PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) Skyline Champion, North America's largest factory-built housing company, offers diverse homes and aims for growth through strategic initiatives - Skyline Champion Corporation was formed on **June 1, 2018**, through the combination of Skyline Corporation and Champion Enterprises Holdings, LLC, with Champion Holdings as the accounting acquirer[12](index=12&type=chunk)[133](index=133&type=chunk) - The company is North America's largest independent publicly traded factory-built housing company, with pro forma net sales of **$1.4 billion** in fiscal year 2019[13](index=13&type=chunk) - The company operates **36 manufacturing facilities** across 17 U.S. states and three Canadian provinces, **21 factory-direct retail sales centers**, and a logistics business[13](index=13&type=chunk)[14](index=14&type=chunk)[128](index=128&type=chunk) - Strategic initiatives include capitalizing on favorable demographic trends, expanding sales in existing and new geographies, enhancing margins through operational initiatives, and expanding quality products through innovation[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) Market Position (2018 Units Produced) | Position | Market Segment | | :------- | :------------- | | Number two | Manufactured housing (U.S.) | | Top three | Most major U.S. regional markets | | Leading | Western Canada | | Leading | Park model RV sales and modular home sales | [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from cyclical housing demand, economic sensitivity, supply chain, labor shortages, integration, and compliance - The factory-built housing industry is cyclical and seasonal, with sales typically higher from **March to November**, making results subject to fluctuations[62](index=62&type=chunk) - Demand is sensitive to economic conditions like employment rates, consumer confidence, and interest rates, with increases potentially limiting purchasing power[63](index=63&type=chunk)[65](index=65&type=chunk) - The company relies heavily on independent distributors (over **90% of fiscal 2019 shipments**), and relationship issues could lead to sales declines[71](index=71&type=chunk) - Material prices (e.g., lumber, insulation, steel) can fluctuate significantly, potentially affecting production and profit margins if costs cannot be passed to customers[72](index=72&type=chunk) - Labor shortages and high turnover rates in the homebuilding industry can increase production costs and cause construction delays[74](index=74&type=chunk) - The integration of Skyline and Champion Holdings operations may not be successful, potentially leading to operational disruptions and failure to realize anticipated synergies[98](index=98&type=chunk)[101](index=101&type=chunk) - The company does not anticipate paying cash dividends for the foreseeable future, intending to retain earnings for business development and growth[105](index=105&type=chunk) [Item 1B. Unresolved Staff Comments](index=18&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments were reported - No unresolved staff comments were reported[108](index=108&type=chunk) [Item 2. Properties](index=18&type=section&id=Item%202.%20Properties) As of March 30, 2019, the company operates 36 manufacturing facilities, 21 retail centers, and 9 logistics terminals, with most manufacturing facilities owned Operating Facilities as of March 30, 2019 | 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 | | Weiser, Idaho | Owned | | Topeka, Indiana (three facilities) | Owned | | Arkansas City, Kansas | Owned | | Benton, Kentucky | Leased | | Worthington, Minnesota | Owned | | Lillington, North Carolina | Owned | | York, Nebraska | Owned | | Sangerfield, New York | Owned | | Sugar Creek, Ohio | Owned | | McMinnville, Oregon | Owned | | Claysburg, Pennsylvania | Owned | | Ephrata, Pennsylvania | Owned | | Leola, Pennsylvania | Owned | | Liverpool, Pennsylvania | Owned | | Strattanville, Pennsylvania | Owned | | Dresden, Tennessee | Leased | | Athens, Texas | Owned | | Burleson, Texas (two facilities) | Owned | | Mansfield, 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 company maintains corporate offices in Elkhart, Indiana, and Troy, Michigan, along with **21 retail sales centers** and **nine logistics terminals**, all leased properties[110](index=110&type=chunk) - As of March 30, 2019, the company owns or leases **five idle manufacturing facilities** for potential additional production capacity[111](index=111&type=chunk) [Item 3. Legal Proceedings](index=19&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, with management believing no material adverse effect on financial position or operations - The company is party to legal proceedings, including claims alleging breach of warranties and governmental agency proceedings related to occupational safety and employment regulations[112](index=112&type=chunk) - Management does not believe that current litigation will have a material adverse effect on the company's consolidated financial position, liquidity, or results of operations[112](index=112&type=chunk) [Item 4. Mine Safety Disclosures](index=19&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[113](index=113&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=20&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Skyline Champion's common stock trades on NYSE (SKY), with 556 record holders as of May 2019; no future dividends are planned - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol **SKY**[116](index=116&type=chunk) - As of **May 17, 2019**, there were approximately **556 holders of record** of the common stock[117](index=117&type=chunk) - The company does not currently pay dividends, planning to retain future earnings for growth, though a special cash dividend of **$0.62381 per share** was paid on **May 31, 2018**[118](index=118&type=chunk)[119](index=119&type=chunk) Cumulative Total Stockholder Return (March 31, 2014 - March 31, 2019) | | March 31, 2014 | March 31, 2015 | March 31, 2016 | March 31, 2017 | March 31, 2018 | March 31, 2019 | | :--------------------- | :------------- | :------------- | :------------- | :------------- | :------------- | :------------- | | Skyline Champion Corporation | $100.00 | $58.51 | $153.06 | $155.70 | $363.64 | $314.05 | | Russell 3000 | 100.00 | 112.37 | 111.98 | 132.21 | 150.48 | 163.67 | | Cavco Industries, Inc. | 100.00 | 95.68 | 119.13 | 148.37 | 221.48 | 149.82 | [Item 6. Selected Financial Data](index=22&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents selected consolidated financial data for fiscal years 2015-2019, reflecting key operational, balance sheet, and cash flow items Selected Consolidated Financial Data (Fiscal Years Ended March 2015-2019) | Statement of Operations Data (Dollars in thousands) | March 30, 2019 | March 31, 2018 | April 1, 2017 | April 2, 2016 | March 28, 2015 | | :---------------------------------- | :------------- | :------------- | :------------ | :------------ | :------------- | | Net Sales | $1,360,043 | $1,064,722 | $861,319 | $751,703 | $737,230 | | Cost of sales | 1,114,684 | 887,611 | 717,364 | 638,571 | 649,798 | | Gross Margin | 245,359 | 177,111 | 143,955 | 113,132 | 87,432 | | Selling, general and administrative expenses | 270,158 | 122,582 | 105,175 | 92,394 | 87,279 | | Operating (loss) income | (29,742) | 54,589 | 34,650 | 17,158 | (11,600) | | Net (loss) income | $(58,208) | $15,800 | $51,910 | $(20) | $(17,367) | | Other financial information (Dollars in thousands) | | | | | | | Cash flows provided by continuing operations | $65,228 | $31,623 | $34,289 | $37,258 | $13,595 | | Total assets | $699,954 | $395,398 | $328,021 | $255,349 | $284,348 | | Long-term debt | $54,330 | $58,927 | $59,331 | $59,749 | $60,287 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and operations, covering formation, acquisitions, industry outlook, performance, liquidity, and accounting policies [Overview](index=24&type=section&id=Overview) Skyline Champion Corporation, formed on June 1, 2018, is a leading North American factory-built housing producer with integrated operations - Skyline Champion Corporation was formed on **June 1, 2018**, by combining Skyline Corporation and Champion Enterprises Holdings, LLC[127](index=127&type=chunk) - The company is a leading provider of factory-built housing solutions in North America, with vertically integrated manufacturing, retail, and transportation logistics businesses[128](index=128&type=chunk) - As of **March 30, 2019**, the company operates **31 U.S. and 5 Canadian manufacturing facilities**, **21 retail sales centers**, and a transportation business[128](index=128&type=chunk) [Acquisitions and Expansions](index=24&type=section&id=Acquisitions%20and%20Expansions) Skyline Champion expanded its manufacturing and retail footprint through strategic acquisitions and facility expansions to meet increasing demand - The company increased capacity through strategic acquisitions and expansions, including adding a second production line at its Corona, California facility in **fiscal 2019**[130](index=130&type=chunk) - New plants were opened or are expected to open in Leesville, Louisiana (**June 2019**) and Leola, Pennsylvania (**April 2019**)[130](index=130&type=chunk) - Acquisitions include Innovative Building Systems, LLC (IBS) in **September 2016**, adding **five modular manufacturing facilities** and **two retail sales centers**[130](index=130&type=chunk) - Retail operations expanded with **three new sales centers in fiscal 2018** and **five in fiscal 2017**, aiming to increase market presence and manufacturing utilization[131](index=131&type=chunk) [Combination with Skyline](index=25&type=section&id=Combination%20with%20Skyline) The Champion Holdings and Skyline Exchange, completed on June 1, 2018, was a reverse acquisition, with fiscal 2019 results reflecting the combined entity - The Exchange was completed on **June 1, 2018**, and treated as a reverse acquisition, with Champion Holdings identified as the accounting acquirer[133](index=133&type=chunk) - Fiscal 2019 financial results include Champion Holdings' pre-Exchange results and the combined operations post-Exchange, while prior periods reflect solely Champion Holdings' results[133](index=133&type=chunk) - The preliminary purchase price allocation resulted in goodwill primarily from expected synergies in procurement and operational improvements[345](index=345&type=chunk) [Industry and Company Outlook](index=25&type=section&id=Industry%20and%20Company%20Outlook) In fiscal 2019, HUD-code homes comprised 76% of U.S. manufacturing sales, with market share growing to 16.6% due to Skyline operations - For **fiscal 2019**, **76%** of the company's U.S. manufacturing sales were HUD-code homes[134](index=134&type=chunk) HUD-Code Home Shipments and Market Share | Metric | Fiscal Year 2019 | Fiscal Year 2018 | | :----- | :--------------- | :--------------- | | Industry Shipments (units) | 93,377 (93,265 excl. FEMA) | 95,044 (90,629 excl. FEMA) | | Company's HUD Market Share | 16.6% | 13.9% | U.S. Modular Home Shipments and Market Share | Metric | 12 Months Ended Dec 31, 2018 | 12 Months Ended Dec 31, 2017 | | :----- | :--------------------------- | :--------------------------- | | Industry Shipments (units) | 15,530 | 14,149 | | Company's Modular Market Share | 13.1% | 11.1% | - Approximately **18%** of the company's U.S. manufacturing sales in **fiscal 2019** were modular homes, with market presence improving due to the IBS Acquisition[135](index=135&type=chunk) [Results of Operations for Fiscal Year 2019 vs. 2018](index=26&type=section&id=Results%20of%20Operations%20for%20Fiscal%20Year%202019%20vs.