EDGAR 10-K Filing

Company CIK: 90896
Filing Year: 2022
Filename: 90896_10-K_2022_0000950170-22-010576.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
General Overview
Skyline Champion Corporation, an Indiana corporation, and its consolidated subsidiaries are referred to herein as "Skyline Champion," "us," "we," "our," the "Company," and any other similar terms, unless otherwise indicated in this Annual Report.
We are a leading producer of factory-built housing in North America with net sales for the year ended April 2, 2022 (“fiscal 2022”) of approximately $2.2 billion. We have more than 70 years of homebuilding experience, approximately 8,400 employees and 41 manufacturing facilities located in 19 states across the United States and three provinces in western Canada. We offer a leading portfolio of manufactured and modular homes, park model RVs, accessory dwelling units (“ADUs”) and modular buildings for the multi-family and hospitality sectors. Our facilities are strategically located to serve strong markets in the United States and western Canada. We operated 14 manufacturing facilities in the top ten states with the highest number of manufactured homes shipped in fiscal 2022, as well as 16 manufacturing facilities in the ten states with the greatest growth in the number of manufactured homes shipped in the last ten years. We believe that we maintained the following leading positions in the factory-built housing industry in the United States and western Canada (based on units) in calendar year 2021:
•Number two position in the manufactured housing market segment in the United States
•Number one modular builder in the United States
•A leading position in western Canada
•A leading position in park model RV sales
We believe our market leading positions are driven by our comprehensive product offering, strong brand reputation, broad manufacturing footprint, and our complementary retail and logistics businesses. Our market share in the United States total housing market is approximately 2.6%. Our market share in the United States manufactured housing market segment has increased from approximately 8% in the beginning of fiscal 2011 to approximately 19% in fiscal 2022 based on total number of units produced.
We design and build a range of manufactured and modular homes, park model RVs, ADUs, and commercial structures. We believe that the high quality and broad scope of our product and service offerings provide us a competitive advantage relative to other factory-built and certain site-built homes. With our award-winning product designs, we seek to meet the needs of our localized customers, while also providing them with an array of pre-designed options. Our leading brands are marketed and distributed through a network of independent and company-owned retailers, community operators, government agencies, and builder/developers. We build homes under some of the most well-known brand names in the factory-built housing industry including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada.
In addition to our core home building business, we provide construction services to install and set-up factory-built homes, we operate a factory-direct manufactured home retail business, Titan Factory Direct, with 18 sales centers spanning the southern United States, and we operate Star Fleet Trucking, which provides transportation services to the manufactured housing and other industries from several dispatch locations across the United States.
Our principal executive offices are located at 755 West Big Beaver Road, Suite 1000, Troy, Michigan 48084. Our website is located at www.skylinechampion.com. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report. We make available on our website, as soon as reasonably practicable, all of the reports required to be filed with the SEC. Our SEC filings are also available to the public on the SEC’s website at www.sec.gov.
Business Strategy
We will continue to pursue opportunities to grow our revenue and earnings by constructing quality-built, sustainable, and innovatively designed homes and other modular structures in an environmentally friendly factory setting. In connection with executing this business strategy, we are focused on the following four initiatives:
•Increasing the operating capacity and profitability of our existing facilities;
•Investing in our customers’ online digital experience;
•Implementing production automation and enterprise-wide digital technology; and
•Continuing a balanced organic and acquisition-based growth strategy.
Increasing the Operating Capacity and Profitability of our Existing Facilities
We are currently focused on a number of ongoing operational initiatives to further enhance our operating margins and increase production capacity including:
•refining our product floor plan designs and options to offer “designed flexibility” to our customers;
•executing on continuous improvement initiatives related to procurement, operational and labor cost saving opportunities; enhancing the efficiency and sustainability of our products through value-adding material substitution; and
•standardizing our manufacturing processes and employing metrics-driven accountability measures across all of our facilities.
Investing in our Customers’ Online Digital Experience
The Company continues to invest in the design and testing of enhanced digital offerings. We are currently piloting an end-to-end platform where consumers can design, configure, and price their homes online, which we believe will ultimately drive revenue growth for Skyline Champion and our channel partners. During the COVID-19 pandemic, we have seen tremendous online interest from consumers and believe use of a digital platform to customize and purchase homes will continue to grow.
Implementing Production Automation and Enterprise-wide Digital Technology
•We are investing in production automation technology to mitigate reliance on direct labor, reduce material waste, and improve the precision of our construction processes.
•In conjunction with our enhanced digital offering for the customer experience, we are moving to an enterprise-wide, cloud based integrated platform. This enhanced technology will offer real-time analytics for improved decision making and will facilitate additional improvements in our manufacturing operations.
Continuing a Balanced Organic and Acquisition-Based Growth Strategy
In June 2021, the Company acquired two idle facilities in Navasota, Texas in order to increase our production capabilities in the Texas market. The Company began production and completed the certification process at one of these facilities in the fourth quarter of fiscal 2022.
On February 28, 2021, we acquired ScotBilt Homes, LLC and related companies from SHI Group Holdings, Inc. (collectively, “ScotBilt”). ScotBilt operated two manufacturing facilities in Georgia providing affordable housing throughout Alabama, Florida, Georgia and the Carolinas. The acquisition helped to balance our national distribution and complement our existing manufacturing footprint in the attractive mid-south region. The operations of ScotBilt are included in our financial results since the date of the acquisition. During fiscal 2022, we completed the successful cultural, processes, systems and internal controls integration of the acquired facilities into our operations.
In January 2021, we closed on the purchase of two idled manufacturing facilities in North Carolina, one of the strongest growth states in the U.S. We anticipate beginning production at one of these facilities in late fiscal 2023.
We have demonstrated our ability to broaden our manufacturing and retail presence through the successful execution of a balanced organic growth and acquisition-based strategy. As demand for affordable housing grows and the raw material supply chain normalizes, we will continue to execute on this growth strategy. We believe our idle manufacturing plants provide us with the ability to grow with demand over the longer term. We also continue to explore opportunities to acquire value-enhancing retail locations, manufacturing facilities, and factory-built housing competitors to supplement our organic growth initiatives. We have a proven track-record of executing and integrating acquisitions.
Environmental, Social and Governance (“ESG”)
We demonstrate our commitment to ESG through company-wide and plant-specific programs and through our everyday business practices when providing high-quality, yet affordable homes to U.S. and Canadian homebuyers. Manufactured and modular homes cost up to 50% less per square foot than conventional site-built homes, expanding the opportunity for individuals to own a home despite an ever-growing housing affordability gap.
The Board of Directors has formal responsibility for the oversight and integration of all of the Company’s sustainability programs and policies, and the Audit Committee, Compensation Committee, and Nominating and Governance Committee have lead responsibility for the Company’s strategy, policies and practices with respect to environmental sustainability, social and human capital matters, and governance, respectively. Our five ESG tenets include: (1) Environmental Focus, (2) Health & Safety, (3) Human Capital, (4) Community Outreach, and (5) Governance.
Skyline Champion manages its operations to minimize resource consumption and environmental impacts. We continue to identify opportunities to reduce our environmental impact across our operations by reducing raw material waste, designing and constructing energy efficient homes, conserving our natural resources through recycling programs and reducing our carbon footprint by producing our homes in factories close to where our customers and employees live. Many of our U.S. manufacturing facilities are certified to produce Energy Star® energy efficient rated homes through a special EPA program for manufactured housing. Environmental sustainability is at the forefront of what we do every day.
We construct manufactured homes in controlled environments. Our efficient construction process results in less energy usage and material waste compared to traditional site-built construction. In many of our plants, we have transitioned to LED lighting, and we recycle insulation material, lumber, metals, plastics, paper and many other products. In the course of executing our expansion plans, we have repurposed older buildings, both revitalizing the local community and preserving vacant land. This reduces the need for new building materials and extensive deployment of construction equipment, and thus reduces carbon emissions.
On our journey, we have launched a program to participate in reforestation. With forestry products central to the construction of homes, we began participation in a program to plant one tree for every tree used in construction of our homes in fiscal 2022. Reforestation contributes to the environment by replenishing forests, reducing greenhouses gases ("GHG"), and protecting local watersheds.
As a nationwide provider of affordable housing, we have a social responsibility to not only the buyers of our homes, our retail and community customers and our employees, but also to the communities in which they live and work. Many of our manufacturing facilities participate locally to support programs such as Habitat for Humanity and other local charities as well as work-study programs with local community colleges and high schools.
Skyline Champion is committed to good corporate governance. We strive to maintain strong governance practices that protect and enhance accountability for the benefit of Skyline Champion, its shareholders, customers, employees and other business stakeholders. We regularly review and refine our governance practices and policies to align with evolving issues. Our internal risk management team oversees compliance with applicable laws and regulations and coordinates with subject matter experts throughout the business to identify, monitor and mitigate risk including information security risk management and cyber defense programs. Skyline Champion’s Corporate Governance Guidelines, the charters of committees of our Board and our Code of Conduct can be found in the Governance Documents section under the Governance tab on our website at www.skylinechampion.com. Additional information on our Corporate Governance policies can be found in our Proxy Statement filed with the SEC.
Human Capital and Diversity
The Skyline Champion team manages the business in accordance with the Company’s Core Operating Principles:
•Build and develop exceptional teams
•Create a safe work environment
•Build strong relationships
•Take pride in our craftsmanship
•Act with integrity and respect
•Be open and honest
•Run the business like it is your own
We appreciate each member of the Skyline Champion team and the unique skills and diversity of thought each provides to the overall success of the Company. We strive for an inclusive environment and reward individual contributions that foster innovative ideas for improving our products and workplace. We do not tolerate discrimination or harassment of any kind including but not limited discrimination or harassment to on the basis of gender identity, race, religion, age or disabilities. We are committed to the development of our employees. The Company follows standard onboarding and training protocols for our direct labor team members and also offers management and OSHA training for our supervisors. We are committed to improving employee engagement and reducing turnover through these onboarding, training and mentoring activities. Depending on availability, our plants participate in local outreach programs and hire disadvantaged members of the local community.
We have built a diverse team with a wide range of experiences. At April 2, 2022, we employed approximately 8,400 full and part time employees. Our human capital resource objectives include identifying, recruiting, training, retaining and incentivizing our employees. We offer our employees a competitive compensation package, including an array of benefits, and we deem our relationship with our employees to be generally good. At April 2, 2022, our manufacturing facilities in Canada employed approximately 950 workers of which the majority belong to trade associations that operate under collective bargaining agreements. There are five collective bargaining agreements (one for each Canadian manufacturing facility) and each has separate expiration dates. The agreements are set to expire at various dates between June 2022 and June 2024.
We are committed to conducting our business with integrity and in compliance with all applicable laws of the cities, states and countries in which we operate. We have adopted a written Code of Conduct and Ethics and in fiscal 2022 implemented a new company wide training program to assist employees in this regard. We encourage employees to report concerns through a variety of channels, including a compliance and ethics line which allows for anonymous reporting. All reports are investigated and resolved. We also maintain an anti-retaliation policy such that any employee who reports a concern in good faith is protected from harassment, retaliation or adverse employment consequences.
We take the health and safety of our employees seriously. We provide a variety of Company sponsored healthcare programs, including health, dental, and vision, that allow employees to manage their and their family's health and wellbeing. We expect each employee to follow our safety standards and protocols. Our corporate Environmental Health and Safety (“EHS”) team works to benchmark and implement EHS best practices at our plants. Each of our locations performs regular safety audits to ensure that proper safety policies are in place and appropriate safety training is provided. In addition to training and development, we measure and report out on monthly safety metrics and regularly review our safety performance with our Board of Directors. In response to the COVID-19 pandemic, we implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. In fiscal 2021 in response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and waived premium payments on healthcare benefits for furloughed employees.
