Components of accumulated other comprehensive loss consisted solely of foreign currency translation adjustments.
Notes to Condensed Consolidated Financial Statements
1.
|
Basis of Presentation and Business
|
Nature of Operations: Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the United States (“U.S.”) and Canada. The Company’s operations consist of manufacturing, retail, and transportation activities. The Company operates 33 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada. These facilities 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 21 sales centers that sell manufactured houses to consumers primarily in the Southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles and other products throughout the U.S. and Canada.
COVID-19 Government Financial Assistance: The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. Various government programs have been announced which provide financial relief for affected businesses including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. During the first quarter of fiscal 2021, the Company recognized CARES Act subsidies of $0.6 million. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through June 27, 2020, the Company has deferred $3.6 million of payroll taxes that will be paid beginning in December 2021. In Canada, the Company recognized $3.6 million of payroll subsidies under CEWS during the first quarter of fiscal 2021. The Company’s policy is to account for these subsidies as Other Income in the period in which the related costs are incurred and the Company is reasonably assured to receive payment. As of June 27, 2020, the Company had received $1.7 million of the CEWS subsidies.
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany balances and transactions. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly state the Company’s consolidated results of operations, cash flows, and financial position. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on May 21, 2020 (the “Fiscal 2020 Annual Report”).
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes thereto. Actual results could differ from those estimates. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, and condensed consolidated statements of cash flows for the interim periods are not necessarily indicative of the results of operations or cash flows for the full year.
Certain prior year amounts have been reclassified to conform with the current year presentation.
The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2021,” will end on April 3, 2021. References to “fiscal 2020” refer to the Company’s fiscal year ended March 28, 2020. The three months ended June 27, 2020 and June 29, 2019 each included 13 weeks.
Recently Adopted Accounting Pronouncements: On March 29, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model. The cumulative effect of adoption resulted in an increase of $0.2 million in the allowance for credit loss and a corresponding decrease in retained earnings as of March 29, 2020. The Company’s allowance for credit losses on financial assets measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current economic conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. As of June 27, 2020 and March 28, 2020, accounts receivable are reflected net of reserves of $0.3 million and $0.4 million, respectively. As of June 27, 2020 and March 28, 2020, other notes receivable are reflected net of reserves of $0.9 million and $0.5 million, respectively. Changes in expected credit losses were not significant in the first three months of fiscal 2021.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment,” which addresses concerns over the cost and complexity of the two-step impairment testing model, and removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted the provisions of ASU 2017-04 effective March 29, 2020, and the adoption did not have an impact on the Company's consolidated financial statements.
6
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
There were no other accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.
The components of inventory, net of reserves for obsolete inventory, were as follows:
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Raw materials
|
|
$
|
52,682
|
|
|
$
|
55,408
|
|
Work in process
|
|
|
15,914
|
|
|
|
17,773
|
|
Finished goods and other
|
|
|
47,219
|
|
|
|
53,205
|
|
Total inventories, net
|
|
$
|
115,815
|
|
|
$
|
126,386
|
|
At June 27, 2020 and March 28, 2020, reserves for obsolete inventory were $4.3 million and $4.2 million, respectively.
3.
|
Property, Plant, and Equipment
|
Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended June 27, 2020 and June 29, 2019 was $2.9 million and $3.1 million, respectively.
The components of property, plant, and equipment were as follows:
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Land and improvements
|
|
$
|
35,525
|
|
|
$
|
35,332
|
|
Buildings and improvements
|
|
|
88,079
|
|
|
|
87,222
|
|
Machinery and equipment
|
|
|
52,567
|
|
|
|
51,239
|
|
Construction in progress
|
|
|
1,181
|
|
|
|
1,810
|
|
Property, plant, and equipment, at cost
|
|
|
177,352
|
|
|
|
175,603
|
|
Less: accumulated depreciation
|
|
|
(69,377
|
)
|
|
|
(66,312
|
)
|
Property, plant, and equipment, net
|
|
$
|
107,975
|
|
|
$
|
109,291
|
|
4.
|
Goodwill and Intangible Assets
|
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At June 27, 2020 and March 28, 2020, the Company had goodwill of $173.5 million.
