both the three months ended July 2, 2022 and July 3, 2021, amortization of intangible assets was $1.9 million.

Cloud Computing Arrangements

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed technology. At July 2, 2022 and April 2, 2022, the Company had capitalized cloud computing costs of $23.9 million and $20.5 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 months ended July 2, 2022 was $0.2 million. There was no amortization of capitalized cloud computing costs during the three months ended July 3, 2021.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

5. Other Current Liabilities

The components of other current liabilities were as follows:


(Dollars in thousands)	July 2, 2022		April 2, 2022
Customer deposits	$	68,315	$	67,396
Accrued volume rebates		26,133		23,505
Accrued warranty obligations		26,129		25,806
Accrued compensation and payroll taxes		50,618		64,888
Accrued insurance		16,008		13,569
Accrued taxes		42,413		6,959
Other		26,627		20,370
Total other current liabilities	$	256,243	$	222,493

6. Accrued Warranty Obligations

Changes in the accrued warranty obligations were as follows:


	Three months ended
(Dollars in thousands)	July 2, 2022			July 3, 2021
Balance at beginning of period	$	32,832		$	30,469
Warranty expense		11,921			10,304
Cash warranty payments		(11,598	)		(9,694	)
Balance at end of period		33,155			31,079
Less: noncurrent portion in other long-term liabilities		(7,026	)		(6,436	)
Total current portion	$	26,129		$	24,643

7. Debt and Floor Plan Payable

Long-term debt consisted of the following:


(Dollars in thousands)	July 2, 2022		April 2, 2022
Revolving credit facility maturing in 2026	$	—	$	—
Obligations under industrial revenue bonds due 2029		12,430		12,430
Total debt		12,430		12,430
Less: current portion		—		—
Total long-term debt	$	12,430	$	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. Outstanding borrowings of $26.9 million on the Company's previous revolving credit facility were repaid in July 2021. The Amended Credit Agreement allows the Company to draw down, repay and re-draw loans on the available facility during the term, subject to certain terms and conditions, matures in July 2026, and has no scheduled amortization. The Company capitalized $1.1 million of deferred financing fees associated with the Amended Credit Agreement, which are included in other noncurrent assets on the accompanying consolidated balance sheets. The Company wrote off $0.3 million of deferred financing fees associated with the previously existing credit facility during the second quarter of fiscal 2022.

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

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 the London Inter-Bank Offered Rate ("LIBOR") or the Secured Overnight Financing Rate plus the benchmark replacement adjustment ("Replacement Rate") plus 1.875% and Alternative Base Rate ("ABR") plus 0.875%, at the election of the Company, when the consolidated total net leverage ratio is equal to or greater than 2.25:1.00, to a low of LIBOR or the Replacement Rate plus 1.125% and ABR plus 0.125% when the consolidated total net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.15% and 0.3% (depending on the consolidated total net leverage ratio) in respect of unused commitments under the Amended Credit Agreement. There were no outstanding borrowings under the revolving credit facility at July 2, 2022 and April, 2, 2022, respectively. At July 2, 2022 the interest rate under the Amended Credit Agreement was 2.97% and letters of credit issued under the Amended Credit Agreement totaled $32.1 million. Available borrowing capacity under the Amended Credit Agreement as of July 2, 2022 was $167.9 million.

Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at July 2, 2022, including related costs and fees, was 2.61%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.

The Amended Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Amended Credit Agreement as of July 2, 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 July 2, 2022 and April 2, 2022, the Company had outstanding borrowings on floor plan financing agreements of $37.9 million and $35.5 million, respectively. Total credit line capacity provided under the agreements was $67.0 million as of July 2, 2022. Borrowings are secured by the homes and are required to be repaid when the Company sells the home to a customer.

8. Revenue Recognition

The following tables disaggregate the Company’s revenue by sales category for the three months ended July 2, 2022 and July 3, 2021:




	Three months ended July 2, 2022
(Dollars in thousands)	U.S. Factory-Built Housing		Canadian Factory-Built Housing		Corporate/ Other		Total
Manufacturing and retail	$	660,811	$	45,062	$	—	$	705,873
Commercial		270