Factory-Built Housing
A majority of our manufactured products are constructed in accordance with the regulations and rules of the U.S. Department of Housing and Urban Development (“HUD”) and the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended ("HUD code"). We produce a broad range of manufactured and modular homes under a variety of brand names and in a variety of floor plans and price ranges. While most of the homes we build are single-family, multi-section, ranch-style homes, we also build two-story and single-section homes, as well as multi-family units such as town homes, apartments, duplexes, and triplexes. The single-family homes that we manufacture generally range in size from 400 to 4,000 square feet and typically include two to four bedrooms, a living room or family room, a dining room, a kitchen and typically two full bathrooms. We also build park model RVs for resorts and campgrounds, ADUs for backyard or recreational living, and commercial modular structures.
We regularly introduce homes with new floor plans, exterior designs and elevations, decors and features. Our corporate marketing and engineering departments work with our manufacturing facilities to design homes that appeal to consumers’ changing
tastes at appropriate price points for their respective markets. We design and build homes with a traditional residential or site-built appearance through the use of, among other features, dormers and higher pitched roofs. We offer our Genesis brand of homes which have features similar to site-built home amenities such as porches and garages. These homes are designed to be eligible for financing programs with terms similar to traditional mortgages. We are also very active in the design and construction of energy-efficient homes.
The components and products used in factory-built housing are generally of the same quality as those used by other home builders, including conventional site-builders. The primary components include lumber, plywood, OSB, drywall, steel, floor coverings, insulation, exterior siding (vinyl, composites, wood and metal), doors, windows, shingles, kitchen appliances, furnaces, plumbing and electrical fixtures and hardware. These components are presently available from a variety of sources and we are not dependent upon any single supplier. Prices of certain materials such as lumber, insulation, steel, and drywall can fluctuate significantly due to changes in demand and supply. Lumber and related products experienced significant cost increases in fiscal 2022, primarily as a result of supply chain disruptions. Those disruptions have also impacted the availability of certain raw materials and components. We endeavor to mitigate the impact of supply chain challenges through sourcing alternative materials, where appropriate, and exploring alternative supply options. We generally have been able to pass higher material costs on to customers in the form of surcharges and price increases. Typically, a one to three-week supply of raw materials is maintained, but continued supply chain volatility has caused our manufacturing operations to increase the amount of frequently used raw materials on hand versus what is typically carried.
Most completed factory-built homes have components consistent with conventional site-builders, such as cabinets, wall and floor coverings, appliances, and electrical, heating and plumbing systems. Optional factory installed features include fireplaces, dormers, entertainment centers and skylights. Upon completion of the home at the factory, homes sold to retailers are transported to a retail sales center or directly to the home site. Homes sold to builders and developers are generally transported directly to the home site. At the home site, the home is placed on a foundation or otherwise affixed to the property and readied for occupancy, either by our employee set crews or third party contractors. The sections (also referred to as floors) of a multi-section home are joined and the interior and exterior seams are finished at the home site. The consumer purchase of the home may also include retailer or contractor supplied items such as additional appliances, air conditioning, furniture, porches, decks, and garages.
We construct homes in indoor facilities using an assembly-line process employing approximately 100 to 200 production employees at each facility. Factory-built HUD code homes are constructed in one or more sections affixed to a steel support frame that allows the sections to be moved through the assembly line and transported upon sale. The sections of many of the modular homes we produce are built on wooden floor systems and transported on carriers that are removed upon placement of the home at the home site. Each section or floor is assembled in stages, beginning with the construction of the frame and the floor, then adding the walls, ceiling and roof assembly, and other constructed and purchased components, and ending with a final quality control inspection. The efficiency of the assembly-line process, protection from the weather, and favorable pricing of materials resulting from our substantial purchasing power enables us to produce homes more quickly and often at a lower cost than a conventional site-built home of similar quality.
The production schedules of our homebuilding facilities are based upon customer orders. Orders are generally subject to cancellation at any time up to the commencement of production without penalty and are not necessarily an indication of future business. Retailers place orders for retail stocking (inventory) purposes and for homebuyer orders. Before scheduling homes for production, orders and availability of financing are confirmed with our customer and, where applicable, their customer's lender. Because we produce homes to fulfill wholesale orders, our factories generally do not carry finished goods inventories, except for homes awaiting delivery. We manage our production levels, capacity and workforce size based upon current market demands. Historically, orders were generally filled within 90 days of receipt; however, delivery times have been extended over the past two years due to the increase in our sales backlog caused by strong demand for affordable housing. At April 2, 2022, we had a backlog of home orders with wholesale sales value of approximately $1.6 billion. After production of a particular home has commenced, the order becomes noncancelable and the customer is obligated to take delivery of the home.
Although factory-built homes can be produced throughout the year in indoor facilities, demand for homes is usually affected by inclement weather and by the cold winter months in northern areas of the U.S. and in Canada. Charges to transport homes increase with the distance from the factory to the retailer or home site. As a result, most of the retailers and builders/developers we sell to are located within a 500-mile radius of our manufacturing plants. In addition to our traditional channels of distribution, we are one of a limited number of manufactured homebuilders that have been approved for contracts with the Federal Emergency Management Agency (“FEMA”) and have historically provided housing assistance requirements following natural disasters and other housing emergencies. On February 7, 2022, we received a Delivery Disaster Relief Order from FEMA for approximately $200 million in revenue to be completed by September 2022.
We offer a wide selection of manufactured and modular homes as well as park model RVs at company-owned retail locations marketed under the Titan Factory Direct brand. We maintain our company-owned retail presence through 18 retail sales centers in Florida, Georgia, Louisiana, North Carolina, Oklahoma, and Texas. Our captive retail distribution enhances the reach of our factory-built housing products directly to the homebuyer.
Each of our full-service retail sales centers has a sales office and a variety of model homes of various sizes, floor plans, features, and prices that are displayed in a residential setting with sidewalks and landscaping. Customers may purchase a home from an inventory of homes maintained at the location, including a model home, or may order a home that will be built at a manufacturing facility. Our retail organization provides industry leadership with the expertise to be responsive to local economic conditions and ultimately provide affordable homes to value-conscious homebuyers.
During fiscal 2022, the average selling price was $80,656 for our U.S. factory-built homes and $107,589 for homes sold through our Canadian housing segment. Manufactured home sales prices ranged from $20,000 to over $350,000. Retail sales prices of the homes, without land, generally ranged from $35,000 to over $300,000, depending upon size, floor plan, features, and options.
Logistics
We operate a logistics business, Star Fleet Trucking, specializing in the transportation of manufactured homes and recreational vehicles from manufacturing facilities to retailers. Star Fleet’s delivery logistics are coordinated through dispatch terminals located throughout the U.S. Star Fleet has strong relationships with its customer base, which includes some of the largest manufactured housing companies (including our own factory-built housing operations), and recreational vehicle manufacturers in the U.S.
Market Overview
General. Since July 2020, U.S. and Canadian housing demand has been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets. Factory-built housing provides an affordable alternative to other types of housing such as site-built housing and condominiums, and to existing housing such as pre-owned homes and apartments. According to statistics published by the Institute for Building Technology and Safety ("IBTS") and the United States Department of Commerce, Bureau of the Census, for the 2021 calendar year, manufactured housing wholesale shipments of homes constructed in accordance with the HUD code accounted for an estimated 10% of all new single-family homes starts.
According to data reported by the Manufactured Housing Institute (“MHI”), industry manufactured home shipments were 108,964, 95,588, and 97,553 units during fiscal 2022, 2021, and 2020, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually. The market for factory-built housing is affected by a number of factors, including the availability, cost and credit underwriting standards of consumer financing, consumer confidence, employment levels, general housing market, interest rates and other economic conditions and the overall affordability of factory-built housing versus other forms of housing. In the past, a number of factors have restricted demand for factory-built housing, including, in some cases, less-favorable financing terms compared to site-built housing, the effects of restrictive zoning on the availability of certain locations for home placement and, in some cases, an unfavorable public image. Certain of these adverse factors have lessened considerably in recent years with the improved quality and appearance of factory-built housing.
Home Buyer Demographics. We believe the segment of the housing market in which manufactured housing is most competitive includes consumers with household incomes under $60,000. This segment has a high representation of young single persons and married couples, first time home buyers, and homebuyers age 55 and older. The comparatively low cost of manufactured homes is attractive to these consumers. People in rural areas, where fewer housing alternatives exist, and those who presently live in factory-built homes, also make up a significant portion of the demand for new factory-built housing. We believe higher-priced, multi-section manufactured and modular homes are attractive to households with higher incomes as an alternative to rental housing and condominiums and are well suited to meet the needs of the retiree buyer in many markets.
The two largest manufactured housing consumer demographics are Millennials (generally defined as those born between 1981 - 1996) and Baby Boomers (generally defined as those born between 1946 - 1964). Millennials are generally first-time home buyers who may be attracted by the affordability and diversity of style choices of factory-built homes. Baby Boomers are similarly interested in the value proposition; however, they are also motivated by the energy efficiency and low maintenance requirements of factory-built homes, and by the lifestyle offered by planned communities that are specifically designed for homeowners that fall into this age group. More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working from home patterns as well as people seeking rent-to-own single-family options.
Financing
Commercial Financing. Independent retailers of factory-built homes generally finance their inventory purchases from manufacturers with floor plan financing provided by third-party lending institutions and secured by a lien on the homes. The availability and cost of floor plan financing can affect the amount of retailer new home inventory, the number of retail sales centers and related wholesale demand. Under a typical floor plan financing arrangement, an independent financial institution specializing in
this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral. The financial institution customarily requires us, as the manufacturer of the home, to enter into a separate repurchase agreement with the financial institution that, upon default by the retailer and under certain other circumstances, obligates us to repurchase the financed home at declining prices over the term of the repurchase agreement (which, in most cases, is 18 to 36 months). The price at which we may be obligated to repurchase a home under these agreements is based upon the amount financed, plus certain administrative and shipping expenses. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $339.5 million as of April 2, 2022. The risk of loss under these agreements is spread over many retailers and is further reduced by the resale value of the homes. During fiscal 2022, approximately 39% of our sales to independent retailers were financed under floor plan agreements with national lenders, while the remaining 61% were financed under various arrangements with local or regional banks or paid in cash. We generally receive payment from the lending institution 5 to 10 days after a home is sold and invoiced.
Consumer Financing. Sales of factory-built homes are significantly affected by the availability, credit underwriting standards, and cost of consumer financing. There are three basic types of consumer financing in the factory-built housing industry: 1) conforming mortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Department of Veterans Affairs, Department of Agriculture or Government-Sponsored Enterprise (“GSE”) loans which include Fannie Mae and Freddie Mac loans; 2) non-conforming mortgage loans for purchasers of the home and the land on which the home is placed; and 3) personal property loans (often referred to as home-only or chattel loans) for consumers where the home is the sole collateral for the loan (generally HUD-coded homes).
Industry trade associations are working towards favorable legislative and GSE action to address the mortgage financing needs of potential buyers of affordable homes, and some progress has been achieved. Many moderate-income families cannot afford to buy a home due to the increasing costs of newly constructed homes, rising interest rates, and decreasing supply of existing, affordable homes. Federal law required the GSEs to issue a regulation to implement the Duty to Serve (“DTS”) requirements specified in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Fannie Mae and Freddie Mac released their final Underserved Markets Plan for 2022 - 2024 that describes, with specificity, the actions they will take over that three-year period to fulfill the DTS obligation. These plans became effective on January 1, 2022. The GSEs' Underserved Markets Plan's current areas of focus are as follows: 1) purchase more loans used to finance manufactured homes titled as real property; 2) enhance current products and create new offerings; and 3) enhance tenant protections in manufactured housing communities. In 2020, the GSEs rolled out financing programs specifically for homes built to the HUD code, which include CHOICEHome® from Freddie Mac and MH Advantage® from Fannie Mae. HUD-coded homes manufactured for these programs have features comparable to site-built homes, including, drywall throughout, higher-pitch roof line, energy-efficient features, lower profile foundation, plus additional options such as a garage or carport. These products aim to promote quality manufactured homes as an acceptable alternative to site-built homes and will allow moderate-income families to purchase a manufactured home with lending terms similar to those for site-built homes. Our Genesis brand of homes is built to these specifications. We continue to work with builder/developers to cultivate strategies to bring these products to the marketplace.