%202018) In fiscal 2019, net sales increased by 27.7% to $1.36 billion, but operating and net income shifted to losses due to higher SG&A expenses Key Financial Highlights (FY2019 vs. FY2018) | Metric (Dollars in thousands) | FY2019 | FY2018 | Change ($) | Change (%) | | :---------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $1,360,043 | $1,064,722 | $295,321 | 27.7% | | Gross profit | $245,359 | $177,111 | $68,248 | 38.5% | | Gross profit as % of net sales | 18.0% | 16.6% | 1.4 pp | | | Selling, general and administrative expenses | $275,101 | $122,522 | $152,579 | 124.5% | | Operating (loss) income | $(29,742) | $54,589 | $(84,331) | -154.5% | | Net (loss) income | $(58,208) | $15,800 | $(74,008) | -468.4% | | Adjusted EBITDA | $97,091 | $64,608 | $32,483 | 50.3% | - U.S. Factory-built Housing net sales increased by **$317.2 million (36.9%)**, driven by Skyline operations inclusion (**$218.8 million**) and a **13.6%** increase in average home selling price[139](index=139&type=chunk) - Selling, general and administrative expenses surged by **$152.6 million (124.5%)**, primarily due to **$101.4 million** in non-cash equity-based compensation and **$7.6 million** in Skyline integration costs[148](index=148&type=chunk)[151](index=151&type=chunk) - Adjusted EBITDA increased by **$32.5 million (50.3%)** to **$97.1 million**, reflecting increased operating income after adjusting for non-cash and integration costs[157](index=157&type=chunk) [Pro Forma Results of Operations](index=31&type=section&id=Pro%20Forma%20Results%20of%20Operations) Unaudited pro forma fiscal 2019 results show net sales of $1.41 billion, with gross profit at 18.0%, but a net loss of $(43.5) million due to higher SG&A - Pro forma net sales for **fiscal 2019** were **$1.41 billion**, an increase of **$108.6 million** over the prior year, driven by increased units and higher average home selling prices[162](index=162&type=chunk) - Pro forma gross profit increased by **$46.3 million** in **fiscal 2019**, with gross profit as a percent of net sales improving to **18.0%** from **15.9%**, due to synergy capture and operational improvements[163](index=163&type=chunk) - Pro forma selling, general and administrative expenses rose to **$272.3 million** in **fiscal 2019**, primarily due to a **$92.2 million** increase in non-cash equity-based compensation and **$7.6 million** in Skyline integration costs[164](index=164&type=chunk) Pro Forma Financial Highlights (FY2019 vs. FY2018) | Metric (Dollars in thousands) | FY2019 (unaudited) | FY2018 (unaudited) | | :---------------------------- | :----------------- | :----------------- | | Net sales | $1,405,847 | $1,297,159 | | Gross profit | $253,075 | $206,810 | | Selling, general and administrative expenses | $272,277 | $148,475 | | Operating (loss) income | $(19,202) | $58,335 | | Net (loss) income | $(43,460) | $25,655 | | Adjusted EBITDA | $100,903 | $75,953 | [Backlog](index=33&type=section&id=Backlog) As of March 30, 2019, home order backlog decreased to $142.7 million from $154.8 million, influenced by prior FEMA demand and a softer Canadian economy Home Order Backlog | Metric | March 30, 2019 | March 31, 2018 | | :----- | :------------- | :------------- | | Backlog (wholesale sales values) | $142.7 million | $154.8 million | - The decrease in backlog was attributed to higher prior-year backlog from FEMA unit production and a softening Canadian economy affecting Canadian operations[167](index=167&type=chunk) [Results of Operations for Fiscal Year 2018 vs. 2017](index=34&type=section&id=Results%20of%20Operations%20for%20Fiscal%20Year%202018%20vs.%202017) In fiscal 2018, net sales increased by 23.6% to $1.06 billion, and operating income rose by 57.5%, but net income decreased to $15.8 million due to higher tax expense Key Financial Highlights (FY2018 vs. FY2017) | Metric (Dollars in thousands) | FY2018 | FY2017 | Change ($) | Change (%) | | :---------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $1,064,722 | $861,319 | $203,403 | 23.6% | | Gross profit | $177,111 | $143,955 | $33,156 | 23.0% | | Gross profit as % of net sales | 16.6% | 16.7% | -0.1 pp | | | Selling, general and administrative expenses | $122,522 | $109,305 | $13,217 | 12.1% | | Operating income | $54,589 | $34,650 | $19,939 | 57.5% | | Net income | $15,800 | $51,910 | $(36,110) | -69.6% | | Adjusted EBITDA | $64,608 | $45,447 | $19,161 | 42.2% | - U.S. Factory-built Housing net sales increased by **$182.2 million (26.9%)**, driven by a **22.4%** increase in homes sold and a **3.7%** increase in average home selling price[171](index=171&type=chunk) - Income tax expense increased significantly to **$27.3 million** in **fiscal 2018** from a benefit of **$(23.3) million** in **fiscal 2017**, primarily due to deferred tax re-measurement at the new **21%** corporate income tax rate[186](index=186&type=chunk) - Adjusted EBITDA increased by **$19.2 million (42.2%)** to **$64.6 million**, primarily due to a **$19.9 million** increase in operating income[190](index=190&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity stems from operations, cash, and a $100 million revolving credit facility; fiscal 2019 operating cash flow increased to $65.2 million - Primary liquidity sources are cash flows from operations, existing cash balances, and a **$100.0 million** revolving credit facility[191](index=191&type=chunk)[195](index=195&type=chunk) Summary Cash Flow Information (FY2017-FY2019) | Cash Flow Category (Dollars in thousands) | FY2019 | FY2018 | FY2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $65,228 | $31,623 | $33,459 | | Net cash used in investing activities | $(2,030) | $(8,621) | $(18,737) | | Net cash (used in) provided by financing activities | $(72,518) | $10,336 | $3,694 | | Net (decrease) increase in cash and cash equivalents | $(9,982) | $33,924 | $17,830 | | Cash, cash equivalents and restricted cash at end of period | $126,634 | $136,616 | $102,692 | - Cash provided by operating activities increased to **$65.2 million** in **fiscal 2019** from **$31.6 million** in **fiscal 2018**, driven by higher operating income and non-cash expenses[192](index=192&type=chunk) - Cash used in financing activities in **fiscal 2019** was mainly due to a **$65.2 million** capital distribution to Champion Holdings members and a **$5.0 million** paydown on revolving debt[194](index=194&type=chunk) [Contractual Obligations and Commitments](index=41&type=section&id=Contractual%20Obligations%20and%20Commitments) As of March 30, 2019, contractual obligations include $41.9 million in credit facility debt and $18.5 million in operating leases, with significant contingent liabilities Contractual Obligations as of March 30, 2019 (Dollars in thousands) | Obligation | Total | <1 Year | 1 to 3 Years | 3 to 5 Years | >5 Years | | :----------------------------------- | :---- | :------ | :----------- | :----------- | :------- | | Revolving credit facility maturing in 2023 | $41,900 | $— | $— | $41,900 | $— | | Obligations under industrial revenue bonds due 2029 | 12,430 | — | — | — | 12,430 | | Operating leases | 18,455 | 5,302 | 6,842 | 3,313 | 2,998 | | **Total** | **$72,785** | **$5,302** | **$6,842** | **$45,213** | **$15,428** | - Contingent repurchase obligation with floor plan lenders was approximately **$173.4 million** as of **March 30, 2019**, without reduction for resale value[203](index=203&type=chunk) - The company had **$21.0 million** in letters of credit and **$23.6 million** in surety bonds outstanding as of **March 30, 2019**[203](index=203&type=chunk) - Guarantees for a portion of customers' floor plan obligations totaled **$0.8 million** as of **March 30, 2019**[206](index=206&type=chunk) [Non GAAP Measures - Adjusted EBITDA](index=42&type=section&id=Non%20GAAP%20Measures%20-%20Adjusted%20EBITDA) Adjusted EBITDA is a non-GAAP measure used for evaluating operating performance, planning, and stakeholder communication, excluding various non-operating items - Adjusted EBITDA is defined as net income or loss plus income taxes, net interest expense, depreciation and amortization, discontinued operations, foreign currency gains/losses, equity-based compensation, non-cash restructuring charges, and other non-operating costs[208](index=208&type=chunk) - Management uses Adjusted EBITDA for planning, internal budgeting, communication with stakeholders, incentive compensation, and evaluating operating performance for capital investments and acquisitions[210](index=210&type=chunk) - Adjusted EBITDA is considered useful to investors as it measures operating performance without regard to items that can vary substantially based on accounting methods, capital structure, and asset acquisition methods[209](index=209&type=chunk) [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant estimates for acquisitions, revenue, self-insured risks, warranties, and asset impairment, with actual results potentially differing materially - Key accounting policies requiring significant estimates include business combinations, reserves for obsolete inventory, accrued warranty costs, asset impairment analyses, insurance reserves, repurchase reserves, and deferred tax valuation allowances[211](index=211&type=chunk) - Revenue from manufacturing shipments is generally recognized when wholesale financing is approved, the home is shipped, and title transfers; retail sales revenue is recognized upon delivery, setup, acceptance, and title transfer[213](index=213&type=chunk)[214](index=214&type=chunk) - The company is self-insured for a significant portion of its general, product liability, workers' compensation, auto, health, and property insurance, with estimated costs accrued based on historical experience[217](index=217&type=chunk) - Warranty costs are accrued as cost of sales at the time of sale, based on estimates of future claims considering the number of homes under warranty and historical service costs[218](index=218&type=chunk)[219](index=219&type=chunk) - Goodwill is tested for impairment annually or more frequently if circumstances indicate impairment, using a qualitative assessment or by comparing fair value to net book value[221](index=221&type=chunk) - The company maintains a reserve for estimated losses under repurchase agreements, which was **$1.0 million** at **March 30, 2019**, for contingent obligations totaling approximately **$173.4 million**[224](index=224&type=chunk) [Off Balance Sheet Arrangements](index=44&type=section&id=Off%20Balance%20Sheet%20Arrangements) As of March 30, 2019, off-balance sheet arrangements include a $173.4 million contingent repurchase obligation, $21.0 million in letters of credit, and $23.6 million in surety bonds - Off-balance sheet arrangements as of **March 30, 2019**, include a contingent repurchase obligation of approximately **$173.4 million**, letters of credit totaling **$21.0 million**, and surety bonds totaling **$23.6 million**[226](index=226&type=chunk) [Other Matters](index=44&type=section&id=Other%20Matters) Inflation has not materially affected profitability, with commodity price increases generally passed on; the housing industry is seasonal, with sales peaking from March to November - Inflation has not had a material effect on profitability over the past three years, as commodity price increases have generally been passed on to customers or mitigated[227](index=227&type=chunk) - The housing industry, including factory-built homes, is seasonal, with sales typically peaking from **March to November**[228](index=228&type=chunk) [Recently Issued Accounting Standards](index=44&type=section&id=Recently%20Issued%20Accounting%20Standards) This section refers to Note 1, 'Summary of Significant Accounting Policies,' for new accounting pronouncements - Information regarding new accounting pronouncements is detailed in Note 1, 'Summary of Significant Accounting Policies,' of the Consolidated Financial Statements[229](index=229&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on variable-rate debt (100 bps increase adds $0.8 million annual expense) and foreign exchange risk from Canadian operations (1.0% change impacts $1.0 million sales) - The company's debt obligations under the Credit Agreement, industrial revenue bonds, and floor plan financing arrangements are all at variable interest rates[233](index=233&type=chunk) Impact of 100 Basis Point Interest Rate Increase (as of March 30, 2019) | Debt Type | Outstanding Borrowings (Millions) | Additional Annual Interest Expense (Millions) | | :-------------------------------- | :------------------------------ | :------------------------------------------ | | Revolving credit facility | $41.9 | $0.4 | | Industrial revenue bonds | $12.4 | $0.1 | | Floor plan financing arrangements | $33.3 | $0.3 | | **Total** | **$87.6** | **$0.8** | - The company is exposed to foreign exchange risk from its Canadian operations, with **fiscal 2019 net sales of $98.6 million Canadian dollars**; a **1.0%** change in exchange rates would change consolidated sales by **$1.0 million**[234](index=234&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Financial statements and supplementary data are filed under Item 15 of this report - Financial statements and supplementary data are filed under Item 15 of this report[235](index=235&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=45&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure were reported - No changes in or disagreements with accountants on accounting and financial disclosure were reported[236](index=236&type=chunk) [Item 9A. Controls and Procedures](index=45&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of March 30, 2019, disclosure controls and internal control over financial reporting were effective, with a prior material weakness remediated - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of **March 30, 2019**, excluding Champion Holdings' operations[237](index=237&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **March 30, 2019**[238](index=238&type=chunk) - A material weakness in raw materials inventory accuracy and valuation, reported in **fiscal 2017**, was remediated in **fiscal 2019** through ERP implementation and enhanced inventory count procedures[104](index=104&type=chunk)[242](index=242&type=chunk) - The scope of management's assessment of internal control over financial reporting excluded Champion Holdings and its subsidiaries, representing **92% of total assets** and **84% of total revenues** for fiscal year ended **March 30, 2019**[240](index=240&type=chunk) [Item 9B. Other Information](index=46&type=section&id=Item%209B.