Intangible Assets
The components of amortizable intangible assets were as follows:
(Dollars in thousands)
|
|
June 27, 2020
|
|
|
March 28, 2020
|
|
|
|
Customer
Relationships
|
|
|
Trade
Names
|
|
|
Total
|
|
|
Customer
Relationships
|
|
|
Trade
Names
|
|
|
Total
|
|
Gross carrying amount
|
|
$
|
48,509
|
|
|
$
|
13,125
|
|
|
$
|
61,634
|
|
|
$
|
48,370
|
|
|
$
|
13,068
|
|
|
$
|
61,438
|
|
Accumulated amortization
|
|
|
(14,342
|
)
|
|
|
(5,299
|
)
|
|
|
(19,641
|
)
|
|
|
(13,118
|
)
|
|
|
(4,963
|
)
|
|
$
|
(18,081
|
)
|
Amortizable intangibles, net
|
|
$
|
34,167
|
|
|
$
|
7,826
|
|
|
$
|
41,993
|
|
|
$
|
35,252
|
|
|
$
|
8,105
|
|
|
$
|
43,357
|
|
During both the three months ended June 27, 2020 and June 29, 2019, amortization of intangible assets was $1.4 million.
7
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
5.
|
Other Current Liabilities
|
The components of other current liabilities were as follows:
(Dollars in thousands)
|
|
June 27, 2020
|
|
|
March 28, 2020
|
|
Customer deposits
|
|
$
|
26,564
|
|
|
$
|
22,679
|
|
Accrued volume rebates
|
|
|
14,376
|
|
|
|
17,469
|
|
Accrued warranty obligations
|
|
|
18,905
|
|
|
|
19,179
|
|
Accrued compensation and payroll taxes
|
|
|
21,091
|
|
|
|
27,776
|
|
Accrued insurance
|
|
|
13,434
|
|
|
|
11,182
|
|
Other
|
|
|
21,515
|
|
|
|
15,745
|
|
Total other current liabilities
|
|
$
|
115,885
|
|
|
$
|
114,030
|
|
6.
|
Accrued Warranty Obligations
|
Changes in the accrued warranty obligations were as follows:
|
|
Three Months Ended
|
|
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Balance at the beginning of the period
|
|
$
|
24,969
|
|
|
$
|
23,346
|
|
Warranty expense
|
|
|
6,359
|
|
|
|
9,596
|
|
Cash warranty payments
|
|
|
(6,633
|
)
|
|
|
(8,952
|
)
|
Balance at end of period
|
|
|
24,695
|
|
|
|
23,990
|
|
Less: noncurrent portion in other long-term liabilities
|
|
|
(5,790
|
)
|
|
|
(4,960
|
)
|
Total current portion
|
|
$
|
18,905
|
|
|
$
|
19,030
|
|
7.
|
Debt and Floor Plan Payable
|
Long-term debt consisted of the following:
(Dollars in thousands)
|
|
June 27, 2020
|
|
|
March 28, 2020
|
|
Revolving credit facility maturing in 2023
|
|
$
|
64,900
|
|
|
$
|
64,900
|
|
Obligations under industrial revenue bonds due 2029
|
|
|
12,430
|
|
|
|
12,430
|
|
Total debt
|
|
|
77,330
|
|
|
|
77,330
|
|
Less: current portion
|
|
|
—
|
|
|
|
—
|
|
Total long-term debt
|
|
$
|
77,330
|
|
|
$
|
77,330
|
|
The Company has an agreement with a syndicate of banks that provides for a revolving credit facility of up to $100.0 million, including a letter of credit sub-facility of not less than $45.0 million (“Credit Agreement”). The revolving credit facility allows the Company to draw down, repay and re-draw loans on the available funds during the term of the Credit Agreement.