The DTS plans also explored the potential for the GSEs to provide liquidity to the chattel lending market. The GSEs could potentially serve as additional sources of funding as there is unmet demand in the chattel loan industry, and GSE involvement could increase volume substantially. Freddie Mac has indicated that it plans to develop requirements and a process to support loan purchases of manufactured homes titled as real property. The Fannie Mae DTS plan includes a provision indicating that it is exploring a pilot to establish a secondary market for chattel or home-only loans and an objective to explore ways to manage risks in the market. The Fannie Mae DTS plan also includes an objective to explore opportunities to facilitate financing of loans secured by manufactured homes tiled as real property in certain manufactured housing communities. Expansion of the secondary market for home-only lending through the GSEs could provide further demand for housing, as lending options would likely become more available to homebuyers. Separate from the GSE involvement in chattel markets, there have been several secondary market chattel private placement offerings over the last three years. Although some limited progress has been made in this area, a meaningful positive impact in the form of increased home orders has yet to be realized.
Competition
The housing industry is highly competitive based upon several factors, including price, product features, reputation for service and quality, depth of distribution or location, and financing. Capital requirements for entry into the industry are relatively low.
Factory-built housing is also very competitive. According to MHI, in March 2022, there were 33 producers of manufactured homes in the U.S. operating an estimated 141 production facilities. For calendar 2021, the top three companies had a combined market share for HUD code homes of approximately 75%. We estimate that there were approximately 3,200 industry retail locations throughout the U.S. during calendar 2021.
Based on industry data reported by IBTS, in fiscal 2022 our U.S. wholesale market share of HUD code homes sold was 19.3%, compared to 16.9% in fiscal 2021. We compete with the other producers of manufactured homes, as well as companies selling homes repossessed from wholesalers or consumers. In addition, manufactured homes compete with new and existing site-built homes, as well as apartments, townhouses, and condominiums. Collectively, manufactured housing represents approximately only nine percent of annual U.S. single family home starts.
There are a number of other national manufacturers competing for a significant share of the manufactured housing market in the U.S., including Clayton Homes and Cavco Industries. Certain of these competitors may possess greater financial, manufacturing, distribution, and marketing resources.
Government Regulation
Our manufactured homes are subject to numerous federal, state and local laws, codes and regulations. The majority of our homes are built to comply with the HUD code which includes regulations that cover all aspects of manufactured home construction and installation, including structural integrity, fire safety, wind loads, thermal protection and ventilation. To the extent state and local regulations conflict with the HUD code, they are pre-empted. Our modular homes and commercial structures are built to comply with applicable state and local building codes. Our park model RVs are built in conformity with the applicable standards approved by the American National Standards Institute, a private, non-profit organization that administers and coordinates voluntary standards and conformity programs.
A variety of laws affect the financing of the homes we manufacture. The Federal Consumer Credit Protection Act and Regulation Z promulgated thereunder require written disclosure of information relating to such financing, including the amount of the annual percentage interest rate and the finance charge. A variety of state laws also regulate the form of financing documents and the allowable deposits, finance charge and fees charged. Federal laws permit manufactured housing retailers to assist home buyers with securing financing for the purchase of homes; however, they are prohibited from negotiating the financing terms.
Governmental authorities enforcing these numerous laws and regulations can impose fines and/or seek injunctive relief for violations. We believe that our operations are in compliance with the requirements of the applicable laws and regulations.
Seasonality
The housing industry is subject to seasonal fluctuations based on home buyer purchasing patterns. We typically experience decreased home buyer traffic during holidays and popular vacation periods. Demand for our core single-family new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry. Typical seasonal patterns were not as prevalent in fiscal 2022 and 2021 as demand for affordable housing has increased significantly. We expect seasonal patterns to return once demand returns to more typical levels.
Available Information
Our website address is www.skylinechampion.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RI SK FACTORS
Our business involves a number of risks and uncertainties. You should carefully consider the following risks, together with the information provided elsewhere in this Annual Report. The items described below are not the only risks facing us. Additional risks that are currently unknown to us or that we currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.
Market, Industry and Supply Chain Risks
Raw material shortages and price increases could delay or increase the cost of construction of our products which could materially and adversely impact our results of operations and our cash flows.
Certain materials used in the construction of homes such as lumber, insulation, steel, drywall, oil-based products and fuel, among others, can become scarce during periods of high demand for new home construction as well as renovation and remodeling of existing homes. We depend on timely and sufficient delivery of raw materials from our suppliers. In addition, a few key components of our products are produced by a small group of quality suppliers that have the capacity to supply large quantities. Disruption to the supply chain of these key components could have an adverse impact on our production output. Raw material shortages from these and other suppliers can be more severe during periods following natural disasters or broader economic disruptions such as the COVID-19 pandemic.
Pricing for raw materials can also be affected by the factors mentioned above as well as national, regional, local, economic and political factors, including tariffs. As a result, we may continue to see raw material cost pressures in future periods as strong housing demand continues. We may attempt to pass the higher material costs on to customers, but it is not certain that we will be able to achieve this without adversely affecting demand. Raw material shortages and price increases could cause delays in and increases to our costs of construction which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The factory-built housing industry is cyclical, is affected by seasonality and is sensitive to changes in general economic or other business conditions.
The factory-built housing industry is affected by seasonality. Sales during the period from March to November are typically higher than in other months. As a result, our sales and operating results sometimes fluctuate and may continue to fluctuate in the future.
The factory-built housing industry is also sensitive to changes in economic conditions and other factors, such as pandemics, employment rates, job growth, population growth, consumer confidence, consumer income, availability of financing, interest rate levels, and an oversupply of homes for sale. Changes in any of these conditions generally, or in the markets where we operate, could reduce demand and constrain pricing for new factory-built homes in these areas or result in customer cancellations of pending shipments. Reductions in the number of homes shipped by us, or constraints on the prices we can charge, could result in a decrease in our net sales and earnings, which could adversely affect our financial condition.
We are subject to demand fluctuations in the housing industry. Changes in demand could adversely affect our business, results of operations, and financial condition.
Demand for our homes is subject to fluctuations in the housing market generally. In a housing market downturn, our sales and results of operations could be adversely affected; there might be significant inventory impairments and other write-offs; our gross margins could decline significantly from historical levels; and we might incur losses from operations. We cannot predict the future demand for housing. If it were to decline significantly, our financial condition could be adversely affected.
Rapid or significantly increasing demand can also adversely affect our business. Longer periods of time between order acceptance and production introduce a risk that we may not be able to construct homes profitably if material and labor costs increase. Although we have generally been able to pass along price increases to our customers in periods of rising costs, we may not be able to in the future, or the price increases may cause consumers to explore other housing alternatives and/or exit the home buying process, negatively impacting demand for our homes.
Factory-built housing operates in the highly competitive housing industry, and, if other home builders are more successful or offer better value to our customers, then our business could decline.
We operate in a very competitive environment and face competition from a number of other home builders in each market in which we operate. We compete with large national and regional home building companies and with smaller local home builders for financing, raw materials, and skilled management and labor resources. Some of our manufacturing competitors have captive retail distribution systems and consumer finance and insurance operations. In addition, there are independent factory-built housing retail locations that sell competitors’ products in most areas where our homes are sold and in most areas where we have Company-owned
retail operations. Because barriers to entry to the industry at both the manufacturing and retail levels are low, we believe that it is relatively easy for new competitors to enter our markets. In addition, our products compete within the housing industry more broadly with other forms of low to moderate-cost housing, including site-built homes, panelized homes, apartments, townhouses, condominiums, and repossessed homes. We also compete with resale homes, also referred to as “previously owned” or “existing” homes, as well as rental housing.
An oversupply of homes available for sale or the heavy discounting of home prices by our competitors could adversely affect demand for our homes and the results of our operations. An increase in competitive conditions could have any of the following impacts on us: sale of fewer homes or higher cancellations by our home buyers; an increase in selling incentives or reduction of prices; and realization of lower gross margins due to lower selling prices or an inability to increase selling prices to offset increased costs of the homes delivered. If we are unable to compete effectively in our markets, then our business could decline disproportionately to that of our competitors. As a result, our sales could decline and our results of operations and cash flows could suffer.
Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reduced sales.
We cannot be certain that historical consumer preferences for factory-built homes in general, and for our products in particular, will remain unchanged. Our ability to remain competitive depends heavily on our ability to provide a continuing and timely introduction of innovative product offerings. We believe that the introduction of new features, designs, and models will be critical to the future success of our operations. Managing frequent product introductions poses inherent risks. Delays in the introduction or market acceptance of new models, designs, or product features could have a material adverse effect on our business. Products may not be accepted for a number of reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences. Further, we cannot be certain that new product introductions will not reduce net sales from existing models and adversely affect our results of operations. In addition, our net sales may be adversely affected if our new models and products are not introduced to the market on time or are not successful when introduced. Finally, our competitors’ products may obtain better market acceptance despite our efforts to lead the market.
Increases in tax rates or fees on developers by local government authorities could deter potential customers from buying our products and adversely affect our business or results of operations.
Increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in home insurance premiums, can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and in turn can have adverse impacts on our business and results of operations. Any changes to individual tax rules concerning the deductibility of mortgage interest expenses and real estate taxes could deter customers from home ownership.
Natural disasters and severe weather conditions could delay deliveries, increase costs, and decrease demand for new factory-built homes in affected areas.
Our operations are located in many areas that are subject to natural disasters and severe weather. The occurrence of natural disasters or severe weather conditions can delay factory-built home deliveries, increase costs by damaging inventories, reduce the availability of materials, and negatively impact the demand for new factory-built homes in affected areas. Furthermore, if our insurance does not fully cover business interruptions or losses resulting from these events, then our earnings, liquidity, or capital resources could be adversely affected.
Increased attention to environmental, social and governance matters may impact our business, financial results or stock price.
Increased attention continues to be directed to publicly traded companies and their activities related to environmental, social and governance (“ESG”) matters, including new proposed rules by the SEC regarding climate-related disclosures. Advocacy groups have campaigned for action to promote change at public companies related to ESG matters. These activities include increasing action related to climate change and the use of energy efficient building products. A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns could cause harm to our business and reputation. In addition, organizations that provide information to investors on corporate governance and other matters have developed ratings systems for evaluating companies on their approach to ESG. Unfavorable ESG ratings may lead to negative investor sentiment which could have a negative impact on our stock price.
Regulatory Risks
Environmental laws and regulations relating to climate change and energy can have an adverse impact on our business, our results of operations and on the availability and price of certain raw materials.
Government regulations proposed or enacted in response to climate change could result in increased costs of raw materials and other manufacturing production costs of our homes. We believe that a variety of new legislation may be considered at the federal, state and local levels relating to climate change and energy efficiency. This legislation could result in changes to the HUD-code and other building standards requiring more robust energy efficiency standards or require the use of energy-saving construction material in our products. New building code requirements that impose stricter energy efficiency standards could significantly increase our costs. Compliance with these new standards may also cause an increase in our costs and use of human capital resources. As climate change and energy efficiency remains a global focus, energy-related initiatives will impact many companies including our suppliers of many of our raw materials such as lumber and steel. The initiatives undertaken by our suppliers could adversely impact our results of operations to the extent our suppliers raise their prices to cover energy and climate related initiatives. New environmental laws and regulations could have an adverse impact on our business and results of operations.
If the factory-built housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our results of operations and cash flows could suffer.