%20Other%20Information) No other information is reported in this section - No other information is reported in this section[243](index=243&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=47&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement; a Code of Conduct is also adopted - Information on directors, executive officers, and corporate governance is incorporated by reference from the **2019 Proxy Statement**[246](index=246&type=chunk) - The company has adopted a written Code of Business Conduct and Ethics, applicable to all directors, officers, and employees, available on its website[247](index=247&type=chunk) [Item 11. Executive Compensation](index=47&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2019 Proxy Statement - Executive compensation information is incorporated by reference from the **2019 Proxy Statement**[248](index=248&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=47&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2019 Proxy Statement; as of March 30, 2019, 450,366 securities were issuable from outstanding options - Information on security ownership of certain beneficial owners and management is incorporated by reference from the **2019 Proxy Statement**[249](index=249&type=chunk) Equity Compensation Plan Information (as of March 30, 2019) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (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 | 450,366 | $15.00 | 5,200,562 | | Equity compensation plans not approved by stockholders | — | — | — | | **Total** | **450,366** | **$15.00** | **5,200,562** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=47&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2019 Proxy Statement - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the **2019 Proxy Statement**[252](index=252&type=chunk) [Item 14. Principal Accountant Fees and Services](index=47&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the **2019 Proxy Statement**[253](index=253&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=48&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and a comprehensive list of exhibits filed with the Form 10-K, including key agreements and governance documents - Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this report[258](index=258&type=chunk) - Schedule II – Valuation and Qualifying Accounts is included, while other financial statement schedules are omitted as not required or information is presented elsewhere[255](index=255&type=chunk) - A comprehensive list of exhibits is provided, including the Share Contribution & Exchange Agreement, corporate governance documents, Credit Agreement, and various equity incentive plan documents[256](index=256&type=chunk)[259](index=259&type=chunk)[262](index=262&type=chunk) [Item 16. 10-K Summary](index=49&type=section&id=Item%2016.%2010-K%20Summary) A 10-K Summary is not applicable - A 10-K Summary is not applicable[262](index=262&type=chunk) SIGNATURES [Signatures Details](index=50&type=section&id=SIGNATURES_details) The report is signed by authorized representatives of Skyline Champion Corporation, including key officers and directors, on May 23, 2019 - The report is signed by Keith Anderson (CEO), Laurie Hough (EVP, CFO, and Treasurer), Tim Burkhardt (VP and Controller), and several Directors[264](index=264&type=chunk)[265](index=265&type=chunk) - All signatures are dated **May 23, 2019**[265](index=265&type=chunk) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS [Index to Consolidated Financial Statements Details](index=51&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS_details) This section indexes consolidated financial statements, including auditor reports, balance sheets, statements of operations, cash flows, equity, and notes - The index lists Reports of Ernst & Young LLP, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Cash Flows, Equity, Notes to Consolidated Financial Statements, and Schedule II – Valuation and Qualifying Accounts[267](index=267&type=chunk) Reports of Independent Registered Public Accounting Firm [Opinion on the Financial Statements](index=52&type=section&id=Opinion%20on%20the%20Financial%20Statements) Ernst & Young LLP issued an unqualified opinion on the company's consolidated financial statements for fiscal years 2017-2019, affirming fair presentation in conformity with U.S. GAAP - Ernst & Young LLP provided an **unqualified opinion** on the consolidated financial statements for **fiscal years 2019, 2018, and 2017**[269](index=269&type=chunk) - The financial statements are deemed to present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with U.S. GAAP[269](index=269&type=chunk) [Opinion on Internal Control Over Financial Reporting](index=53&type=section&id=Opinion%20on%20Internal%20Control%20Over%20Financial%20Reporting) Ernst & Young LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of March 30, 2019, excluding Champion Enterprise Holdings - Ernst & Young LLP issued an **unqualified opinion** on the effectiveness of Skyline Champion Corporation's internal control over financial reporting as of **March 30, 2019**[275](index=275&type=chunk) - The audit of internal control over financial reporting excluded Champion Enterprise Holdings, LLC and its subsidiaries, representing **92% of total assets** and **84% of total revenues**[276](index=276&type=chunk) Consolidated Financial Statements [Consolidated Balance Sheets](index=54&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets show total assets increased to **$699.9 million** and total equity to **$412.0 million** as of **March 30, 2019**, primarily due to the Exchange Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | March 30, 2019 | March 31, 2018 | | :-------------------------------- | :------------- | :------------- | | **ASSETS** | | | | Cash and cash equivalents | $126,634 | $113,731 | | Inventories | $122,638 | $98,022 | | Property, plant and equipment, net | $108,587 | $67,960 | | Goodwill | $173,406 | $3,179 | | Amortizable intangible assets, net | $48,936 | $1,542 | | Total assets | $699,954 | $395,398 | | **LIABILITIES AND EQUITY** | | | | Total current liabilities | $206,303 | $167,114 | | Long-term debt | $54,330 | $58,927 | | Total equity | $411,972 | $153,297 | - Total assets increased by **$304.6 million (77.0%)** from **March 31, 2018**, to **March 30, 2019**, primarily due to the Exchange, which significantly increased goodwill and amortizable intangible assets[285](index=285&type=chunk) - Total equity increased by **$258.7 million (168.7%)** from **March 31, 2018**, to **March 30, 2019**, reflecting the impact of the Exchange[285](index=285&type=chunk) [Consolidated Statements of Operations](index=55&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations show fiscal 2019 net sales increased by **27.7%** to **$1.36 billion**, but a net loss of **$(58.2) million** resulted from increased SG&A expenses Consolidated Statements of Operations Highlights (Dollars in thousands) | Metric | FY2019 | FY2018 | FY2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net sales | $1,360,043 | $1,064,722 | $861,319 | | Gross profit | $245,359 | $177,111 | $143,955 | | Selling, general, and administrative expenses | $270,158 | $122,582 | $105,175 | | Operating (loss) income | $(29,742) | $54,589 | $34,650 | | Net (loss) income | $(58,208) | $15,800 | $51,910 | | Basic net (loss) income per share | $(1.09) | $0.33 | $1.09 | | Diluted net (loss) income per share | $(1.09) | $0.33 | $1.09 | - Net sales increased by **$295.3 million (27.7%)** in **fiscal 2019** compared to **fiscal 2018**[288](index=288&type=chunk) - The company reported a net loss of **$(58.2) million** in **fiscal 2019**, a significant decrease from a net income of **$15.8 million** in **fiscal 2018**, largely due to increased selling, general, and administrative expenses[288](index=288&type=chunk) [Consolidated Statements of Comprehensive (Loss) Income](index=56&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) Consolidated Statements of Comprehensive (Loss) Income show a total comprehensive loss of **$(59.5) million** in **fiscal 2019**, primarily due to net loss and foreign currency adjustments Consolidated Statements of Comprehensive (Loss) Income (Dollars in thousands) | Metric | FY2019 | FY2018 | FY2017 | | :-------------------------------- | :----- | :----- | :----- | | Net (loss) income | $(58,208) | $15,800 | $51,910 | | Foreign currency translation adjustments | $(1,322) | $854 | $2,117 | | Amounts reclassified from accumulated other comprehensive income to discontinued U.K. operations | $— | $— | $(7,776) | | Pension related adjustments | $— | $— | $214 | | **Total comprehensive (loss) income** | **$(59,530)** | **$16,654** | **$46,465** | - Total comprehensive loss for **fiscal 2019** was **$(59.5) million**, compared to total comprehensive income of **$16.7 million** in **fiscal 2018**[291](index=291&type=chunk) - Foreign currency translation adjustments resulted in a loss of **$(1.3) million** in **fiscal 2019**, following gains in prior years[291](index=291&type=chunk) [Consolidated Statements of Cash Flows](index=57&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows show net cash from operations increased to **$65.2 million** in **fiscal 2019**, with financing activities using **$(72.5) million** for distributions and debt paydowns Consolidated Statements of Cash Flows (Dollars in thousands) | Cash Flow Category | FY2019 | FY2018 | FY2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $65,228 | $31,623 | $33,459 | | Net cash used in investing activities | $(2,030) | $(8,621) | $(18,737) | | Net cash (used in) provided by financing activities | $(72,518) | $10,336 | $3,694 | | Net (decrease) increase in cash and cash equivalents | $(9,982) | $33,924 | $17,830 | | Cash, cash equivalents and restricted cash at end of period | $126,634 | $136,616 | $102,692 | - Net cash provided by operating activities increased by **$33.6 million (106.3%)** from **fiscal 2018** to **fiscal 2019**[294](index=294&type=chunk) - Net cash used in financing activities in **fiscal 2019** was **$(72.5) million**, primarily due to a **$65.3 million** members' capital distribution and **$5.0 million** in revolving debt payments[294](index=294&type=chunk) [Consolidated Statements of Equity](index=58&type=section&id=Consolidated%20Statements%20of%20Equity) Consolidated Statements of Equity show total equity increased from **$153.3 million** to **$412.0 million**, driven by stock exchange and equity compensation, offset by net loss and distributions Consolidated Statements of Equity Highlights (Dollars in thousands) | Metric | Balance at April 2, 2016 | Balance at April 1, 2017 | Balance at March 31, 2018 | Balance at March 30, 2019 | | :---------------------------------------- | :----------------------- | :----------------------- | :------------------------ | :------------------------ | | Members' Contributed Capital | $139,714 | $140,322 | $140,076 | $— | | Common Stock Amount | $— | $— | $— | $1,569 | | Additional Paid in Capital | $— | $— | $— | $479,226 | | Retained Earnings (Accumulated Deficit) | $(45,196) | $6,714 | $22,514 | $(58,208) | | Accumulated Other Comprehensive Loss | $(4,702) | $(10,147) | $(9,293) | $(10,615) | | **Total Equity** | **$89,816** | **$136,889** | **$153,297** | **$411,972** | - Total equity increased by **$258.7 million** from **March 31, 2018**, to **March 30, 2019**[296](index=296&type=chunk) - Key drivers