The Credit Agreement matures on June 5, 2023 and has no scheduled amortization. The interest rate on borrowings under the Credit Agreement adjusts based on the first lien net leverage of the Company from a high of LIBOR plus 2.25% and ABR plus 1.25% when the first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when the first lien net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.25% and 0.40% (depending on the first lien net leverage) in respect of unused commitments under the Credit Agreement. At June 27, 2020 the interest rate on borrowings under the Credit Agreement was 1.75%. At June 27, 2020, letters of credit issued under the Credit Agreement totaled $28.7 million. Total available borrowings under the Credit Agreement as of June 27, 2020 were $6.4 million. On July 15, 2020, additional letters of credit were issued for $5.3 million. Total available borrowings under the Credit Agreement as of the date the financial statements were issued was $1.1 million.
Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at June 27, 2020, including related costs and fees, was 2.24%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
8
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
The Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Credit Agreement as of June 27, 2020.
Floor Plan Payable
The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At June 27, 2020 and March 28, 2020, the Company had outstanding borrowings on floor plan financing agreements of $29.4 million and $33.9 million, respectively. Total credit line capacity provided under the agreements was $48.0 million as of June 27, 2020. Borrowings are secured by the homes and are required to be repaid when the Company sells the home to a customer.
The following tables disaggregate the Company’s revenue by sales category for the three months ended June 27, 2020 and June 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 27, 2020
|
|
(Dollars in thousands)
|
|
U.S.
Factory-Built
Housing
|
|
|
Canadian
Factory-Built
Housing
|
|
|
Corporate/
Other
|
|
|
Total
|
|
|
|
|
|
Manufacturing and retail
|
|
$
|
248,859
|
|
|
$
|
15,195
|
|
|
$
|
—
|
|
|
$
|
264,054
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transportation
|
|
|
—
|
|
|
|
—
|
|
|
|
9,231
|
|
|
|
9,231
|
|
Total
|
|
$
|
248,859
|
|
|
$
|
15,195
|
|
|
$
|
9,231
|
|
|
$
|
273,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 29, 2019
|
|
(Dollars in thousands)
|
|
U.S.
Factory-Built
Housing
|
|
|
Canadian
Factory-Built
Housing
|
|
|
Corporate/
Other
|
|
|
Total
|
|
|
|
|
|
Manufacturing and retail
|
|
$
|
331,605
|
|
|
$
|
23,700
|
|
|
$
|
—
|
|
|
$
|
355,305
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Transportation
|
|
|
—
|
|
|
|
—
|
|
|
|
16,583
|
|
|
|
16,583
|
|
Total
|
|
$
|
331,605
|
|
|
$
|
23,700
|
|
|
$
|
16,583
|
|
|
$
|
371,888
|
|
The Company has operating leases for land, manufacturing and office facilities, and equipment. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. Lease expense included in the accompanying condensed consolidated income statements is shown below:
(Dollars in thousands)
|
|
Three Months Ended June 27, 2020
|
|
|
Three Months Ended
June 29, 2019
|
|
Operating lease expense
|
|
$
|
1,383
|
|
|
$
|
1,405
|
|
Short-term lease expense
|
|
|
456
|
|
|
|
373
|
|
Total lease expense
|
|
$
|
1,839
|
|
|
$
|
1,778
|
|
9
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
Operating lease assets and obligations included in the accompanying condensed consolidated balance sheets are below:
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Right-of-use assets under operating leases:
|
|
|
|
|
|
|
|
|
Other long-term assets
|
|
$
|
13,440
|
|
|
$
|
14,808
|
|
Lease obligations under operating leases:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
4,502
|
|
|
$
|
4,789
|
|
Other long-term liabilities
|
|
|
8,938
|
|
|
|
10,019
|
|
Total lease obligation
|
|
$
|
13,440
|
|
|
$
|
14,808
|
|
Maturities of lease obligations as of June 27, 2020, are shown below:
(Dollars in thousands)
|
|
June 27,
2020
|
|
Fiscal 2021 (1)
|
|
$
|
4,081
|
|
Fiscal 2022
|
|
|
4,714
|
|
Fiscal 2023
|
|
|
3,655
|
|
Fiscal 2024
|
|
|
1,547
|
|
Fiscal 2025
|
|
|
777
|
|
Thereafter
|
|
|
1,712
|
|
Total undiscounted cash flows
|
|
|
16,486
|
|
Less: imputed interest
|
|
|
(3,046
|
)
|
Lease obligations under operating leases
|
|
$
|
13,440
|
|
(1)
|
For remaining period in fiscal year.