Limitations on the number of sites available for placement of factory-built homes or on the operation of factory-built housing communities could reduce the demand for factory-built homes and, as a result, our sales. Factory-built housing communities and individual home placements are subject to local zoning ordinances and other local regulations relating to utility service and construction of roadways. In the past, some property owners have resisted the adoption of zoning ordinances permitting the use of factory-built homes in residential areas, which we believe has restricted the growth of the industry. Factory-built homes may not receive widespread acceptance and localities may not adopt zoning ordinances permitting the development of factory-built home communities. If the factory-built housing industry is unable to secure favorable local zoning ordinances, then our sales could decline and our results of operations and cash flows could suffer.
We are subject to extensive regulation affecting the production and sale of factory-built housing, which could adversely affect our business, financial condition, and results of operations.
We are subject to a variety of federal, state, and local laws and regulations affecting the production and sale of factory-built housing. Our failure to comply with such laws and regulations could expose us to a wide variety of sanctions, including closing one or more manufacturing facilities. Regulatory matters affecting our operations are under regular review by governmental bodies and we cannot predict what effect, if any, new laws and regulations would have on us or on the factory-built housing industry. Failure to comply with applicable laws or regulations or the passage in the future of new and more stringent laws, could adversely affect our business, financial condition, and results of operations.
The transportation industry is subject to government regulation, and regulatory changes could have a material adverse effect on our results of operations or financial condition.
Our Star Fleet Trucking subsidiary provides transportation services. The transportation industry is subject to legislative or regulatory changes, including potential limits on carbon emissions under climate change legislation and Department of Transportation regulations regarding, among other things, driver breaks, classification of independent drivers, “restart” rules, and the use of electronic logging devices that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services. We may become subject to new or more restrictive regulations relating to fuel emissions or limits on vehicle weight and size. Future laws and regulations may be more stringent and require changes in operating practices, influence the demand for transportation services or increase the cost of providing transportation services, any of which could adversely affect our business and results of operations.
Operational Risks
Our results of operations can be adversely affected by labor shortages, turnover and labor cost inflation.
	The homebuilding industry has from time-to-time experienced labor shortages and other labor-related issues. These labor shortages can be more severe during periods of strong demand for housing, during periods following natural disasters or as a result of broader economic disruptions such as the COVID-19 pandemic. A number of factors may adversely affect the labor force available to us and our subcontractors in one or more of our markets, including high employment levels, federal unemployment subsidies, changing work preferences of the labor force, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration. These factors can also increase the cost of labor. We have historically experienced high turnover rates among our direct labor employees, which can lead to increased spending on training and
retention and, as a result, increased costs of production. An overall labor shortage or lack of skilled labor, increased turnover or labor inflation could cause significant increases in costs or delays in construction and delivery of homes, which could have a material adverse effect on our net sales and results of operations.
Increased costs of transportation may adversely affect our operating results and cash flows.
We rely on qualified truck drivers to deliver homes from our manufacturing facilities to retail centers and customer home sites. A lack of qualified drivers to deliver manufactured homes could result in an increase in our cost of goods sold and operating expenses. Additionally, delays in the shipment of completed homes due to lack of qualified drivers could impact our ability to meet customer demand on a timely basis.
Customer cancellations could have a negative impact on our revenue and margins.
Our backlog represents home orders from customers that will be produced in future periods. Orders in the backlog may be cancelled by customers at any time without penalty. Our backlog has increased significantly in fiscal 2022 driven by higher demand for single-family housing, which has resulted in order levels that have outpaced production. While cancellations have historically been low, longer lead times caused by the higher backlog could result in an increase in customer cancellations which could have an adverse impact on future financial performance. Orders in backlog may also be impacted by inflation. Customers obtain financing approval prior to ordering a home. Significant increases in prices may prevent customers from being able to qualify for financing at the time the home is ready to be produced causing the customer to cancel their order in our backlog.
Complications with the implementation of our new enterprise-wide system could adversely impact our business and operations.
	We rely on information systems and technology to manage our business and summarize and report our operating results. In fiscal 2022, we began a multi-year replacement of our current information systems with a suite of cloud-based functionality. With the new system, we expect to improve decision-making capabilities through real-time data and analytics, simplify and standardize business processes, reduce manual effort, improve value-added activities, and improve transparency and accountability all while enhancing the customer experience making our company easier to do business with. The system selection and implementation process has required, and will continue to require, a significant investment of personnel and financial resources. We may not be able to successfully implement the new system without experiencing delays, increased costs and other difficulties. If we are unable to successfully implement the system as planned, our business, results of operations and financial condition could be negatively impacted. We have capitalized significant costs related to the development of the new system. A write-off of all or part of our capitalized costs could adversely affect our results of operations and financial condition. Additionally, if we do not effectively implement the system as planned or it does not operate as intended, the effectiveness of our internal controls over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.
If we are unable to establish or maintain relationships with independent distributors that sell our homes, our sales could decline and our results of operations and cash flows could suffer.
Although we maintain our own factory direct retail business in select markets, we conduct a majority of our business through independent distributors. Over 90% of our shipments of homes in fiscal 2022 were made to independent distributors throughout the U.S. and western Canada. We may not be able to establish relationships with new independent distributors or maintain good relationships with independent distributors that sell our homes. Even if we establish and maintain relationships with independent distributors, these customers are not obligated to sell our homes exclusively and may choose to sell competitors’ homes instead. The independent distributors with whom we have relationships can cancel these relationships on short notice. In addition, these customers may not remain financially solvent, as they are subject to industry, economic, demographic, and seasonal trends similar to those faced by us. If we do not establish and maintain relationships with solvent independent distributors in the markets we serve, sales in those markets, if we cannot offset by sales through an expanded factory-direct retail business, could decline and our results of operations and cash flows could suffer.
When we introduce new products into the marketplace, we may incur expenses that we did not anticipate, which, in turn, can result in reduced earnings.
The introduction of new models, floor plans, and features are critical to our future success, but we may incur unexpected expenses when we make such introductions. For example, we may experience unexpected engineering or design flaws that may cause increased warranty costs. The costs resulting from these types of problems could be substantial and could have a significant adverse effect on our earnings. Estimated warranty costs are accrued at the time of product sale to reflect our best estimate of the amounts necessary to settle existing and future claims on products. An increase in actual warranty claims costs as compared to our estimates could result in increased warranty reserves and expense, which could have adverse impacts on our earnings.
Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and can harm our reputation.
Our products contain thousands of parts, many of which are supplied by a network of approved vendors. Product defects may occur, including components purchased from material vendors. There is no assurance that all such defects will be detected prior to the distribution of our products. In addition, although we endeavor to compel suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor-supplied part were to occur that the vendor would have the financial ability to rectify the defect. Failure to detect defects in our products, including vendor-supplied parts, could result in lost revenue, increased warranty and related costs, and could harm our reputation.
We may not be able to manage our business effectively if we cannot retain current management team members or if we are unable to attract and motivate key personnel.
Our success depends upon the skills, experience, and active participation of our senior management and key employees, many of whom have been with us for a significant number of years. Changes in our senior management team or other key employees may result in operational disruptions and changes to the strategy of our business, and our business might be harmed as a result. Our business could be further disrupted and harmed if we were unable to find appropriate replacements on a timely basis following future departures.
We may not be able to attract or motivate qualified management and operations personnel in the future. Inability to do so would result in constraints that would significantly impede the achievement of our objectives. We may also have difficulty attracting experienced personnel and may be required to expend significant financial resources in our employee recruitment efforts.
Product liability claims and litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our results of operations.
As a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high. There can be no assurance that this coverage will not be restricted and become more costly. If the limits or coverages of our current and former insurance programs prove inadequate, or we are unable to obtain adequate or reasonably-priced insurance against these types of claims in the future, or the amounts currently provided for future warranty or insurance claims are inadequate, then we may experience losses that could negatively impact our results of operations.
We record expenses and liabilities based on the estimated costs required to cover our self-insured liability under our insurance policies, and estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. These estimated costs are based on an analysis of our historical claims and industry data, and include an estimate of claims incurred but not yet reported. Due to the degree of judgment required and the potential for variability in the underlying assumptions when deriving estimated liabilities, our actual future costs could differ from those estimated, and the difference could be material to our results of operations.
Data security breaches, cybersecurity attacks, and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect, use, and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of our customers and employees. We also have outsourced elements of our information technology structure and, as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and other third-party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Our ability to conduct our business may be negatively impacted if our or our service providers’ computer resources or connectivity are compromised, degraded, damaged, or if they fail.
Despite our security measures, our information technology and infrastructure may be vulnerable to cybersecurity attacks by hackers or breached due to employee error, malfeasance, or other disruptions, particularly with employees and others on data networks working increasingly from home because of the COVID-19 pandemic and other such factors. We, our partners, vendors, and other third-party providers could be susceptible to third-party attacks on our and their information security systems, which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
Engaging in mergers, acquisitions, and start-up operations involves risks that could adversely affect our business.
As part of our growth strategy, we may choose to engage in discussions and negotiations regarding mergers, acquisitions, start-ups, and other business combinations. The purchase price for possible acquisitions of businesses and assets might be paid from cash, borrowings, or through the issuance of common stock or other securities, or a combination of these methods. Business combinations and start-up operations entail numerous risks, including:
• difficulties in the integration of acquired operations and products, which can impact the retention of customer accounts;
• failure to achieve expected synergies, implement appropriate internal controls or integrate information systems;
• diversion of management's attention from other business concerns;
• assumption of unknown material liabilities of acquired companies, which could become material or subject us to litigation or regulatory risks;
• amortization of acquired intangible assets, which could reduce future reported earnings;
• potential loss of customers or key employees; and
• not adequately anticipating customer demands in new markets.
We cannot be certain that we will be able to identify, consummate and successfully integrate business combinations, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons. Also, business combinations are typically subject to closing conditions, including regulatory approvals and the absence of a material adverse change. Therefore, if and when we enter into a business combination agreement, there can be no guarantee that the transaction will close when expected, or at all. If a material transaction does not close, then our stock price could decline.
Nevertheless, opportunities arise from time to time that we choose to evaluate. Any transactions that we pursue and consummate would involve these risks and uncertainties, as well as others. The risks of a business combination or startup of a greenfield or idled facility could result in the failure of the anticipated benefits of that particular combination to be realized, which in turn could have adverse effects on our business, financial condition, results of operations and prospects.
Our risk management practices may leave us exposed to unidentified or unanticipated risk.
Our management team is responsible for managing risk, subject to oversight by our board of directors. Our risk management methods may not identify all future risk exposures and may not be completely effective in mitigating all key risks. Furthermore, our risk management methods may not properly identify and mitigate the aggregation of risks across the Company or the interdependency of our risk mitigation efforts. In addition, some of our risk management methods may be based on assumptions that will prove to be inaccurate. Failure to manage risk effectively could adversely affect our business, financial condition, and results of operations.
Financial Risks
Future increases in interest rates, more stringent credit standards, tightening of financing terms, or other increases in the effective costs of owning a factory-built home (including those related to regulation or other government actions) could limit the purchasing power of our potential customers and could adversely affect our business and financial results.
A large portion of the people who buy our homes finance their home purchases through third-party lenders. Increases in interest rates or decreases in the availability of consumer financing could adversely affect the market for homes. Interest rates have been near historical lows for several years, which has made purchasing new factory-built homes more affordable. However, in 2022, the U.S. Federal Open Market Committee raised the target rate for the fed funds rate for the first time in three years and indicated that it foresees additional future increases in that rate in order to combat rising inflation in the U.S. economy. Potential customers may be less willing or able to pay the increased monthly costs or to obtain financing. In addition, recent increases in the prices of homes may limit consumers’ ability to obtain financing. Lenders may increase the qualifications needed for financing or adjust their terms to address any increased credit risk. These factors could adversely affect the sales or pricing of our factory-built homes. These developments have historically had, and may once again have, an adverse effect on the overall demand for factory-built housing and its competitiveness with other forms of housing and could adversely affect our results of operations and financial condition.
The liquidity provided by the GSEs and the FHA is also critical in insuring or purchasing home mortgages and creating or insuring investment securities that are either sold to investors or held in their portfolios. Any limitations or restrictions on the availability of financing by these agencies could adversely affect interest rates, financing, and our sales of new homes.