of equity changes in **fiscal 2019** include the exchange of membership interest for common stock (**$285.1 million**) and equity-based compensation (**$102.0 million**), offset by a net loss of **$(58.2) million** and members' capital distributions of **$(65.3) million**[296](index=296&type=chunk) Notes to Consolidated Financial Statements [1. Summary of Significant Accounting Policies](index=59&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's significant accounting policies, including reverse acquisition basis, revenue recognition, asset valuation, and recently adopted and pending accounting pronouncements - The Exchange on **June 1, 2018**, was treated as a reverse acquisition, with Champion Holdings as the accounting acquirer; fiscal 2019 results combine pre-Exchange Champion Holdings with post-Exchange combined entity results[300](index=300&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically at the point of transfer of control for products; for long-term construction contracts, revenue is recognized over time using the percentage-of-completion method[308](index=308&type=chunk)[375](index=375&type=chunk)[377](index=377&type=chunk) - Inventories are valued at the lower of cost or market using the first-in, first-out method[319](index=319&type=chunk) - Goodwill is not amortized but tested for impairment annually; in **fiscal 2019**, a qualitative assessment indicated no impairment risk[325](index=325&type=chunk)[326](index=326&type=chunk) - The company adopted **ASC 606 (Revenue from Contracts with Customers)** and **ASU 2016-18 (Restricted Cash)** on **April 1, 2018**, with no material impact on revenues from ASC 606[336](index=336&type=chunk)[337](index=337&type=chunk) - **ASU 2016-02 (Leases)** will be adopted on **March 31, 2019**, leading to recognition of lease-related assets and liabilities between **$12.0 million** and **$15.0 million** on the balance sheet, without material impact on results or cash flows[338](index=338&type=chunk)[340](index=340&type=chunk) [2. Business Combination and Acquisitions](index=64&type=section&id=2.%20Business%20Combination%20and%20Acquisitions) The Champion Holdings-Skyline Exchange on **June 1, 2018**, was a reverse acquisition, generating **$170.2 million** in goodwill; acquired Skyline operations contributed **$218.8 million** in **fiscal 2019** net sales - The Exchange was completed on **June 1, 2018**, and accounted for as a reverse acquisition, with Champion Holdings as the accounting acquirer[343](index=343&type=chunk) Preliminary Purchase Price Allocation (Dollars in thousands) | Asset/Liability | Preliminary Allocation at March 30, 2019 | | :-------------------------------- | :------------------------------------- | | Cash | $9,722 | | Trade accounts receivable | $13,876 | | Inventory | $19,028 | | Property, plant and equipment | $40,220 | | Deferred tax assets, net | $6,996 | | Intangibles | $52,218 | | Goodwill | $170,227 | | Accounts payable and accrued liabilities | $(36,027) | | **Total purchase price allocation** | **$285,052** | - The acquired Skyline operations contributed **$218.8 million** in net sales to **fiscal 2019**[348](index=348&type=chunk) - Prior acquisitions include a manufactured housing plant in Mansfield, Texas (**$2.2 million cash, 2017**) and Innovative Building Systems, LLC (IBS) (**$14.3 million cash, 2016**), which added modular manufacturing facilities and retail sales centers[351](index=351&type=chunk)[352](index=352&type=chunk) [3. Discontinued Operations](index=66&type=section&id=3.%20Discontinued%20Operations) The company disposed of its U.K. operations on **January 20, 2017**, recognizing a **$0.6 million** net gain in **fiscal 2017**, primarily from reclassified translation adjustments and pension losses - The company completed the disposition of its U.K. operations on **January 20, 2017**[355](index=355&type=chunk) Pretax Income of Discontinued Operations (FY2017, Dollars in thousands) | Major line items | Amount | | :------------------------------------------------ | :----- | | Revenue | $21,137 | | Cost of sales | $(18,306) | | Selling, general and administrative expenses | $(5,016) | | Reclassifications from accumulated other comprehensive income | $7,562 | | Other | $10 | | Pretax income of discontinued operations | $5,387 | | Pretax loss on sale of U.K. operations | $(4,803) | | Total pretax gain of U.K. operations | $584 | | Income tax expense | $(1) | | **Gain on discontinued operations, net of tax** | **$583** | - The net gain was primarily driven by the reclassification of **$7.6 million** in cumulative translation adjustment gains and defined benefit pension plan losses from accumulated other comprehensive loss[356](index=356&type=chunk) [4. Cash, Cash Equivalents and Restricted Cash](index=66&type=section&id=4.%20Cash%2C%20Cash%20Equivalents%20and%20Restricted%20Cash) As of **March 30, 2019**, total cash, cash equivalents, and restricted cash was **$126.6 million**, with restricted cash eliminated in **fiscal 2019** due to the Credit Agreement Cash, Cash Equivalents and Restricted Cash (Dollars in thousands) | Metric | March 30, 2019 | March 31, 2018 | April 1, 2017 | | :---------------------------------------- | :------------- | :------------- | :------------ | | Balance sheet - cash and cash equivalents | $126,634 | $113,731 | $81,012 | | Balance sheet - restricted cash | $— | $22,885 | $21,680 | | **Statement of cash flows - cash, cash equivalents and restricted cash** | **$126,634** | **$136,616** | **$102,692** | - Restricted cash, previously collateral for letters of credit, was reduced to zero in **fiscal 2019** due to the new Credit Agreement[317](index=317&type=chunk)[370](index=370&type=chunk) [5. Inventories](index=66&type=section&id=5.%20Inventories) Net inventory increased to **$122.6 million** at **March 30, 2019**, primarily in raw materials and finished goods; obsolete inventory reserves were **$4.1 million** Components of Net Inventory (Dollars in thousands) | Component | March 30, 2019 | March 31, 2018 | | :------------------ | :------------- | :------------- | | Raw materials | $48,531 | $37,852 | | Work in process | $13,973 | $10,004 | | Finished goods and other | $60,134 | $50,166 | | **Total inventories** | **$122,638** | **$98,022** | - Total inventories increased by **$24.6 million (25.1%)** from **March 31, 2018**, to **March 30, 2019**[358](index=358&type=chunk) - Reserves for obsolete inventory were **$4.1 million** at **March 30, 2019**, up from **$3.5 million** at **March 31, 2018**[358](index=358&type=chunk) [6. Property, Plant, and Equipment](index=67&type=section&id=6.%20Property%2C%20Plant%2C%20and%20Equipment) Net PP&E increased to **$108.6 million** at **March 30, 2019**, primarily due to the Exchange; depreciation was **$11.3 million**, and idle facilities had a **$9.6 million** net book value Components of PP&E (Dollars in thousands) | Component | March 30, 2019 | March 31, 2018 | | :-------------------------------- | :------------- | :------------- | | Land and improvements | $34,264 | $22,071 | | Buildings and improvements | $83,973 | $58,179 | | Machinery and equipment | $42,476 | $31,924 | | Construction in progress | $3,619 | $919 | | Property, plant and equipment, at cost | $164,332 | $113,093 | | Less accumulated depreciation | $(55,745) | $(45,133) | | **Property, plant, and equipment, net** | **$108,587** | **$67,960** | - Net PP&E increased by **$40.6 million (59.7%)** from **March 31, 2018**, to **March 30, 2019**, largely due to the Exchange[360](index=360&type=chunk) - Depreciation expense was **$11.3 million** in **fiscal 2019**, up from **$7.8 million** in **fiscal 2018**[359](index=359&type=chunk) - At **March 30, 2019**, the company owned **five idle manufacturing facilities** and **two idle retail sales centers** with a net book value of **$9.6 million**[322](index=322&type=chunk) [7. Goodwill and Intangible Assets](index=67&type=section&id=7.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to **$173.4 million** and amortizable intangible assets to **$48.9 million** at **March 30, 2019**, primarily due to the Exchange; amortization expense was **$4.8 million** in **fiscal 2019** Goodwill and Amortizable Intangible Assets (Dollars in thousands) | Metric | March 30, 2019 | March 31, 2018 | | :-------------------------------- | :------------- | :------------- | | Goodwill | $173,406 | $3,179 | | Amortizable intangibles, net | $48,936 | $1,542 | | Weighted average remaining amortization period (years) | 8.0 | 5.4 | - The increase in goodwill and intangible assets is primarily a result of the preliminary estimate recognized in the Exchange[361](index=361&type=chunk)[362](index=362&type=chunk) - Amortization expense for intangible assets was **$4.8 million** in **fiscal 2019**, significantly up from **$0.5 million** in **fiscal 2018**[363](index=363&type=chunk) [8. Other Current Liabilities](index=68&type=section&id=8.%20Other%20Current%20Liabilities) Total other current liabilities increased to **$129.6 million** at **March 30, 2019**, primarily due to higher customer deposits, accrued rebates, warranty obligations, and compensation Components of Other Current Liabilities (Dollars in thousands) | Component | March 30, 2019 | March 31, 2018 | | :---------------------------------------- | :------------- | :------------- | | Customer deposits and receipts in excess of revenues | $28,392 | $24,557 | | Accrued volume rebates | $21,020 | $17,037 | | Accrued warranty obligations | $17,886 | $12,530 | | Accrued compensation and payroll taxes | $32,075 | $24,100 | | Accrued insurance | $16,245 | $11,112 | | Other | $13,943 | $10,776 | | **Total other current liabilities** | **$129,561** | **$100,112** | - Total other current liabilities increased by **$29.4 million (29.4%)** from **March 31, 2018**, to **March 30, 2019**[364](index=364&type=chunk) [9. Accrued Warranty Obligations](index=68&type=section&id=9.%20Accrued%20Warranty%20Obligations) Accrued warranty obligations increased to **$23.3 million** at **March 30, 2019**, due to assumed warranty and expense, partially offset by cash payments Changes in Accrued Warranty Obligations (Dollars in thousands) | Metric | FY2019 | FY2018 | | :-------------------------------- | :----- | :----- | | Balance at the beginning of the period | $15,430 | $14,534 | | Warranty assumed in the Exchange | $6,259 | $— | | Warranty expense | $37,298 | $23,855 | | Cash warranty payments | $(35,641) | $(22,959) | | **Balance at end of period** | **$23,346** | **$15,430** | - Accrued warranty obligations increased by **$7.9 million (51.3%)** from **March 31, 2018**, to **March 30, 2019**[365](index=365&type=chunk) [10. Debt and Floor Plan Payable](index=68&type=section&id=10.%20Debt%20and%20Floor%20Plan%20Payable) Long-term debt decreased to **$54.3 million** at **March 30, 2019**, including a **$100.0 million** revolving credit facility; floor plan payable increased to **$33.3 million** Long-term Debt (Dollars in thousands) | Debt Type | March 30, 2019 | March 31, 2018 | | :-------------------------------- | :------------- | :------------- | | Revolving credit facility maturing in 2023 | $41,900 | $— | | Obligations under industrial revenue bonds due 2029 | $12,430 | $12,430 | | Term Loans due March 2020 | $— | $46,897 | | **Total debt** | **$54,330** | **$59,331** | - The company entered into a new **$100.0 million** revolving credit facility on **June 5, 2018**, replacing existing term loans and a cash-collateralized letter of credit facility[367](index=367&type=chunk) - As of **March 30, 2019**, **$41.9 million** was outstanding under the revolving credit facility, with **$37.1 million** available to borrow[368](index=368&type=chunk) - Floor plan payable for retail operations increased to **$33.3 million** at **March 30, 2019**, from **$29.8 million** at **March 31, 2018**, with financing arrangements allowing borrowings up to **$47.0 million**[373](index=373&type=chunk) [11. Revenue Recognition](index=69&type=section&id=11.