|
The weighted-average lease term and discount rate for operating leases are shown below:
|
|
June 27,
2020
|
|
Weighted-average remaining lease term (in years)
|
|
|
4.6
|
|
Weighted-average discount rate
|
|
|
5.5
|
|
The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate, which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.
Cash flow information related to operating leases is shown below:
|
|
Three Months Ended
|
|
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
—
|
|
|
$
|
854
|
|
Operating cash flows:
|
|
|
|
|
|
|
|
|
Cash paid related to operating lease obligations
|
|
$
|
1,410
|
|
|
$
|
1,534
|
|
For the three months ended June 27, 2020 and June 29, 2019, the Company recorded $4.6 million and $6.6 million of income tax expense and had an effective tax rate of 27.7% and 27.6%, respectively.
The Company’s effective tax rate for both of the three months ended June 27, 2020 and June 29, 2019 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, and results in foreign jurisdictions.
At June 27, 2020, the Company had no unrecognized tax benefits. The Company does not anticipate any material changes to uncertain tax benefits in the next twelve months. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.
10
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
Basic net income per share (“EPS”) attributable to the Company was computed by dividing net income attributable to the Company by the average number of common shares outstanding during the period. Certain of the Company’s time-vesting restricted share awards are considered participating securities. Diluted earnings per common share is computed based on the more dilutive of: (i) the two-class method, assuming the participating securities are not exercised or converted; or (ii) the summation of average common shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued.
During the three months ended June 27, 2020 and the three months ended June 29, 2019, the two-class method was more dilutive. Securities that could potentially dilute basic EPS in the future that were considered antidilutive in the three months ended June 27, 2020 totaled 0.4 million. There were no antidilutive securities in the three months ended June 29, 2019.
The following table sets forth the computation of basic and diluted earnings per common share:
|
Three Months Ended
|
|
(Dollars and shares in thousands, except per share data)
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,903
|
|
|
$
|
17,380
|
|
Undistributed earnings allocated to participating securities
|
|
|
(30
|
)
|
|
|
(89
|
)
|
Net income attributable to the Company's common shareholders
|
|
$
|
11,873
|
|
|
$
|
17,291
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
56,532
|
|
|
|
56,368
|
|
Dilutive securities
|
|
|
229
|
|
|
|
267
|
|
Diluted weighted-average shares outstanding
|
|
|
56,761
|
|
|
|
56,635
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.21
|
|
|
$
|
0.31
|
|
Diluted net income per share
|
|
$
|
0.21
|
|
|
$
|
0.31
|
|
Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segments primarily based on net sales, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.
The Company operates in two reportable segments: (i) U.S. Factory-built Housing, which includes manufacturing and retail housing operations and (ii) Canadian Factory-built Housing. Corporate/Other includes the Company’s transportation operations, corporate costs directly incurred for all segments and intersegment eliminations. Segments are generally determined by geography. Segment data includes intersegment revenues and corporate office costs that are directly and exclusively incurred for each segment. Total assets for Corporate/Other primarily includes cash and certain deferred tax items not specifically allocated to another segment.