Inflation could adversely affect our business and financial results.
Inflation can adversely affect us by increasing costs of raw materials, labor and transportation. Efforts made by the U.S. government to stimulate the economy and combat the impact of the COVID-19 pandemic has increased and may continue to increase the risk of significant, persistent inflation. Inflation can also lead to higher interest rates, which can have a negative impact on the housing industry, as well as increases in our borrowing rates. While we have historically been able to pass along price increases to our customers, in a persistent inflationary environment we may not be able to raise prices sufficiently in order to maintain our margins.
The availability of wholesale financing for retailers is limited due to a limited number of floor plan lenders and reduced lending limits.
Factory-built housing retailers generally finance their inventory purchases with wholesale floor plan financing provided by lending institutions. The availability of wholesale financing is significantly affected by the number of floor plan lenders and their lending limits. Limited availability of floor plan lending negatively affects the inventory levels of our independent retailers, the number of retail sales center locations and related wholesale demand, and adversely affects the availability of and access to capital on an ongoing basis. As a result, if the availability of wholesale financing is reduced, we could experience sales declines or a higher level of customer defaults and our operating results and cash flows could suffer.
We have contingent repurchase obligations related to wholesale financing provided to industry retailers.
As is customary in the factory-built housing industry, a significant portion of our manufacturing sales to independent retailers are financed under floor plan agreements with financing companies. In connection with those floor plan financing programs, we generally have separate agreements with the financing companies that require us to repurchase homes upon default by the retailer and repossession of the homes by the financing companies. These repurchase agreements are applicable for various periods of time, generally up to 24 months after the sale of the home to the retailer. However, certain homes are subject to repurchase until the home is sold by the retailer. Our contingent repurchase obligation as of April 2, 2022, was estimated to be approximately $339.5 million, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense and reduced cash flows because of these repurchase agreements.
Industry conditions and future operating results could limit our sources of capital. If we are unable to locate suitable sources of capital when needed, we may be unable to maintain or expand our business.
We depend on our cash balances, cash flows from operations, and our revolving credit facility (the “Credit Facility”) to finance our operating requirements, capital expenditures, and other needs. If our cash balances, cash flows from operations, and availability under the Credit Facility are insufficient to finance our operations and alternative capital is not available, then we may not be able to expand our business and make acquisitions, or we may need to curtail or limit our existing operations.
Changes in foreign exchange rates could adversely affect the value of our investments in Canada and cause foreign exchange losses.
We have substantial investments in businesses in Canada. Unfavorable changes in foreign exchange rates could adversely affect the value of our investments in these businesses.
An impairment of all or part of our goodwill could adversely affect our operating results and net worth.
As of April 2, 2022, 15.5% of our total assets consisted of goodwill, all of which is allocated to reporting units included in the U.S. Factory-built Housing segment. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, Intangibles-Goodwill and Other ("ASC 350"), we test goodwill at least annually for impairment or more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. If goodwill has become impaired, we charge the impairment as an expense in the period in which the impairment occurs. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and estimates" and Note 1 to the Consolidated Financial Statements. A write-off of all or part of our goodwill could adversely affect our results of operations and financial condition.
Our failure to maintain effective internal control over financial reporting could harm our business and financial results.
Our management is responsible for maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud.
We anticipate paying no cash dividends for the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. As a result, capital appreciation in the price of our common stock, if any, will be investors’ only source of gain on an investment in our common stock. Any future determination to pay dividends to shareholders will be at the sole discretion of our board of directors and will depend upon many factors, including general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory
restrictions, the implications of the payment of dividends by us to our shareholders or by our subsidiaries to us, and any other factors that the board of directors may deem relevant.
COVID-19 Pandemic Risks
The COVID-19 pandemic has and may continue to materially and adversely impact our business.
The global outbreak of COVID-19 was declared a global pandemic by the World Health Organization in March 2020. This outbreak caused a material adverse effect on the level of economic activity around the world, including in all of the markets that we serve, and prompted federal and local governments to institute preventative measures, including quarantines and shelter-in-place orders, to mitigate the public health effects. These measures caused, and may continue to cause, significant business and financial market disruption in affected areas, and had a detrimental impact to our business in the first half of fiscal 2021. In response to the outbreak, we implemented numerous measures attempting to manage and mitigate the effects of the virus on our financial condition, results of operations, cash flows, and business.
In fiscal 2022, the global economy began reopening and distribution of vaccines has encouraged greater economic activity. This, combined with high demand for new homes, resulted in our sales increasing in fiscal 2022. However, vaccination rates, hesitancy, and emergence of variants could trigger reinstatement of restrictions and shutdowns and impact our business and dampen economic activity.
The COVID-19 pandemic continues to pose many risks including the following, among others:
•Our employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, and other actions and restrictions that may be requested or mandated by governmental authorities.
•Social distancing protocols and higher than normal employee absenteeism can lead to a decrease in capacity output of our manufacturing facilities.
•We have experienced, and may continue to experience, disruptions and delays in our supply chain as a result of the effects of the COVID-19 pandemic. This has resulted in and is likely to continue to result in higher supply chain costs to us, in order to maintain the supply of component parts needed to produce our products.
•Our management of the impacts of the COVID-19 pandemic has required, and will continue to require, significant investment of time by our management and employees. The focus on managing and mitigating the impacts of the COVID-19 pandemic on our business may cause us to divert or delay the application of our resources toward other initiatives or investments, which in turn may have a material adverse impact on our results of operations.
The extent to which the COVID-19 pandemic continues to impact us will depend on future developments that cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19, the availability and efficacy of vaccines and the impact of the COVID-19 pandemic on economic activity. The COVID-19 pandemic also may have the effect of significantly heightening other risks associated with our business and our financial condition, including several of the risks disclosed below.
Any future epidemic, pandemic, or similar serious public health issue, and the measures taken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period. The impact of such public health issues and the related governmental actions could have a material adverse impact on our financial condition, results of operations, cash flows, and business.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to our operating facilities as of April 2, 2022:
Location
Owned/Leased
United States
Chandler, Arizona
Leased *
Corona, California
Leased
Lindsay, California
Owned
San Jacinto, California
Owned
Woodland, California
Owned
Lake City, Florida (two facilities)
Leased *
Ocala, Florida
Owned
Millen, Georgia
Leased**
Waycross, Georgia
Owned
Weiser, Idaho
Owned
Topeka, Indiana (three facilities)
Owned
Arkansas City, Kansas
Owned
Benton, Kentucky
Leased
Leesville, Louisiana
Leased
Worthington, Minnesota
Owned
York, Nebraska
Owned
Sangerfield, New York
Owned
Lillington, North Carolina
Owned
Sugar Creek, Ohio
Owned
McMinnville, Oregon
Owned
Claysburg, Pennsylvania
Owned
Ephrata, Pennsylvania
Owned
Leola, Pennsylvania (two facilities)
Owned
Liverpool, Pennsylvania
Owned
Strattanville, Pennsylvania
Owned
Dresden, Tennessee
Leased
Athens, Texas
Owned
Burleson, Texas (two facilities)
Owned
Mansfield, Texas
Owned
Navasota, Texas
Owned
Lancaster, Wisconsin
Owned
Canada
Lethbridge, Alberta
Leased *
Medicine Hat, Alberta
Owned
Penticton, British Columbia
Owned
Kelowna, British Columbia
Leased
Estevan, Saskatchewan
Owned
* -- land only leased; facility owned
** -- the land and operating facility in Millen, Georgia are maintained under a lease, however, we retain an option to purchase throughout the lease period
﻿
Our corporate headquarters is in Troy, Michigan and we have an administrative office in Elkhart, Indiana. We also have 18 retail sales centers located across six states in the U.S. and nine terminals for our logistics operations across four states in the U.S. The corporate offices, retail sales centers, and logistics terminals are leased properties. The contractual lease for our Troy, Michigan office expires in December 2022 and the contractual lease for our Elkhart, Indiana office expires in September 2023. Two of the manufacturing facilities are encumbered by industrial revenue bonds. In the opinion of management, our properties have been well maintained, are in sound operating condition, and contain all equipment and facilities necessary to operate at present levels.
We also own or lease eight idle manufacturing facilities which could be utilized for additional production capacity. Those facilities would likely require capital investments in order to secure and equip them for operations.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
We are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Certain of the claims pending against us in these proceedings allege, among other things, breach of express and implied warranties, and in various governmental agency proceedings arising from occupational safety and health, wage and hour, and similar employment and workplace regulations. Although litigation is inherently uncertain, based on past experience and the information currently available, management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, future events or circumstances, currently unknown to us, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity, or results of operations in any future reporting periods.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol SKY.
Holders
As of May 13, 2022, the Company had approximately 390 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.
Dividend Policy
The Company does not currently pay dividends on our common stock and intends to retain all available funds and any future earnings for general corporate purposes. However, in the future, subject to the factors described below and our future liquidity and capitalization, the Company may change this policy and choose to pay dividends. Any future determination to pay dividends to shareholders will be at the sole discretion of the Company’s board of directors and will depend upon many factors, including general economic conditions, our financial position and results of operations, available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by the Company to its shareholders or by the Company’s subsidiaries and any other factors that the board of directors may deem relevant.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the period covered by this Annual Report.
Issuer Purchases of Securities
There were no stock repurchases that were part of a publicly announced plan during the period covered by this Annual Report.
Securities Authorized for Issuance Under Equity Compensation Plans
Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report contains certain information relating to the Company’s equity compensation plans.
Stock Performance
The following graph shows the cumulative total stockholder return on our common stock over the period spanning March 31, 2017 to March 31, 2022, as compared with that of the Russell 3000 Index and a selected peer group of comparable, publicly traded companies in the housing segment, based on an initial investment of $100 on March 31, 2017.
Total stockholder return is measured by dividing share price change plus dividends, if any, for each period by the share price at the beginning of the respective period and assumes reinvestment of dividends. This stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.
3/31/2017
3/31/2018
3/31/2019
3/31/2020
3/31/2021
3/31/2022
Skyline Champion Corporation
$
100.00
$
233.55
$
209.59
$
172.96
$
499.26
$
605.37
Russell 3000
100.00
113.81
123.79
112.49
182.84
204.64
Peer Group*
100.00
129.01
111.92
87.69
236.06
190.77
*The peer group consisted of Beazer Homes USA, Cavco Industries, Century Communities, LGI Homes, MDC Holdings, M/I Homes, Meritage Homes, Quanex Building Products Corp, and Tri Pointe Group.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Skyline Champion Corporation’s consolidated financial statements and the related notes that appear elsewhere in this Annual Report.
Certain statements set forth below under this caption constitute forward-looking statements. See Part I, “Cautionary Statement About Forward-Looking Statements,” of this Annual Report on Form 10-K for additional factors relating to such statements, and see Item 1A, “Risk Factors,” of this Annual Report for a discussion of certain risks applicable to our business, financial condition, results of operations and cash flows. See also Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year ended April 3, 2021, which provides additional information on comparisons of fiscal years 2021 and 2020.
Overview
The Company is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, construction services, and transportation logistics. The Company is the largest independent publicly traded factory-built solutions provider in North America based on revenue, and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S. and Moduline and SRI Homes in western Canada. The Company operates 36 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured homes to consumers primarily in the southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada.
Acquisitions and Expansions
Over last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve. As a result, the Company has focused on operational improvements to increase the capacity utilization and profitability at its existing manufacturing facilities as well as executing measured expansion of its manufacturing footprint. The Company is focused on growing in strong housing markets across the U.S. and Canada.
In June, 2021, the Company acquired two idle facilities in Navasota, Texas in order to increase its production capabilities in the Texas market. The Company began production and completed the certification process at one of those facilities during the fourth quarter of fiscal 2022.