%20Revenue%20Recognition) Revenue is recognized upon transfer of control for products or over time for long-term contracts; disaggregated by U.S. and Canadian Factory-Built Housing and Corporate/Other segments - Revenue for sales to independent retailers and builders/developers is recognized when wholesale financing is approved, the home is shipped, and title has transferred[375](index=375&type=chunk) - Retail sales to consumers are recognized when the home is delivered, set up, accepted, and title has transferred, with funds received from the finance company or buyer[376](index=376&type=chunk) - Commercial revenue for long-term construction contracts is recognized over time using the percentage-of-completion method[377](index=377&type=chunk) Disaggregated Revenue by Sales Category (Dollars in thousands) | Sales Category | FY2019 | FY2018 | FY2017 | | :----------------------- | :----- | :----- | :----- | | **U.S. Factory-Built Housing** | | | | | Manufacturing and retail | $1,166,245 | $841,354 | $660,984 | | Commercial | $11,442 | $19,134 | $17,312 | | **Canadian Factory-built Housing** | | | | | Manufacturing and retail | $98,567 | $96,603 | $92,631 | | **Corporate/Other** | | | | | Transportation | $83,789 | $107,631 | $90,392 | | **Total** | **$1,360,043** | **$1,064,722** | **$861,319** | [12. Income Taxes](index=71&type=section&id=12.%20Income%20Taxes) Fiscal 2019 income tax expense was **$16.9 million**, with an effective rate of **(40.9%)**, influenced by non-deductible expenses; deferred tax assets increased to **$60.9 million** Income Tax Expense (Benefit) (Dollars in thousands) | Metric | FY2019 | FY2018 | FY2017 | | :-------------------------------- | :----- | :----- | :----- | | Total income tax expense (benefit) | $16,905 | $27,316 | $(23,321) | | Effective tax rate | (40.9%) | 63.4% | (83.3%) | - The effective tax rate for **fiscal 2019** was **(40.9%)**, differing from the federal statutory rate due to non-deductible expenses from the Exchange, state/local taxes, and foreign results[156](index=156&type=chunk) - The **Tax Cuts and Jobs Act (2017)** reduced the corporate income tax rate from **35% to 21%**, leading to a provisional **$9.4 million** U.S. federal income tax expense in **fiscal 2018** for deferred tax re-measurement[381](index=381&type=chunk)[383](index=383&type=chunk) Deferred Tax Assets and Liabilities (Dollars in thousands) | Component | March 30, 2019 | March 31, 2018 | | :-------------------------------- | :------------- | :------------- | | Gross deferred tax assets | $60,910 | $37,853 | | Gross deferred tax liabilities | $22,981 | $4,504 | | Valuation allowance | $(7,293) | $(6,353) | | **Net deferred tax assets** | **$30,636** | **$26,996** | - As of **March 30, 2019**, the company has U.S. federal NOL carryforwards of **$67.7 million** and state NOL carryforwards in various jurisdictions[388](index=388&type=chunk) [13. Equity-Based Compensation](index=74&type=section&id=13.%20Equity-Based%20Compensation) Equity-based compensation expense surged to **$102.0 million** in **fiscal 2019**, primarily due to a **$95.1 million** incremental fair value from modified restricted share awards related to the Exchange Equity-Based Compensation Expense (Dollars in thousands) | Fiscal Year | Expense | | :---------- | :------ | | 2019 | $102,000 | | 2018 | $600 | | 2017 | $600 | - The significant increase in **fiscal 2019** expense includes **$6.0 million** related to former Skyline employees and **$95.1 million** from the incremental fair value of modified restricted share awards that vested due to public offerings[343](index=343&type=chunk)[392](index=392&type=chunk) - The company's **2018 Equity Incentive Plan** allows for grants of options, stock appreciation rights, restricted stock/units, and performance awards[392](index=392&type=chunk) - Total unrecognized equity-based compensation was **$8.4 million** at **March 30, 2019**, with **$6.1 million** expected to be recognized in **fiscal 2020**[391](index=391&type=chunk) Weighted-Average Grant Date Fair Value for Awards Granted in FY2019 | Award Type | Weighted Average Grant Date Fair Value Per Share/Unit | | :---------------------- | :---------------------------------------------------- | | Options | $3.93 | | Performance Share Units | $3.62 | | Restricted Share Units | $14.24 | | Restricted Share Awards | $29.77 | [14. Earnings Per Share](index=77&type=section&id=14.%20Earnings%20Per%20Share) Basic and diluted EPS are computed using the two-class method; **fiscal 2019** basic and diluted EPS from continuing operations was **$(1.09)**, reflecting the net loss - Basic and diluted net (loss) income per share are computed using the two-class method, as the company's time-vesting and performance-vesting restricted share awards are considered participating securities[399](index=399&type=chunk) - All common stock outstanding amounts are calculated as if the Shares Issuance occurred on **April 3, 2016**[399](index=399&type=chunk) Basic and Diluted Earnings Per Share (Dollars and shares in thousands, except per share data) | Metric | FY2019 | FY2018 | FY2017 | | :---------------------------------------- | :----- | :----- | :----- | | Net (loss) income from continuing operations | $(58,208) | $15,800 | $51,327 | | Basic weighted average shares outstanding | 53,491 | 44,491 | 44,489 | | Diluted weighted average shares outstanding | 53,491 | 44,491 | 44,489 | | Basic net (loss) income per share | $(1.09) | $0.33 | $1.09 | | Diluted net (loss) income per share | $(1.09) | $0.33 | $1.09 | - Securities that could potentially dilute basic EPS in the future but were considered antidilutive in **fiscal 2019** include **146 thousand options**, **158 thousand restricted share units**, and **146 thousand performance share units**, totaling **450 thousand dilutive securities**[401](index=401&type=chunk) [15. Retirement Plans](index=78&type=section&id=15.%20Retirement%20Plans) The company sponsors defined contribution savings plans for U.S. and Canadian employees, with U.S. matching **50% of the first 6% of pay**, incurring **$0.6 million** in expense for both in **fiscal 2019** - The U.S. subsidiary sponsors a defined contribution savings plan, matching **50% of the first 6% of pay** contributed, with an expense of **$0.6 million** in **fiscal 2019**[402](index=402&type=chunk) - Canadian subsidiaries also have employer-sponsored defined contribution plans, with expenses of **$0.6 million** in **fiscal 2019**[403](index=403&type=chunk) [16. Transactions with Related Parties](index=78&type=section&id=16.%20Transactions%20with%20Related%20Parties) Prior to the Exchange, the company incurred **$0.3 million** in management fees with Principal Shareholders; post-Exchange, it entered into registration and investor rights agreements with them and a transition services agreement with Champion Holdings - Prior to the Exchange, the company had a Management Advisory Services Agreement with Principal Shareholders, incurring **$0.3 million** in management fee expense in **fiscal 2019

Financial Data and Key Metrics Changes - For fiscal year 2019, the company reported a total revenue of $1.4 billion, reflecting a strong revenue growth of 28% compared to the previous year [7] - Adjusted EBITDA for the year increased by 50% to $97 million, indicating strong operational performance [7] - In Q4, revenue grew by 23% year-over-year, with adjusted EBITDA reaching $24.2 million, an 86% increase from the prior year [8][9] Business Line Data and Key Metrics Changes - U.S. sales increased by 35% to $295 million, with a 15% increase in the number of homes sold and an average selling price of $61,100, up 17% [25][26] - Canadian sales declined by 17% to $18.7 million, attributed to a decrease in the number of homes sold, although average selling prices increased slightly to $81,600 [26] Market Data and Key Metrics Changes - The manufactured housing industry is expected to continue growing, with industry volumes remaining below long-term averages [10] - In Canada, orders were down 25% during the March quarter, particularly in British Columbia, Alberta, and Saskatchewan, with expectations for continued softness in the short term [15] Company Strategy and Development Direction - The company is focused on organic growth initiatives and evaluating potential acquisition opportunities to enhance its market position [40] - The integration of Skyline and Champion is progressing well, with a target to achieve synergies of $12 million to $16 million by December 2019 [36][37] Management's Comments on Operating Environment and Future Outlook - Management remains positive about the outlook for the manufactured housing industry, citing increasing demand for affordable housing and improving financing options [10][39] - The company is closely monitoring economic conditions and trends in the housing market while expecting continued growth in U.S. orders [13][39] Other Important Information - The company ended Q4 with a consolidated backlog of $143 million, down from $155 million a year ago, indicating a more normalized production level [17] - The effective tax rate for Q4 was 25.9%, a significant decrease from 176.4% in the prior year, primarily due to changes in equity-based compensation [31] Q&A Session Summary Question: Impact of weather on shipments - Management noted that weather conditions primarily affected regions between Texas and North Carolina, causing delays in shipments [47] Question: Order rates and regional performance - Management indicated that while some regions experienced softness, overall customer demand remains strong, with double-digit order growth in April [49] Question: Fannie and Freddie's programs - Management expects traction from Fannie and Freddie's programs in the latter half of the year, which could attract more lenders to the manufactured housing space [51] Question: Canadian market outlook - The Canadian operations are expected to remain soft for the next quarter or two, with approximately 8% of overall sales coming from Canada [53] Question: Sustainability of gross margins - Management confirmed that the strong gross margins in the U.S. are sustainable, with no one-time adjustments affecting the quarter [54] Question: Long-term EBITDA margin targets - Management expects long-term EBITDA margins to reach around 10%, with some deceleration in growth due to ongoing investments [76] Question: Impact of tariffs on costs - Management indicated that tariffs could impact costs by 1% to 3%, primarily affecting plumbing and cabinetry products [80] Question: Future M&A opportunities - Management is exploring M&A opportunities in both manufacturing capacity expansion and distribution channels [91]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and notes, highlighting the significant impact of the June 2018 business combination [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20December%2029%2C%202018%20(unaudited)%20and%20March%2031%2C%202018) Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :--------------------------------- | :----------------------- | :----------- | :----- | | Total Assets | $678,264 | $395,398 | +$282,866 | | Total Current Assets | $298,724 | $263,104 | +$35,620 | | Property, Plant and Equipment, net | $111,360 | $67,960 | +$43,400 | | Goodwill | $172,057 | $3,179 | +$168,878 | | Amortizable Intangible Assets, net | $48,914 | $1,542 | +$47,372 | | Total Liabilities | $279,719 | $242,101 | +$37,618 | | Total Equity | $398,545 | $153,297 | +$245,248 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(unaudited)%20for%20the%20three%20and%20nine%20months%20ended%20December%2029%2C%202018%20and%20December%2030%2C%202017) Condensed Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change (YoY) | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------ | :-------------------------- | :-------------------------- | :------------ | | Net sales | $354,671 | $294,378 | +20.5% | $1,032,368 | $798,443 | +29.3% | | Gross profit | $64,736 | $56,260 | +15.1% | $178,896 | $133,619 | +33.9% | | Selling, general, and administrative expenses | $48,848 | $32,877 | +48.6% | $222,005 | $87,439 | +153.9% | | Operating income (loss) | $15,888 | $23,383 | -32.1% | $(43,109) | $46,180 | -193.3% | | Net income (loss) | $10,513 | $5,393 | +94.9% | $(67,365) | $18,064 | -472.9% | | Basic EPS | $0.19 | $0.11 | +72.7% | $(1.28) | $0.38 | -436.8% | | Diluted EPS | $0.19 | $0.11 | +72.7% | $(1.28) | $0.38 | -436.8% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)%20for%20the%20nine%20months%20ended%20December%2029%2C%202018%20and%20December%2030%2C%202017) Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :------------ | | Net cash provided by (used in) operating activities | $51,918 | $(671) | +$52,589 | | Net cash provided by (used in) investing activities | $2,396 | $(7,610) | +$10,006 | | Net cash (used in) provided by financing activities | $(60,815) | $5,780 | -$66,595 | | Net decrease in cash, cash equivalents and restricted cash | $(7,631) | $(944) | -$6,687 | | Cash, cash equivalents and restricted cash at end of period | $128,985 | $101,748 | +$27,237 | [Condensed Consolidated Statement of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders'%20Equity%20(unaudited)%20for%20the%20nine%20months%20ended%20December%2029%2C%202018) Condensed Consolidated Statement of Stockholders' Equity (Dollars in thousands) | Metric | Balance at April 1, 2018 | Balance at Dec 29, 2018 | Change | | :----------------------------------------- | :----------------------- | :---------------------- | :------- | | Members' Contributed Capital | $140,076 | $0 | -$140,076 | | Common Stock (Shares) | 0 | 56,713 | +56,713 | | Common Stock (Amount) | $0 | $1,571 | +$1,571 | | Additional Paid in Capital | $0 | $475,838 | +$475,838 | | Retained Earnings (Accumulated Deficit) | $22,514 | $(67,365) | -$89,879 | | Accumulated Other Comprehensive Loss | $(9,293) | $(11,499) | -$2,206 | | Total Equity | $153,297 | $398,545 | +$245,248 | - The significant increase in total equity is primarily due to the Exchange of membership interest for shares of Skyline Champion Corporation (**$285.2 million**) and equity-based compensation (**$97.6 million**), partially offset by members' capital distributions (**$65.3 million**) and a net loss (**$67.4 million**)[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Basis of Presentation and Business](index=8&type=section&id=1.