11
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
Selected financial information by reportable segment was as follows:
|
|
Three Months Ended
|
|
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
June 29,
2019
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing
|
|
$
|
248,859
|
|
|
$
|
331,605
|
|
Canadian Factory-built Housing
|
|
|
15,195
|
|
|
|
23,700
|
|
Corporate/Other
|
|
|
9,231
|
|
|
|
16,583
|
|
Consolidated net sales
|
|
$
|
273,285
|
|
|
$
|
371,888
|
|
Operating income:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing EBITDA
|
|
$
|
23,793
|
|
|
$
|
36,145
|
|
Canadian Factory-built Housing EBITDA
|
|
|
1,292
|
|
|
|
3,055
|
|
Corporate/Other EBITDA
|
|
|
(7,607
|
)
|
|
|
(10,408
|
)
|
Depreciation
|
|
|
(2,921
|
)
|
|
|
(3,110
|
)
|
Amortization
|
|
|
(1,361
|
)
|
|
|
(1,362
|
)
|
Consolidated operating income
|
|
$
|
13,196
|
|
|
$
|
24,320
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing
|
|
$
|
2,398
|
|
|
$
|
2,638
|
|
Canadian Factory-built Housing
|
|
|
115
|
|
|
|
242
|
|
Corporate/Other
|
|
|
408
|
|
|
|
230
|
|
Consolidated depreciation
|
|
$
|
2,921
|
|
|
$
|
3,110
|
|
Amortization of intangible assets:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing
|
|
$
|
1,361
|
|
|
$
|
1,362
|
|
Canadian Factory-built Housing
|
|
|
—
|
|
|
|
—
|
|
Corporate/Other
|
|
|
—
|
|
|
|
—
|
|
Consolidated amortization of intangible assets
|
|
$
|
1,361
|
|
|
$
|
1,362
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing
|
|
$
|
885
|
|
|
$
|
3,358
|
|
Canadian Factory-built Housing
|
|
|
157
|
|
|
|
111
|
|
Corporate/Other
|
|
|
269
|
|
|
|
1,057
|
|
Consolidated capital expenditures
|
|
$
|
1,311
|
|
|
$
|
4,526
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 27,
2020
|
|
|
March 28,
2020
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
U.S. Factory-built Housing (1)
|
|
$
|
476,497
|
|
|
$
|
491,110
|
|
Canadian Factory-built Housing (1)
|
|
|
61,228
|
|
|
|
56,760
|
|
Corporate/Other (1)
|
|
|
252,597
|
|
|
|
233,830
|
|
Consolidated total assets
|
|
$
|
790,322
|
|
|
$
|
781,700
|
|
(1)
|
Deferred tax assets for the Canadian operations are reflected in the Canadian Factory-built Housing segment. U.S. deferred tax assets are presented in Corporate/Other because an allocation between segments is not practicable.
|
13.
|
Commitments, Contingencies and Legal Proceedings
|
Repurchase Contingencies and Guarantees
The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on their agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. The Company accounts for the guarantees under its repurchase agreements with the retailers’ financing institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. In addition, the Company has estimated the expected contingent net loss the Company will incur upon resale of any repurchases. These estimates are based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting retailers for which the Company has a contingent repurchase obligation. Based on these repurchase agreements, historical loss experience, as well as current economic
12
Skyline Champion Corporation
Notes to Condensed Consolidated Financial Statements - Continued
conditions and forecasts that affect the potential loss exposure, a loss reserve of $1.0 million was recorded as of June 27, 2020 and March 28, 2020. Excluding the resale value of the homes, the contingent repurchase obligation as of June 27, 2020 was estimated to be $145.2 million. Losses incurred on homes repurchased were not significant during each of the three months ended June 27, 2020 and June 29, 2019.
At June 27, 2020, the Company was contingently obligated for $28.7 million under letters of credit, primarily consisting of $12.7 million to support long-term debt, $15.7 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued from a sub-facility of the Credit Agreement. The Company was also contingently obligated for $23.5 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.
In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.
Legal Proceedings
The Company has agreed to indemnify counterparties in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. As of the date of this filing, the Company believes the ultimate liability with respect to these contingent obligations will not have, either individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
13