On February 28, 2021, the Company acquired ScotBilt, which operates two manufacturing facilities in Georgia providing affordable housing throughout Alabama, Florida, Georgia and the Carolinas. ScotBilt helped to balance the Company’s national distribution and complements the Company’s existing manufacturing footprint in the attractive mid-south region. The operations of ScotBilt are included in the financial results of Skyline Champion since the date of the acquisition. During fiscal 2022, the Company completed the successful cultural, processes, systems and internal controls integration at the acquired facilities.
In January, 2021, the Company acquired two idle facilities in Pembroke, North Carolina which provide an opportunity to further expand its manufacturing footprint in the Southeast markets. The Company is currently renovating one of those facilities for expected production in late fiscal 2023.
The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations. These acquisitions and investments are included in the consolidated results for periods subsequent to their respective acquisition dates.
Industry and Company Outlook
Since July 2020, U.S. and Canadian housing industry demand has been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time home buyers, and the population of households earning less than $60,000 per year. More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options.
The robust demand environment has resulted in backlog at the end of fiscal 2022 of $1.6 billion compared to $858.6 million at the end of fiscal 2021. Generally, higher backlog at our manufacturing facilities creates an opportunity to increase production efficiencies. Although the higher demand brings opportunities, it also has resulted in significant increases in raw material and labor costs. In addition, we are experiencing intermittent supply disruption and higher freight costs. Finding and retaining qualified labor continues to be a challenge for our plants which requires us to review our compensation programs and adjust accordingly. We manage our business to anticipate or quickly react to these supply challenges and cost increases and generally are able to pass along increased costs to our customers. Historically, order cancellation rates have been very low, but the longer lead-time caused by larger backlogs and changing prices could result in higher cancellations in future periods.
For fiscal 2022, approximately 82% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the Federal HUD code construction standard in the U.S. Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by MHI, HUD-code industry home shipments were 108,964, 95,588, and 97,553 units during fiscal 2022, 2021, and 2020, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 19.3%, 16.9%, and 16.5% in fiscal 2022, 2021, and 2020, respectively. Annual industry shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, current manufactured housing shipments are still at lower levels than the long-term historical average of over 200,000 units per year. Manufactured home sales represent approximately nine percent of all U.S. single family home starts.
COVID-19 Pandemic
The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.
The Company has prioritized the safety and well-being of its employees and customers and implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand. By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members, and social distancing protocols. During fiscal 2021, the Company experienced intermittent closures due to COVID-19 outbreaks at the facilities or surrounding communities causing higher than normal absenteeism. In the second half of fiscal 2021, the Company was able to increase daily production rates over the levels achieved in the prior fiscal year period as direct labor staffing levels increased and production efficiencies improved. Although the Company has generally been able to navigate the production challenges caused by the pandemic in fiscal 2022, availability of labor and certain raw materials remains uncertain due to continued labor shortages and supply chain disruptions. Prices for most raw materials and components have experienced increased volatility and, overall, labor, transportation and other manufacturing costs have trended higher than prior periods.
As part of the initial response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and waived premium payments on healthcare benefits for furloughed employees. The Company’s U.S. operations incurred $2.2 million of expense during fiscal 2021 related to those extended benefits. Various government programs provided financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and state level programs in the United States and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. CEWS provided a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $6.2 million for payroll subsidies under CEWS and $0.7 million for payroll subsidies under the CARES Act during fiscal 2021. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through December 2020, the Company deferred $11.8 million of payroll taxes, of which, the Company repaid $5.9 million in the third quarter of fiscal 2022, with the remaining amount expected to be paid in December 2022.
RESULTS OF OPERATIONS FOR FISCAL 2022 VS. 2021
Year Ended
(Dollars in thousands)
April 2,
April 3,
Results of Operations Data:
Net sales
$
2,207,229
$
1,420,881
Cost of sales
1,618,106
1,133,186
Gross profit
589,123
287,695
Selling, general, and administrative expenses
256,218
178,936
Operating income
332,905
108,759
Interest expense, net
2,512
3,248
Other income, net
(36
)
(5,889
)
Income from operations before income taxes
330,429
111,400
Income tax expense
82,385
26,501
Net income
$
248,044
$
84,899
Reconciliation of Adjusted EBITDA:
Net income
$
248,044
$
84,899
Income tax expense
82,385
26,501
Interest expense, net
2,512
3,248
Depreciation and amortization
20,936
17,704
Equity-based compensation (for awards granted prior to December 31, 2018)
-
1,359
Transaction costs
-
1,044
Adjusted EBITDA
$
353,877
$
134,755
As a percent of net sales:
Gross profit
26.7
%
20.2
%
Selling, general and administrative expenses
11.6
%
12.6
%
Operating income
15.1
%
7.7
%
Net income
11.2
%
6.0
%
Adjusted EBITDA
16.0
%
9.5
%
FISCAL PERIODS
The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest March 31. Fiscal 2022 was a 52-week period and fiscal 2021 was a 53-week period. The results of operations and discussion below should be read considering the impact of an additional week of operation in the prior year.
NET SALES
The following table summarizes net sales for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Net sales
$
2,207,229
$
1,420,881
$
786,348
55.3
%
U.S. manufacturing and retail net sales
$
1,991,066
$
1,266,308
$
724,758
57.2
%
U.S. homes sold
24,686
19,983
4,703
23.5
%
U.S. manufacturing and retail average home selling price
$
80.7
$
63.4
$
17.3
27.3
%
Canadian manufacturing net sales
$
159,124
$
101,328
$
57,796
57.0
%
Canadian homes sold
1,479
1,231
20.1
%
Canadian manufacturing average home selling price
$
107.6
$
82.3
$
25.3
30.7
%
Corporate/Other net sales
$
57,039
$
53,245
$
3,794
7.1
%
U.S. manufacturing facilities in operation at year end
%
U.S. retail sales centers in operation at year end
-
-
%
Canadian manufacturing facilities in operation at year end
-
-
%
Net sales for fiscal 2022 were $2.2 billion an increase of $786.3 million, or 55.3%, over fiscal 2021. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Fiscal 2022 net sales for the Company’s U.S. manufacturing and retail operations increased by $724.8 million, or 57.2%, over fiscal 2021. The increase was primarily due to an increase in the number of homes sold during the period of 23.5% and an increase in the average home selling price of 27.3%. Homes sold were higher due to increased demand for our products and the impact of the acquisition of ScotBilt, partially offset by one less week of production in fiscal 2022 compared to fiscal 2021. Demand for our products increased significantly during fiscal 2022 and we have been able to increase production in response to that demand organically and through our acquisition of ScotBilt. The average selling price increased in fiscal 2022 compared to the prior fiscal year due to pricing actions enacted in response to rising material, freight, and labor costs as well as a shift in product mix to larger homes with more features and amenities. Generally, we are able to pass the increase in input costs to our customers.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales increased by $57.8 million, or 57.0% for fiscal 2022 compared to the prior year, primarily due to a 20.1% increase in homes sold and a 30.7% increase in average selling price per new home. The increase in homes sold was driven by increased production in response to strong demand. The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. Net sales for the Canadian segment were also favorably impacted by approximately $8.2 million as the Canadian dollar strengthened relative to the U.S. dollar during fiscal 2022 as compared to the prior year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. During fiscal 2022, net sales for the segment increased by $3.8 million, or 7.1%, compared to fiscal 2021. The increase was primarily attributable to an increase in shipments of manufactured homes and recreational vehicles.
GROSS PROFIT
The following table summarizes gross profit for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Gross profit:
U.S. Factory-built Housing
$
530,252
$
252,880
$
277,372
109.7
%
Canadian Factory-built Housing
43,493
21,552
21,941
101.8
%
Corporate/Other
15,378
13,263
2,115
15.9
%
Total gross profit
$
589,123
$
287,695
$
301,428
104.8
%
Gross profit as a percent of net sales
26.7
%
20.2
%
Gross profit as a percent of sales during fiscal 2022 was 26.7% compared to 20.2% during fiscal 2021. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Gross profit for the U.S. Factory-built Housing segment increased by $277.4 million, or 109.7%, during fiscal 2022 compared to the prior year. The increase in gross profit is due to the increase in revenue in fiscal 2022. As a percent of net sales, gross profit was 26.6% for fiscal 2022 compared to 20.0% in the prior fiscal year. The year-over-year increase in gross margin was primarily due to a combination of improved operational and labor efficiencies and price increases we implemented in response to rising input costs. We have focused on product simplification and material SKU rationalization to improve operational efficiencies to better leverage increased production and manufacturing fixed costs.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment increased by $21.9 million, or 101.8%, during fiscal 2022 compared to the prior year due to the increase in sales volume. Gross margin increased to 27.3% as a percent of segment net sales from 21.3% due to price increases in response to rising material and labor costs, as well as direct labor and manufacturing efficiencies from the increase in home sales volumes.
Corporate/Other:
Gross profit for the Corporate/Other segment increased by $2.1 million, or 15.9%, during fiscal 2022 compared to the same period in the prior year. Corporate/Other gross profit improved as a percent of segment net sales to 27.0% from 24.9%. Gross margin for the Company’s transportation business improved due to a change in revenue mix.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SG&A”) expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes SG&A expenses for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Selling, general, and administrative expenses:
U.S. Factory-built Housing
$
187,697
$
126,141
$
61,556
48.8
%
Canadian Factory-built Housing
12,912
9,059
3,853
42.5
%
Corporate/Other
55,609
43,736
11,873
27.1
%
Total selling, general, and administrative expenses
$
256,218
$
178,936
$
77,282
43.2
%
Selling, general, and administrative expenses as a percent of net sales
11.6
%
12.6
%
SG&A expenses were $256.2 million during fiscal 2022, an increase of $77.3 million compared to the prior year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
SG&A expenses for the U.S. Factory-built Housing segment increased by $61.6 million, or 48.8%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 9.4% in fiscal 2022 compared to 10.0% during fiscal 2021. SG&A costs increased due to a combination of factors, primarily (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from increased headcount as we staffed to respond to the growth in housing demand; and (iii) the impact of the acquisition of the ScotBilt operations.
Canadian Factory-built Housing:
SG&A expenses for the Canadian Factory-built Housing segment increased by $3.9 million, or 42.5%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 8.1% during fiscal 2022 compared to 8.9% in fiscal 2021. The increase in cost is generally a function of the increase in net sales and profits for the segment which translates to higher incentive compensation.
Corporate/Other:
SG&A expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. SG&A expenses for Corporate/Other increased by $11.9 million, or 27.1%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 97.5% during fiscal 2022 compared to 82.1% in fiscal 2021. The increase is mainly due to $5.4 million of costs related to investments made to enhance our online customer experience and supporting systems, as well as an increase in equity compensation.
INTEREST EXPENSE
The following table summarizes the components of interest expense, net for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Interest expense
$
3,245
$
3,813
$
(568
)
(14.9
%)
Interest income
(733
)
(565
)
(168
)
29.7
%
Interest expense, net
$
2,512
$
3,248
$
(736
)
(22.7
%)
Average outstanding floor plan payable
$
31,485
$
26,992
Average outstanding long-term debt
$
19,155
$
64,663
Interest expense, net was $2.5 million for fiscal 2022, a decrease of $0.7 million compared to the prior year. The decrease was primarily related to lower average outstanding borrowings on long-term debt, offset in part by higher average borrowings on floor plan payables. The Company repaid the outstanding balance on its revolving credit facility during the second quarter of fiscal 2022.
OTHER INCOME, NET
The following table summarizes other income, net for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Other income, net
$
(36
)
$
(5,889
)
$
5,853
(99.4
%)
Other income, net decreased $5.9 million, or 99.4%, during fiscal 2022 as compared to the prior year. The decrease is due to a reduction in the wage subsidies provided by government sponsored financial assistance programs that were enacted in response to the COVID-19 pandemic. In fiscal 2021, the Company recognized $6.2 million for payroll subsidies under CEWS, and $0.7 million under the CARES Act, which were partially offset by transaction costs of $1.0 million related to the acquisition of ScotBilt.