%20Basis%20of%20Presentation%20and%20Business) This note details the basis of financial statement preparation, describes the Company's operations as a leading factory-built housing producer, and mentions the evaluation of new lease accounting standards - The Company is a leading producer of factory-built housing in the U.S. and Canada, operating **31 U.S. and 5 Canadian manufacturing facilities**, **21 retail sales centers**, and transportation logistics services[29](index=29&type=chunk) - The Company is evaluating the impact of ASU 2016-02, Leases (Topic 842), effective for fiscal years beginning after December 31, 2018, expecting a significant impact to its consolidated balance sheet[30](index=30&type=chunk)[31](index=31&type=chunk) [2. Business Combination](index=10&type=section&id=2.%20Business%20Combination) This note details the June 2018 reverse acquisition of Skyline Corporation by Champion Holdings, including the preliminary purchase price allocation and resulting goodwill and intangible assets - The Exchange between Champion Holdings and Skyline Corporation was completed on June 1, 2018, and accounted for as a reverse acquisition, with Champion Holdings as the accounting acquirer[36](index=36&type=chunk) Preliminary Estimated Purchase Price Allocation (Dollars in thousands) | Item | Allocation at Dec 29, 2018 | | :----------------------------------------- | :----------------------- | | Cash | $9,722 | | Trade accounts receivable | $13,876 | | Inventory | $19,028 | | Property, plant and equipment | $44,642 | | Deferred tax assets, net | $7,954 | | Other assets | $6,349 | | Accounts payable and accrued liabilities | $(35,977) | | Intangibles | $50,693 | | Goodwill | $168,878 | | Total preliminary estimated purchase price allocation | $285,165 | - Goodwill of **$168.9 million** is primarily attributed to expected synergies from the combination, including cost synergies and operational improvements[38](index=38&type=chunk) [3. Cash, Cash Equivalents and Restricted Cash](index=11&type=section&id=3.%20Cash%2C%20Cash%20Equivalents%20and%20Restricted%20Cash) The Company adopted ASU 2016-18, Restricted Cash, on April 1, 2018, retrospectively. As of December 29, 2018, cash and cash equivalents were $129.0 million, with no restricted cash, reflecting a change from March 31, 2018, where restricted cash was $22.9 million - The Company adopted ASU 2016-18, Restricted Cash, on April 1, 2018, requiring changes in restricted cash to be reflected with cash and cash equivalents on the statement of cash flows[44](index=44&type=chunk) Cash, Cash Equivalents and Restricted Cash (Dollars in thousands) | Metric | Dec 29, 2018 (unaudited) | Mar 31, 2018 | | :----------------------------------------- | :----------------------- | :----------- | | Balance sheet - cash and cash equivalents | $128,985 | $113,731 | | Balance sheet - restricted cash | $0 | $22,885 | | Statement of cash flows - cash, cash equivalents and restricted cash | $128,985 | $136,616 | [4. Inventories](index=12&type=section&id=4.%20Inventories) Total inventories increased to $111.4 million at December 29, 2018, from $98.0 million at March 31, 2018, with increases across raw materials, work in process, and finished goods. Reserves for obsolete inventory remained constant at $3.5 million Components of Net Inventory (Dollars in thousands) | Component | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :------------------ | :----------------------- | :----------- | :----- | | Raw materials | $45,133 | $37,852 | +$7,281 | | Work in process | $13,299 | $10,004 | +$3,295 | | Finished goods and other | $52,919 | $50,166 | +$2,753 | | Total inventories | $111,351 | $98,022 | +$13,329 | - Reserves for obsolete inventory remained consistent at **$3.5 million** for both periods[47](index=47&type=chunk) [5. Property, Plant, and Equipment](index=12&type=section&id=5.%20Property%2C%20Plant%2C%20and%20Equipment) Net property, plant, and equipment significantly increased to $111.4 million at December 29, 2018, from $68.0 million at March 31, 2018, largely due to the acquisition of Skyline Corporation. Depreciation expense also increased for both the three and nine-month periods Property, Plant, and Equipment, Net (Dollars in thousands) | Component | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :--------------------------------- | :----------------------- | :----------- | :----- | | Land and improvements | $34,797 | $22,071 | +$12,726 | | Buildings and improvements | $85,863 | $58,179 | +$27,684 | | Machinery and equipment | $40,459 | $31,924 | +$8,535 | | Construction in progress | $3,122 | $919 | +$2,203 | | Property, plant and equipment, at cost | $164,241 | $113,093 | +$51,148 | | Less accumulated depreciation | $52,881 | $45,133 | +$7,748 | | Property, plant, and equipment, net | $111,360 | $67,960 | +$43,400 | - Depreciation expense for the three months ended December 29, 2018, was **$2.9 million** (vs. **$1.9 million** prior year), and for the nine months was **$8.2 million** (vs. **$5.8 million** prior year)[48](index=48&type=chunk) [6. Goodwill and Intangible Assets](index=12&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased dramatically to $172.1 million at December 29, 2018, from $3.2 million at March 31, 2018, primarily due to the Exchange. Amortizable intangible assets also saw a substantial increase to $48.9 million from $1.5 million, mainly from newly recognized customer relationships and trade names from the acquisition Goodwill and Amortizable Intangible Assets (Dollars in thousands) | Metric | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :--------------------------------- | :----------------------- | :----------- | :----- | | Goodwill | $172,057 | $3,179 | +$168,878 | | Amortizable intangibles, net | $48,914 | $1,542 | +$47,372 | - The increase in goodwill and intangible assets is a direct result of the Exchange, with **$41.7 million** in customer relationships and **$9.0 million** in trade names recognized[50](index=50&type=chunk)[53](index=53&type=chunk) - Amortization of intangible assets for the three months ended December 29, 2018, was **$1.6 million** (vs. **$0.2 million** prior year), and for the nine months was **$3.3 million** (vs. **$0.4 million** prior year)[53](index=53&type=chunk) [7. Other Current Liabilities](index=13&type=section&id=7.%20Other%20Current%20Liabilities) Total other current liabilities increased to $122.8 million at December 29, 2018, from $100.1 million at March 31, 2018. This increase was primarily driven by higher customer deposits, accrued volume rebates, accrued warranty obligations, and accrued insurance Components of Other Current Liabilities (Dollars in thousands) | Component | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :----------------------------------------- | :----------------------- | :----------- | :----- | | Customer deposits and receipts in excess of revenues | $27,540 | $24,557 | +$2,983 | | Accrued volume rebates | $22,259 | $17,037 | +$5,222 | | Accrued warranty obligations | $17,366 | $12,530 | +$4,836 | | Accrued compensation and payroll taxes | $25,051 | $24,100 | +$951 | | Accrued insurance | $16,934 | $11,112 | +$5,822 | | Other | $13,679 | $10,776 | +$2,903 | | Total other current liabilities | $122,829 | $100,112 | +$22,717 | [8. Accrued Warranty Obligations](index=13&type=section&id=8.%20Accrued%20Warranty%20Obligations) Accrued warranty obligations increased to $23.1 million at December 29, 2018, from $15.4 million at the beginning of the nine-month period, driven by warranty expense and assumed warranty from the Exchange Changes in Accrued Warranty Obligations (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change (YoY) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :------------ | | Balance at the beginning of the period | $15,430 | $14,534 | +$896 | | Warranty assumed in the Exchange | $6,259 | $0 | +$6,259 | | Warranty expense | $25,834 | $17,441 | +$8,393 | | Cash warranty payments | $(24,457) | $(16,966) | -$7,491 | | Balance at end of period | $23,066 | $15,009 | +$8,057 | [9. Debt and Floor Plan Payable](index=13&type=section&id=9.%20Debt%20and%20Floor%20Plan%20Payable) Total debt remained stable at $59.3 million, with a new $100.0 million revolving credit facility replacing existing term loans, while floor plan payable increased to $39.0 million for retail inventory Long-term Debt (Dollars in thousands) | Component | Dec 29, 2018 (unaudited) | Mar 31, 2018 | Change | | :--------------------------------- | :----------------------- | :----------- | :----- | | Revolving credit facility | $46,900 | $0 | +$46,900 | | Obligations under industrial revenue bonds | $12,430 | $12,430 | $0 | | Capital lease obligations and other debt | $0 | $4 | -$4 | | Term Loans due March 2020 | $0 | $46,897 | -$46,897 | | Total debt | $59,330 | $59,331 | -$1 | - The Company entered into a new **$100.0 million** revolving credit facility on June 5, 2018, maturing in June 2023, with an interest rate based on LIBOR plus **1.75%** (or ABR plus **0.75%**) at December 29, 2018[58](index=58&type=chunk)[59](index=59&type=chunk) - Floor plan payable increased to **$39.0 million** at December 29, 2018, from **$29.8 million** at March 31, 2018, with total available borrowings of **$47.0 million**[64](index=64&type=chunk) [10. Revenue Recognition](index=14&type=section&id=10.%20Revenue%20Recognition) The Company adopted ASC 606 on April 1, 2018, with no material impact, recognizing revenue upon transfer of control for manufacturing sales and delivery/acceptance for retail sales, and over time for commercial revenue - The Company adopted ASC 606 on April 1, 2018, using the modified retrospective method, with no material impact on revenues for the three and nine months ended December 29, 2018[66](index=66&type=chunk) - Revenue for manufacturing sales is recognized when wholesale floor plan financing or retailer credit approval is received, the home is shipped, and title is transferred[71](index=71&type=chunk) Revenue by Sales Category (Dollars in thousands) - Three Months Ended Dec 29, 2018 | Category | U.S. Factory-Built Housing | Canadian Factory-built Housing | Corporate/Other | Total | | :----------------------- | :------------------------- | :--------------------------- | :-------------- | :------ | | Manufacturing and retail | $308,013 | $27,130 | $0 | $335,143 | | Commercial | $1,505 | $0 | $0 | $1,505 | | Transportation | $0 | $0 | $18,023 | $18,023 | | Total | $309,518 | $27,130 | $18,023 | $354,671 | Revenue by Sales Category (Dollars in thousands) - Nine Months Ended Dec 29, 2018 | Category | U.S. Factory-Built Housing | Canadian Factory-built Housing | Corporate/Other | Total | | :----------------------- | :------------------------- | :--------------------------- | :-------------- | :------ | | Manufacturing and retail | $870,816 | $79,885 | $0 | $950,701 | | Commercial | $11,441 | $0 | $0 | $11,441 | | Transportation | $0 | $0 | $70,226 | $70,226 | | Total | $882,257 | $79,885 | $70,226 | $1,032,368 | [11. Other Expense](index=18&type=section&id=11.