INCOME TAX EXPENSE
The following table summarizes income tax expense for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Income tax expense
$
82,385
$
26,501
$
55,884
210.9
%
Effective tax rate
24.9
%
23.8
%
Income tax expense during fiscal 2022 was $82.4 million, representing an effective tax rate of 24.9%, compared to income tax expense of $26.5 million, representing an effective tax rate of 23.8%, in fiscal 2021.
The Company’s effective tax rate for fiscal 2022 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, and results in foreign jurisdictions. The Company’s effective tax rate for fiscal 2021 differed from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, and results in foreign jurisdictions.
ADJUSTED EBITDA
The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2022 and 2021:
Year Ended
(Dollars in thousands)
April 2,
April 3,
$
Change
%
Change
Net income
$
248,044
$
84,899
$
163,145
192.2
%
Income tax expense
82,385
26,501
55,884
210.9
%
Interest expense, net
2,512
3,248
(736
)
(22.7
%)
Depreciation and amortization
20,936
17,704
3,232
18.3
%
Equity-based compensation (for awards granted prior to December 31, 2018)
-
1,359
(1,359
)
(100.0
%)
Transaction costs
-
1,044
(1,044
)
(100.0
%)
Adjusted EBITDA
$
353,877
$
134,755
$
219,122
162.6
%
Adjusted EBITDA for fiscal 2022 was $353.9 million, an increase of $219.1 million over fiscal 2021. The increase is primarily a result of increased operating income due to increases in net sales and gross margins, partially offset by higher SG&A expenses and the reduction in wage subsidies received in the prior year. See the definition of Adjusted EBITDA under “Non-GAAP Financial Measures” below for additional information regarding the definition and use of this metric in evaluating the Company’s results.
BACKLOG
Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at April 2, 2022 totaled $1.6 billion compared to $858.6 million at April 3, 2021. The increase in backlog is driven by increased demand for single-family homes which has resulted in order levels that have significantly outpaced production in both the U.S. and Canada. Our ability to increase production rates to keep pace with orders is limited by individual plant capacity, the availability of and time needed to train new employees, employee attendance and availability of materials, including certain allocations of raw materials by our suppliers. We may experience greater order cancellations in the future as a result of higher prices and the longer time required to manufacture and deliver our products.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents summary cash flow information for fiscal 2022, 2021, and 2020:
Year Ended
(Dollars in thousands)
April 2,
April 3,
March 28,
Net cash provided by (used in):
Operating activities
$
224,479
$
153,897
$
76,743
Investing activities
(31,967
)
(56,808
)
(14,093
)
Financing activities
(19,936
)
(47,813
)
21,569
Effect of exchange rate changes
3,850
(1,398
)
Net increase in cash, cash equivalents, and restricted cash
172,832
53,126
82,821
Cash, cash equivalents, and restricted cash at beginning of period
262,581
209,455
126,634
Cash, cash equivalents, and restricted cash at end of period
$
435,413
$
262,581
$
209,455
The Company’s primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements, capital expenditures, and strategic initiatives and investments. The Company does not have any scheduled long-term debt maturities in the next twelve months. On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement which provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility ("Amended Credit Agreement"). At April 2, 2022, $169.6 million was available for borrowing under the Amended Credit Agreement. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year and beyond. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise its operating strategies.
Cash provided by operating activities was $224.5 million in fiscal 2022 compared to $153.9 million in fiscal 2021. Cash provided by operating activities increased due to higher net income in the current year, partially offset by an increase in inventory from higher material costs and higher stocking levels to mitigate supply chain challenges, and an increase in other assets primarily from the capitalization of $20.5 million of cloud computing costs. Cash provided by operating activities was $153.9 million in fiscal 2021 compared to $76.7 million in fiscal 2020. Cash was generated by operating income (before non-cash charges) from higher sales and operating margins compared to the prior year. Operating cash was also favorably impacted by changes in other working capital items, primarily an increase in customer deposits of $36.4 million. We generally collect a deposit at the time an order is placed by a customer. The significant increase in backlog drove the increase in deposits. The favorable changes in working capital items were partially offset by an increase in inventory compared to the prior period.
Cash used in investing activities was $32.0 million in fiscal 2022 versus $56.8 million in fiscal 2021. The decrease is primarily related to the cash paid for the acquisition of ScotBilt, net of cash acquired, of $52.5 million, in fiscal 2021, partially offset by an increase in capital expenditures compared to the prior year. The Company acquired two idle manufacturing facilities in Texas in fiscal 2022 and made investments in plant improvements to facilitate increased production and operational efficiencies. Cash used in investing activities was $56.8 million in fiscal 2021 versus $14.1 million in fiscal 2020. The increase is primarily related to the cash paid for the acquisition of ScotBilt, net of cash acquired, of $52.5 million, partially offset by a decrease in capital expenditures compared to the prior year.
In fiscal 2022, cash used in financing activities was $19.9 million, versus $47.8 million in the prior fiscal year. The decrease in cash used for financing activities was primarily related to lower repayments during fiscal 2022 of the Company's previously existing revolving credit facility and an increase in floor plan financing. In fiscal 2021, cash used in financing activities was $47.8 million, versus the prior year which had net cash provided by financing activities of $21.6 million. Cash used in financing activities in fiscal 2021 is primarily a result of payments made on the revolving credit facility and floor plan financing facilities totaling $38.0 million and $8.2 million, respectively.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Credit Facility
The Amended Credit Agreement matures in July 2026 and has no scheduled amortization. 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") 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 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 0.30% (depending on the consolidated total net leverage ratio) in respect of unused commitments under the Amended Credit Agreement.
Letter of Credit Facility
The Company has a letter of credit sub-facility under the Amended Credit Agreement. At April 2, 2022, letters of credit issued under the sub-facility totaled $30.4 million.
Industrial Revenue Bonds
Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
Floor Plan Payable
At April 2, 2022, the Company had outstanding borrowings on floor plan financing arrangements of $35.5 million. The Company’s retail operations utilize floor plan financing to fund the acquisition of manufactured homes for display or resale. The arrangements provide for borrowings up to $67.0 million. Borrowings are secured by the homes acquired and are required to be repaid when the Company sells the financed home to a customer.
Contingent Obligations
The Company has contingent liabilities and obligations at April 2, 2022, including surety bonds and letters of credit totaling $35.6 million and $30.4 million, respectively. Additionally, the Company is contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to independent retailers. The contingent repurchase obligation as of April 2, 2022 is approximately $339.5 million, without reduction for the resale value of the homes. The Company has the ability to resell the repurchased collateral to other retailers, and losses incurred on repurchased homes have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $2.3 million at April 2, 2022. See “Critical Accounting Polices and Estimates - Reserve for Repurchase Commitments” below.
The Company has provided various representations, warranties, and other standard indemnifications in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.
In the normal course of business, the Company’s subsidiaries historically provided certain parent company guarantees to two U.K. customers. These guarantees provided contractual liability for proven construction defects up to 12 years from the date of delivery of the units. The guarantees remain a contingent liability subsequent to the fiscal 2017 disposition of the U.K. operations, which declines over time through October 2027. As of the date of this report, no claims have been reported under the terms of the guarantees.
Management believes the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
NON-GAAP FINANCIAL MEASURES - ADJUSTED EBITDA
The Company defines Adjusted Earnings Before Interest Taxes and Depreciation and Amortization (“Adjusted EBITDA”) as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) equity based compensation for awards granted prior to December 31, 2018; (f) non-cash
restructuring charges and impairment of assets; and (g) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP and should not be considered an alternative to, or more meaningful than, net income or loss prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
Adjusted EBITDA is presented as a supplemental measure of the Company’s financial performance that management believes is useful to investors, because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company’s operating activities across reporting periods. Management believes Adjusted EBITDA is useful to an investor in evaluating operating performance for the following reasons: (i) Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest income and expense, taxes, depreciation and amortization and equity-based compensation, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired; and (ii) analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry.
Management uses Adjusted EBITDA for planning purposes, including the preparation of internal annual operating budget and periodic forecasts: (i) in communications with the board of directors and investors concerning financial performance; (ii) as a factor in determining bonuses under management’s annual incentive compensation program; and (iii) as a measure of operating performance used to determine the ability to provide cash flows to support investments in capital assets, acquisitions and working capital requirements for operating expansion.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are more fully described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements included in this Report. Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assumptions and estimates of future earnings and cash flow are used in the periodic analyses of the recoverability of goodwill, intangible assets, deferred tax assets and property, plant, and equipment. Historical experience and trends are used to estimate reserves, including reserves for self-insured risks, warranty costs, and wholesale repurchase losses. The Company considers an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations. The Company believes that the following discussion addresses the Company’s critical accounting estimates.
Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.
Reserves for Self-Insured Risks
The Company is self-insured for a significant portion of its general insurance, product liability, workers’ compensation, auto, health, and property insurance. Insurance coverage is maintained for catastrophic exposures and those risks required to be insured by law. The Company is liable for the first $150,000 of incurred losses for each workers’ compensation and auto liability claim and is responsible for losses up to the first $500,000 per occurrence for general, product liability, and property insurance. Generally catastrophic losses are insured up to $80 million. The Company establishes reserves for reported and unreported losses, and insurance company reimbursements, under these programs using an actuarial determined value which takes into consideration prior claim experience, estimates of losses for known occurrences and the respective volume of business activity for a given period. The health plan is currently subject to a stop-loss limit of $600,000 per occurrence. Estimated self-insurance costs are accrued for all expected future expenditures for reported and unreported claims based on historical experience.
Warranty Reserves
The Company’s factory-built housing operations generally provide each retail homebuyer or builder/developer with a 12-month assurance warranty from the date of retail purchase. Estimated warranty costs are accrued as cost of sales at the time of sale. Warranty provisions and reserves are based on various factors, including estimates of the amounts necessary to settle existing and future claims
on homes sold as of the balance sheet date. Factors used in the estimation of the warranty liability include the estimated amount of warranty and customer service costs incurred for homes that remain in retailers’ inventories before delivery to the consumer, homes purchased by consumers still within the warranty period, the timing in which work orders were completed, and the historical average costs incurred to service a home.
Impairment of Long-Lived Assets
It is the Company’s policy to evaluate the recoverability of property, plant, and equipment whenever events and changes in circumstances indicate that the carrying amount of assets may not be recoverable, primarily based on estimated selling price, appraised value, or projected undiscounted future cash flows.
Impairment of Goodwill
Goodwill is not amortized but is tested for impairment at least annually. Impairment testing is required more often if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. As the analysis depends upon judgments, estimates and assumptions, such testing is subject to inherent uncertainties, which could cause the fair value to fluctuate from period to period.
In fiscal 2022, the Company performed qualitative assessments of its reporting units. The annual assessment was completed on of the first day of fiscal March. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
Income Taxes and Deferred Tax Assets
Deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided when the Company determines that it is more likely than not that some or all of the deferred tax assets will not be realized.
Reserve for Repurchase Commitments
As is customary in the factory-built housing industry, a significant portion of the home sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Certain homes sold pursuant to repurchase agreements are subject to repurchase, generally up to 24 months after the sale of the home to the retailer. Certain other homes sold pursuant to repurchase agreements are subject to repurchase until the home is sold by the retailer. For those homes with an unlimited repurchase period, the Company’s risk of loss upon repurchase declines due to required monthly principal payments by the retailer. After 18 to 36 months from the date of the Company’s sale of the home, the risk of loss on these homes is low, and by the 46th month, most programs require that the home be paid in full, at which time the Company no longer has risk of loss. Pursuant to these agreements, during the repurchase period, generally upon default by the retailer and repossession by the financial institution, the Company is obligated to repurchase the homes from the floor plan lenders. The contingent repurchase obligation as of April 2, 2022 is estimated to be approximately $339.5 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Losses incurred on homes repurchased have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $2.3 million at April 2, 2022.