%20Other%20Expense) Other expense for the three months was $0.1 million due to an insured loss deductible, while for nine months it was $7.8 million, mainly from Exchange-related legal and advisory services - Other expense for the three months ended December 29, 2018, was **$0.1 million** (vs. **$1.9 million** prior year), primarily for an insured loss deductible[78](index=78&type=chunk) - Other expense for the nine months ended December 29, 2018, was **$7.8 million** (vs. **$2.9 million** prior year), primarily due to **$6.9 million** in Exchange-related services and **$0.8 million** for public offerings[78](index=78&type=chunk) [12. Income Taxes](index=18&type=section&id=12.%20Income%20Taxes) Income tax expense decreased for both periods, with effective tax rates significantly impacted by non-deductible Exchange-related costs, equity-based compensation, and deferred tax asset remeasurement under the 2017 Tax Act Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $4,437 | $15,051 | $13,699 | $22,089 | | Effective tax rate | 29.7% | 73.6% | (25.5%) | 55.0% | - The change in effective tax rate is primarily due to non-deductible equity-based compensation and the remeasurement of U.S. deferred tax assets and liabilities at the new **21%** corporate income tax rate under the 2017 Tax Cuts and Jobs Act[79](index=79&type=chunk)[80](index=80&type=chunk) - Uncertain tax positions decreased by **$0.3 million** and **$0.7 million** for the three and nine months ended December 29, 2018, respectively, due to the expiration of certain statutes of limitations[82](index=82&type=chunk) [13. Equity-Based Compensation](index=18&type=section&id=13.%20Equity-Based%20Compensation) Equity-based compensation expense significantly increased for both periods, primarily due to the exchange of unvested Champion Holdings units for restricted shares as part of the Exchange Equity-Based Compensation Expense (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Equity-based compensation expense | $3,662 | $150 | $97,589 | $450 | - The substantial increase in equity-based compensation is due to the exchange of unvested Champion Holdings units for restricted shares of the Company as part of the Exchange, with a significant portion vesting upon follow-on public offerings[83](index=83&type=chunk) - As of December 29, 2018, the Company had **464,000** unvested time-vesting restricted shares outstanding with a weighted average grant date fair value of **$32.03** per share[87](index=87&type=chunk) [14. Earnings Per Share](index=20&type=section&id=14.%20Earnings%20Per%20Share) Basic and diluted EPS increased for the three months but showed a significant loss for the nine months, reflecting the net loss incurred, with prior EPS calculations adjusted for the exchange ratio Basic and Diluted Earnings Per Common Share | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to common shareholders | $10,427 | $5,056 | $(67,365) | $16,922 | | Average common shares outstanding | 56,249 | 44,525 | 52,595 | 44,480 | | Basic net income (loss) per share | $0.19 | $0.11 | $(1.28) | $0.38 | | Diluted net income (loss) per share | $0.19 | $0.11 | $(1.28) | $0.38 | - The Company's time-vesting and performance-vesting restricted shares are considered participating securities for EPS calculation using the two-class method[88](index=88&type=chunk) [15. Transactions with Related Parties](index=20&type=section&id=15.%20Transactions%20with%20Related%20Parties) Prior to the Exchange, Champion Holdings paid management fees to Principal Shareholders under a Management Advisory Services Agreement, which was terminated upon completion of the Exchange - A Management Advisory Services Agreement with Principal Shareholders, which provided management, consulting, financial, and other advisory services, was terminated in connection with the Exchange[90](index=90&type=chunk) - Management fee expense recognized prior to the Exchange was **$0.3 million** for fiscal 2019, compared to **$0.4 million** and **$1.1 million** for the three and nine months ended December 30, 2017, respectively[90](index=90&type=chunk) [16. Segment Information](index=20&type=section&id=16.%20Segment%20Information) The Company operates in U.S. and Canadian Factory-built Housing segments, with Corporate/Other covering transportation and corporate costs, evaluating performance based on EBITDA, which was significantly impacted by non-cash equity-based compensation - The Company operates in two reportable segments: U.S. Factory-built Housing (wholesale and retail) and Canadian Factory-built Housing, with Corporate/Other encompassing transportation and corporate costs[91](index=91&type=chunk) Selected Financial Information by Reportable Segment (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | **Net Sales:** | | | | | | U.S. Factory-built Housing | $309,518 | $242,739 | $882,257 | $641,878 | | Canadian Factory-built Housing | $27,130 | $24,950 | $79,885 | $74,006 | | Corporate/Other | $18,023 | $26,689 | $70,226 | $82,559 | | **EBITDA:** | | | | | | U.S. Factory-built Housing EBITDA | $30,637 | $27,184 | $80,240 | $52,988 | | Canadian Factory-built Housing EBITDA | $2,568 | $1,836 | $9,123 | $8,475 | | Corporate/Other EBITDA | $(12,740) | $(3,609) | $(120,937) | $(9,157) | - Corporate/Other EBITDA for the nine months ended December 29, 2018, was significantly impacted by non-cash equity-based compensation[93](index=93&type=chunk)[160](index=160&type=chunk) [17. Commitments, Contingencies and Legal Proceedings](index=23&type=section&id=17.%20Commitments%2C%20Contingencies%20and%20Legal%20Proceedings) The Company has contingent repurchase obligations of $190.4 million, guarantees $0.8 million in floor plan obligations, and is involved in various legal proceedings, but expects no material adverse effect - Contingent repurchase obligation for homes sold to independent retailers was estimated at **$190.4 million** as of December 29, 2018, with a reserve for estimated losses of **$0.8 million**[96](index=96&type=chunk) - The Company guarantees **$0.8 million** of certain retailers' floor plan obligations and has contingent obligations of **$21.0 million** under letters of credit and **$29.8 million** under surety bonds[97](index=97&type=chunk)[98](index=98&type=chunk) - The Company is subject to various legal proceedings and claims in the ordinary course of business but believes the ultimate liability will not have a material adverse effect on its financial condition[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results, focusing on the Champion Holdings and Skyline Corporation combination, industry trends, liquidity, capital resources, and critical accounting policies [Overview](index=24&type=section&id=Overview) - Skyline Champion Corporation is a leading producer of factory-built housing in the U.S. and Canada, offering manufactured construction, company-owned retail locations, and transportation logistics services[103](index=103&type=chunk) - The Company operates **31 manufacturing facilities** in the U.S. and **5** in western Canada, along with **21 retail sales centers**, marketing homes under brands like Skyline Homes, Champion Homes, and Redman Homes[103](index=103&type=chunk) [Acquisitions and Expansions](index=24&type=section&id=Acquisitions%20and%20Expansions) - The Company is expanding its manufacturing footprint, including adding a second production line at Corona, California, and planning new plants in Leesville, Louisiana (June 2019) and Leola, Pennsylvania (Q1 fiscal 2020)[105](index=105&type=chunk) - Strategic acquisitions include a plant in Mansfield, Texas (April 2017) and assets of Innovative Building Systems (IBS) in September 2016, which added modular manufacturing facilities and retail sales centers[105](index=105&type=chunk) - Retail operations have expanded with **three new sales centers** in fiscal 2018, **five** in fiscal 2017, and **three** in fiscal 2016, aiming to increase market presence and manufacturing utilization[106](index=106&type=chunk) [Combination with Skyline](index=24&type=section&id=Combination%20with%20Skyline) - The Exchange between Champion Holdings and Skyline Corporation was completed on June 1, 2018, and accounted for as a reverse acquisition, with Champion Holdings as the accounting acquirer[108](index=108&type=chunk) - Financial results for Skyline Champion Corporation for the nine months ended December 29, 2018, comprise Champion Holdings' results through June 1, 2018, and the combined company's results thereafter[108](index=108&type=chunk) [Industry and Company Outlook](index=25&type=section&id=Industry%20and%20Company%20Outlook) - U.S. HUD-code home industry shipments increased by **4.5%** for the eight months ended November 30, 2018, compared to the prior year[109](index=109&type=chunk) - The Company's U.S. HUD market share grew to **16.2%** for the eight months ended November 30, 2018, up from **13.8%** in the comparable prior-year period, benefiting from Skyline operations[109](index=109&type=chunk) - Modular homes accounted for approximately **19%** of the Company's U.S. manufacturing sales during the nine months ended December 29, 2018, with industry sales generally stable since 2009[110](index=110&type=chunk) [Pro Forma Results of Operations](index=25&type=section&id=Pro%20Forma%20Results%20of%20Operations) - Unaudited pro forma results combine Champion Holdings and Skyline Corporation as if the Exchange and related financing occurred on April 2, 2017, for informational purposes[112](index=112&type=chunk) - Pro forma adjustments include changes to depreciation, amortization of intangibles, interest expense, and the elimination of transaction costs and one-time equity-based compensation related to the Exchange[114](index=114&type=chunk) - Pro forma data does not account for potential impacts of current financial conditions, anticipated synergies, operating efficiencies, or integration costs[42](index=42&type=chunk) [Results of Operations: Three Months Ended December 29, 2018 vs. Three Months Ended December 30, 2017](index=26&type=section&id=Results%20of%20Operations%3A%20Three%20Months%20Ended%20December%2029%2C%202018%20vs.%20Three%20Months%20Ended%20December%2030%2C%202017) Net sales increased by **20.5%** to **$354.7 million**, driven by U.S. Factory-built Housing, while gross profit rose **15.1%**; SG&A surged **48.6%** due to integration and equity compensation, resulting in a **32.1%** operating income decrease but a **94.9%** net income increase [Net Sales](index=26&type=section&id=Net%20Sales) Net sales increased by 20.5% to $354.7 million, primarily driven by a 27.5% increase in U.S. manufacturing and retail sales, which included $63.2 million from Skyline operations and a 9.0% increase in average home selling price. Canadian sales also grew by 8.7%, while Corporate/Other net sales decreased by 32.5% due to lower transportation business volume Net Sales by Segment (Dollars in thousands) | Segment | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total Net Sales | $354,671 | $294,378 | $60,293 | 20.5% | | U.S. manufacturing and retail net sales | $309,518 | $242,739 | $66,779 | 27.5% | | U.S. homes sold | 5,019 | 4,289 | 730 | 17.0% | | U.S. manufacturing and retail average home selling price | $61.7 | $56.6 | $5.1 | 9.0% | | Canadian manufacturing net sales | $27,130 | $24,950 | $2,180 | 8.7% | | Canadian homes sold | 329 | 323 | 6 | 1.9% | | Corporate/Other net sales | $18,023 | $26,689 | $(8,666) | (32.5%) | - U.S. Factory-built Housing segment growth was primarily due to the inclusion of **$63.2 million** in Skyline operations sales and a **9.0%** increase in average home selling price[117](index=117&type=chunk) - The Company's U.S. HUD market share grew to **18.1%** from **14.0%** in the same period of the prior year, due to Skyline operations, despite a **3.9%** decrease in U.S. HUD industry units shipped[118](index=118&type=chunk) [Gross Profit](index=27&type=section&id=Gross%20Profit) Gross profit increased by 15.1% to $64.7 million, but gross profit as a percent of net sales decreased to 18.3% from 19.1%. U.S. Factory-built Housing gross profit increased by 17.9% but its margin decreased due to the prior year's higher efficiencies from FEMA disaster relief homes. Canadian segment gross profit margin improved due to lower labor and warranty costs, while Corporate/Other margins improved despite lower volume Gross Profit by Segment (Dollars in thousands) | Segment | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total gross profit | $64,736 | $56,260 | $8,476 | 15.1% | | Gross profit as a percent of net sales | 18.3% | 19.1% | | | | U.S. Factory-built Housing gross profit | $57,118 | $48,426 | $8,692 | 17.9% | | Canadian Factory-built Housing gross profit | $5,046 | $4,466 | $580 | 13.0% | | Corporate/Other