OTHER MATTERS
Inflation
Inflation of raw materials, especially commodities such as forest products, was significant during fiscal 2022. The raw material price increases have generally been passed on to customers or mitigated through working with supply chain partners, sourcing alternative materials or other operational improvements to minimize the effect on profitability. However, continued, frequent and sudden increases in specific costs, as well as price competition, can affect the ability to pass on costs and adversely impact results of operations. Therefore, there is no assurance that inflation or the impact of rising material costs will not have a significant impact on revenue or results of operations in the future.
Seasonality
The housing industry, which includes factory-built homes, is affected by seasonality. Sales during the period from March to November are traditionally higher than other months. As a result, quarterly results of a particular period are not necessarily representative of the results expected for the year.
Recently Issued Accounting Standards
Refer to Note 1, “Summary of Significant Accounting Policies,” in our accompanying Consolidated Financial Statements for information regarding new accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Debt obligations under the Amended Credit Agreement are subject to variable rates of interest based on LIBOR and ABR, at the election of the Company. A 100 basis point increase in the underlying interest rate would result in an additional annual interest expense of approximately $0.2 million, assuming related debt of $19.2 million, which is the amount of average outstanding borrowings under the Amended Credit Agreement during the year ended April 2, 2022.
Obligations under industrial revenue bonds are subject to variable rates of interest based on a municipal bond index rate. A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.1 million, assuming related debt of $12.4 million, which is the amount of outstanding borrowings on industrial revenue bonds at April 2, 2022.
Obligations under floor plan financing arrangements are subject to variable rates of interest based on terms negotiated with the floor plan lenders. A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.4 million, assuming related floor plan borrowings of $35.5 million, which is the amount of outstanding borrowings on floor plan financing at April 2, 2022.
The Company’s approach to interest rate risk is to balance borrowings between fixed rate and variable rate debt as management deems appropriate. At April 2, 2022, the Company’s borrowings under the Amended Credit Agreement, industrial revenue bonds and floor plan financing arrangements were all at variable rates.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk with its factory-built housing operations in Canada. The Canadian operations had fiscal 2022 net sales of $199.5 million Canadian dollars. Assuming future annual Canadian net sales equivalent to fiscal 2022, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $2.0 million. The Company also has foreign exchange risk for cash balances maintained in Canadian dollars that are subject to fluctuating values when exchanged into U.S. dollars. The Company does not financially hedge its investment in the Canadian operations or in Canadian denominated bank deposits.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under Item 15.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of April 2, 2022. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of April 2, 2022.
(b)Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
(1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. GAAP, and that the Company's receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, the Company's controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("2013 Framework"). Based on management's evaluation under the criteria in the 2013 Framework, management concluded that the Company's internal control over financial reporting was effective as of April 2, 2022.
(c)Attestation Report of the Independent Registered Public Accounting Firm
Ernst & Young LLP, the Company’s independent registered public accounting firm, audited the Company’s consolidated financial statements set forth in this Annual Report and issued an attestation report regarding the effectiveness of our internal control over financial reporting as of April 2, 2022, and the attestation report is set forth in Item 15, "Consolidated Financial Statements and Supplementary Data," under the caption "Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting" and is incorporated herein by reference.
(d)Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended April 2, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item concerning the Company’s directors, director nominees and Section 16 beneficial ownership reporting compliance will be set forth in the definitive Proxy Statement for our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), which will be filed within 120 days after the end of the registrant’s fiscal year, under the captions "Election of Directors," "Share Ownership of Certain Beneficial Owners," "Executive Officers" and "Corporate Governance” and is incorporated herein by reference.
The Company has adopted a written code of business conduct and ethics (“Code of Conduct”) which applies to all of its directors, officers, and employees. Our Code of Conduct is available on our website, www.skylinechampion.com, and can be obtained by writing to Investor Relations at 755 West Big Beaver Rd., Suite 1000, Troy, Michigan 48084, or by sending an email to investorrelations@championhomes.com. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the 2022 Proxy Statement under the captions “Compensation Discussion and Analysis,” “How We Make Compensation Decisions,” “What We Pay and Why: Elements of Compensation,” “Compensation Tables,” “Summary Compensation Table for 2022,” “Grants of Plan-Based Awards in Fiscal 2022,” “Outstanding Equity Awards at Fiscal 2022 Year End,” “Option Exercises and Stock Vested in Fiscal 2022,” “Potential Payments Upon Termination or Change in Control,” “Director Compensation,” “Director Compensation Program,” “Non-Employee Director Compensation in Fiscal 2022,” “CEO Pay Ratio,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report,” and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the 2022 Proxy Statement under the caption "Share Ownership of Certain Beneficial Owners" and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about the Company’s equity compensation plans as of April 2, 2022:
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (1)
(A)
Weighted-Average
Exercise
Price of Outstanding
Options,
Warrants and Rights (2)
(B)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected
in Column (A))
(C)
Equity compensation plans approved by
Stockholders
893,830
$
28.50
4,234,590
Equity compensation plans not approved by
Stockholders
-
-
-
Total
893,830
$
28.50
4,234,590
(1)This amount represents the following: (a) 487,246 shares subject to the vesting and/or exercise of outstanding options; (b) 241,823 shares subject to vesting of outstanding performance-based restricted stock units; and (c) 164,761 shares subject to vesting of outstanding restricted stock units. The options, performance-based restricted stock units and restricted stock units were all granted under our 2018 Equity Incentive Plan.
(2)The weighted-average exercise price is calculated solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of performance-based restricted stock units and time-based restricted stock units, which have no exercise price.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be set forth in the 2022 Proxy Statement under the captions “Proposal One: Election of Directors,” “Board Composition and Director Independence,” “Meetings and Committees,” “Corporate Governance Overview,” “Compensation Committee Interlocks and Insider Participation,” and “Certain Relationships and Related Person Transactions,” and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth in the 2022 Proxy Statement under the captions “Auditor Fees and Pre-Approval Policy,” “Auditor Fees and Services,” and “Pre-Approval of Auditor Fees and Services,” and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
(a)Financial Statements are listed in the Index to Consolidated Financial Statements on page of this Annual Report.
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules are not required, or the information required has been presented in the aforementioned financial statements.
Exhibits
The documents listed below are being filed or have previously been filed on behalf of the Company and are incorporated herein by reference from the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith.
Exhibit
Number
Exhibit Description
2.1
Share Contribution & Exchange Agreement, dated as of January 5, 2018, by and among Skyline Corporation and Champion Enterprises Holdings, LLC (incorporated by reference to Exhibit 2.1 of the registrant’s Form 8-K, filed on January 5, 2018).
3.1
Amended and Restated Articles of Incorporation of Skyline Champion Corporation, dated June 1, 2018 (incorporated by reference to Exhibit 3.1 of the registrant’s Form 8-K dated June 6, 2018).
3.2
Amended and Restated By-Laws of Skyline Champion Corporation, dated June 1, 2018 (incorporated by reference to Exhibit 3.2 of the registrant’s Form 8-K dated June 6, 2018).
3.3
Amended and Restated By-Laws of Skyline Champion Corporation, dated June 1, 2018 (incorporated by reference to Exhibit 3.1 of the registrant’s Form 8-K dated April 1, 2021).
3.4
Amended and Restated By-Laws of Skyline Champion Corporation, dated June 1, 2018 (incorporated by reference to Exhibit 3.4 of the registrant’s Form 8-K dated May 20, 2022).
4.1
Registration Rights Agreement, dated as of June 1, 2018 by and among Skyline Champion Corporation, The Bain Shareholder, Sankaty Champion Holdings, LLC, Sankaty Credit Opportunities IV, L.P. CCP Champion Investors, LLC, Centerbridge Capital Partners, L.P., Centerbridge Capital Partners Strategic, L.P., Centerbridge Capital Partners SBS, L.P., Mak Champion Investment LLC, Mak-ro Capital Master Fund L.P. and Arthur J. Decio (incorporated by reference to Exhibit 4.1 of the registrant’s Form 8-K dated June 6, 2018).
4.2
Investor Rights Agreement, dated as of June 1, 2018, by and among Skyline Champion Corporation, Champion Enterprises Holdings, LLC, Sankaty Champion Holdings, LLC, Sankaty Credit Opportunities IV, L.P., Centerbridge Capital Partners, L.P., Centerbridge Capital Partners Strategic, L.P., Centerbridge Capital Partners SBS, L.P., CCP Champion Investors, LLC, MAK Champion Investment LLC and MAK-RO Capital Master Fund. L.P. (incorporated by reference to Exhibit 4.2 of the registrant’s Form 8-K dated June 6, 2018).
4.3
Description of Common Stock (incorporated by reference to the registrant’s registration statement on Form 8-A12B filed by the Company on May 31, 2018).
10.1
Amended and Restated Credit Agreement, dated as of June 7, 2021 by and among Skyline Champion Corporation, Champion Home Builders, Inc. and Wells Fargo Bank, National Association, as administrative agent and collateral agent, and the other financial institutions party thereto (incorporated by reference to Exhibit 10.1 of the registrant’s Form 8-K filed July 13, 2021).
10.2
Transition Services Agreement, dated as of June 1, 2018, by and among Skyline Champion Corporation and Champion Enterprises Holdings, LLC (incorporated by reference to Exhibit 10.2 of the registrant’s Form 8-K dated June 6, 2018)
10.3
2018 Equity Incentive Plan (incorporated by reference to Exhibit 4.3 of the registrants registration statement on Form S-8 filed on September 26, 2018).
10.4
Form of Non-Statutory Stock Option Agreement for Employees (incorporated by reference to Exhibit 10.4 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).
10.5
Form of Performance Stock Unit Agreement (incorporated by reference to Exhibit 10.5 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.6
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors.(incorporated by reference to Exhibit 10.6 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.7
Form of Restricted Stock Unit Award Agreement for Employees (incorporated by reference to Exhibit 10.7 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.8
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 of the registrant’s Form 8-K filed on June 6, 2018).
10.9
Form of Non-Statutory Stock Option Agreement for Executives with written employment agreements (incorporated by reference to Exhibit 10.9 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.10
Form of Performance Stock Unit Agreement for Executives with written employment agreements (incorporated by reference to Exhibit 10.10 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.11
Form of Restricted Stock Unit Award Agreement for Executives with written employment agreements (incorporated by reference to Exhibit 10.11 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.12
Executive Employment Agreement, dated September 5, 2019 and effective June 1, 2019, between Mark Yost and Champion Home Builders, Inc (incorporated by reference to Exhibit 10.12 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.13
Executive Employment Agreement, dated as of June 4, 2018, between Laurie Hough and Champion Home Builders, Inc. (incorporated by reference to Exhibit 10.13 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.14
Executive Employment Agreement effective June 17, 2019 between Robert Spence and Champion Home Builders, Inc. (incorporated by reference to Exhibit 10.14 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.15
Amended and Restated Employment Agreement, dated as of June 4, 2018, between Keith Anderson and Champion Home Builders, Inc. (incorporated by reference to Exhibit 10.15 of the registrant’s Annual Report on Form 10-K filed on May 26, 2021).*
10.16
Employment Agreement, dated May 3, 2021, between Champion Home Builders, Inc. and Timothy Larson (incorporated by reference to Exhibit 10.11 of the registrant’s Form 8-K filed May 5, 2021).
10.17
Form of Performance Stock Unit Agreement for Employees granted in fiscal 2022.*
10.18
Form of Performance Stock Unit Agreement for Executives with written employment agreements granted in fiscal 2022.*
10.19
Form of Restricted Stock Unit Award Agreement for Employees granted in fiscal 2022.*
10.20
Form of Restricted Stock Unit Award Agreement for Executives with written employment agreements granted in fiscal 2022.*
21.1
Subsidiaries of the Registrant.*
23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Rule 13a-14(a)/15d-14(a).*
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Rule 13a-14(a)/15d-14(a).*
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith.

Management contract or compensatory plan, contract or arrangement.