gross profit | $2,572 | $3,368 | $(796) | (23.6%) | - U.S. Factory-built Housing gross profit margin decreased to **18.5%** from **19.9%**, partly due to the prior year's higher production efficiencies from FEMA disaster relief homes[125](index=125&type=chunk) - Canadian Factory-built Housing gross profit margin increased to **18.6%** from **17.9%**, primarily due to lower average labor and benefits and improved warranty costs[126](index=126&type=chunk) [Selling, General and Administrative Expenses](index=29&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses increased by 48.6% to $48.8 million, driven by a $8.2 million increase in U.S. Factory-built Housing (including Skyline operations) and a $7.9 million increase in Corporate/Other (due to equity-based compensation and integration costs) Selling, General and Administrative Expenses (Dollars in thousands) | Segment | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total SG&A expenses | $48,848 | $32,877 | $15,971 | 48.6% | | U.S Factory-built Housing SG&A | $30,539 | $22,360 | $8,179 | 36.6% | | Corporate/Other SG&A | $15,522 | $7,593 | $7,929 | 104.4% | - U.S. Factory-built Housing SG&A increased due to **$5.8 million** from Skyline operations, **$1.4 million** in higher sales commissions, and **$1.0 million** in other administrative/marketing costs[130](index=130&type=chunk) - Corporate/Other SG&A increased due to **$3.7 million** non-cash equity-based compensation, **$2.0 million** Skyline integration costs, and **$1.1 million** legal/professional fees[133](index=133&type=chunk) [Interest Expense, Net](index=31&type=section&id=Interest%20Expense%2C%20Net) Net interest expense decreased by 18.6% to $0.8 million, primarily due to higher interest income from increased average cash balances invested in short-term facilities Interest Expense, Net (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Interest expense, net | $813 | $999 | $(186) | (18.6%) | - The decrease in net interest expense was primarily related to higher interest income from increased average cash balances invested in short-term facilities[135](index=135&type=chunk) [Other Expense](index=31&type=section&id=Other%20Expense) Other expense decreased significantly by 93.6% to $0.1 million, primarily consisting of an insured loss deductible, a substantial reduction from prior year's Exchange-related legal and accounting services Other Expense (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Other expense | $125 | $1,940 | $(1,815) | (93.6%) | - The decrease was primarily because the prior year included **$1.9 million** in legal and accounting services related to the Exchange, while the current period had only a **$0.1 million** insured loss deductible[136](index=136&type=chunk) [Income Tax Expense](index=31&type=section&id=Income%20Tax%20Expense) Income tax expense decreased by 70.5% to $4.4 million, with the effective tax rate falling to 29.7%, influenced by non-deductible expenses and prior year's deferred tax asset remeasurement Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Income tax expense | $4,437 | $15,051 | $(10,614) | (70.5%) | | Effective tax rate | 29.7% | 73.6% | | | - The effective tax rate change was influenced by non-deductible expenses, state/local income taxes, foreign operations, and the prior year's remeasurement of deferred tax assets/liabilities due to the 2017 Tax Act[138](index=138&type=chunk) [Adjusted EBITDA](index=32&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA increased by $0.8 million to $26.4 million, driven by increased operating income after adjusting for depreciation, amortization, integration, restructuring costs, and non-cash equity-based compensation Adjusted EBITDA Reconciliation (Dollars in thousands) | Metric | 3 Months Ended Dec 29, 2018 | 3 Months Ended Dec 30, 2017 | Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net income | $10,513 | $5,393 | $5,120 | | Adjusted EBITDA | $26,407 | $25,640 | $767 | - The increase in Adjusted EBITDA is primarily due to increased operating income, after adjusting for higher depreciation, amortization, integration, restructuring costs, and non-cash equity-based compensation related to the Exchange and Skyline integration[140](index=140&type=chunk) [Results of Operations: Nine Months Ended December 29, 2018 vs. Nine Months Ended December 30, 2017](index=33&type=section&id=Nine%20Months%20Ended%20December%2029%2C%202018%20vs.%20Nine%20Months%20Ended%20December%2030%2C%202017) Net sales increased by **29.3%** to **$1,032.4 million**, with gross profit up **33.9%**; however, SG&A surged **153.9%** due to equity compensation and Exchange-related costs, resulting in a **$43.1 million** operating loss and **$67.4 million** net loss, despite a **41.3%** Adjusted EBITDA increase [Net Sales](index=33&type=section&id=Net%20Sales) Net sales increased by 29.3% to $1,032.4 million, driven by 37.4% growth in U.S. manufacturing and retail sales, including $153.3 million from Skyline operations and a 13.3% increase in average home selling price Net Sales by Segment (Dollars in thousands) | Segment | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total Net Sales | $1,032,368 | $798,443 | $233,925 | 29.3% | | U.S. manufacturing and retail net sales | $882,257 | $641,878 | $240,379 | 37.4% | | U.S. homes sold | 14,606 | 12,038 | 2,568 | 21.3% | | U.S. manufacturing and retail average home selling price | $60.4 | $53.3 | $7.1 | 13.3% | | Canadian manufacturing net sales | $79,885 | $74,006 | $5,879 | 7.9% | | Canadian homes sold | 1,003 | 988 | 15 | 1.5% | | Corporate/Other net sales | $70,226 | $82,559 | $(12,333) | (14.9%) | - U.S. Factory-built Housing sales growth was driven by **$153.3 million** from Skyline operations, a **13.3%** increase in average home selling price, and increased output from existing facilities[145](index=145&type=chunk) - The Company's U.S. HUD market share grew to **16.2%** from **13.8%**, with industry shipments up **4.5%**[146](index=146&type=chunk) [Gross Profit](index=34&type=section&id=Gross%20Profit) Gross profit increased by 33.9% to $178.9 million, with margins improving to 17.3% due to price adjustments, operational improvements, and product rationalization, offsetting rising material and labor costs Gross Profit by Segment (Dollars in thousands) | Segment | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total gross profit | $178,896 | $133,619 | $45,277 | 33.9% | | Gross profit as a percent of net sales | 17.3% | 16.7% | | | | U.S. Factory-built Housing gross profit | $153,147 | $108,277 | $44,870 | 41.4% | | Canadian Factory-built Housing gross profit | $14,988 | $13,806 | $1,182 | 8.6% | | Corporate/Other gross profit | $10,761 | $11,536 | $(775) | (6.7%) | - U.S. Factory-built Housing gross profit margin improved to **17.4%** from **16.9%**, offsetting material and labor cost increases through price adjustments, operational improvements, and product rationalization[152](index=152&type=chunk) - Pro forma gross profit increased by **$31.0 million**, with margins improving to **17.3%** from **16.0%**, consistent with operational improvements and product rationalization[155](index=155&type=chunk) [Selling, General and Administrative Expenses](index=35&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses surged by 153.9% to $222.0 million, primarily due to $97.2 million in non-cash equity-based compensation and $5.5 million in integration costs within Corporate/Other Selling, General and Administrative Expenses (Dollars in thousands) | Segment | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | Total SG&A expenses | $222,005 | $87,439 | $134,566 | 153.9% | | U.S. Factory-built Housing SG&A | $82,987 | $60,178 | $22,809 | 37.9% | | Corporate/Other SG&A | $132,265 | $21,072 | $111,193 | 527.7% | - Corporate/Other SG&A increased primarily due to **$97.2 million** non-cash equity-based compensation, **$5.5 million** integration costs, and **$1.2 million** restructuring costs[160](index=160&type=chunk) - U.S. Factory-built Housing SG&A increased due to **$12.7 million** from Skyline operations and **$6.1 million** in higher sales commissions and incentive compensation[158](index=158&type=chunk) [Interest Expense, Net](index=36&type=section&id=Interest%20Expense%2C%20Net) Net interest expense decreased by 14.3% to $2.7 million, primarily due to a $0.7 million increase in interest income from higher average cash balances, offsetting increased floor plan financing borrowings Interest Expense, Net (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Interest expense, net | $2,712 | $3,164 | $(452) | (14.3%) | - The decrease in net interest expense was primarily due to a **$0.7 million** increase in interest income from higher average cash balances, offsetting a **$0.2 million** increase in interest expense from higher floor plan financing borrowings[163](index=163&type=chunk) - Pro forma interest expense, net, decreased by **$0.3 million** to **$2.6 million**, mainly due to additional interest income[164](index=164&type=chunk) [Other Expense](index=36&type=section&id=Other%20Expense) Other expense increased by 174.0% to $7.8 million, mainly due to $6.9 million for legal, accounting, and advisory services related to the Exchange and $0.8 million for public offerings Other Expense (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Other expense | $7,845 | $2,863 | $4,982 | 174.0% | - The increase was primarily due to **$6.9 million** in legal, accounting, and advisory services related to the Exchange and **$0.8 million** for public offerings[166](index=166&type=chunk) - Pro forma other expense for the nine months ended December 29, 2018, was **$1.4 million**, including Exchange-related services, equity offering costs, and an insured loss deductible[167](index=167&type=chunk) [Income Tax Expense](index=38&type=section&id=Income%20Tax%20Expense) Income tax expense decreased by 38.0% to $13.7 million, with a negative effective tax rate of (25.5%) primarily due to one-time Exchange-related charges and non-deductible expenses Income Tax Expense and Effective Tax Rate | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | % Change | | :------------------ | :-------------------------- | :-------------------------- | :----- | :------- | | Income tax expense | $13,699 | $22,089 | $(8,390) | (38.0%) | | Effective tax rate | (25.5%) | 55.0% | | | - The negative effective tax rate is primarily due to one-time charges related to the Exchange and non-deductible expenses; without these, the effective tax rate would have been **32.0%**[169](index=169&type=chunk) - Pro forma income tax expense was **$16.0 million** with an effective tax rate of **(44.2%)**, primarily due to the non-deductibility of certain expenses for tax purposes[170](index=170&type=chunk) [Adjusted EBITDA](index=39&type=section&id=Adjusted%20EBITDA) Historical Adjusted EBITDA increased by $21.3 million to $72.9 million, driven by increased operating income after adjusting for non-cash and one-time items related to the Exchange and Skyline integration Adjusted EBITDA Reconciliation (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net (loss) income | $(67,365) | $18,064 | $(85,429) | | Adjusted EBITDA | $72,941 | $51,617 | $21,324 | - The increase in historical Adjusted EBITDA is primarily a result of a **$20.0 million** increase in operating income after adjusting for non-cash and one-time items related to the Exchange and Skyline integration[173](index=173&type=chunk) - Pro forma Adjusted EBITDA increased by **$17.0 million** to **$77.1 million**, driven by a **$15.3 million** increase in operating income after similar adjustments[174](index=174&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) [Sources and Uses of Cash](index=39&type=section&id=Sources%20and%20Uses%20of%20Cash) Net cash provided by operating activities significantly improved to $51.9 million, while cash used in financing activities increased substantially to $60.8 million due to distributions to Champion Holdings' members Summary Cash Flow Information (Dollars in thousands) | Metric | 9 Months Ended Dec 29, 2018 | 9 Months Ended Dec 30, 2017 | Change | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by (used in) operating activities | $51,918 | $(671) | +$52,589 | | Net cash provided by (used in) investing activities | $2,396 | $(7,610) | +$10,006 | | Net cash (used in) provided by financing activities | $(60,815) | $5,780 | -$66,595 | | Net decrease in cash, cash equivalents and restricted cash | $(7,631) | $(944) | -$6,687 | | Cash, cash equivalents and restricted cash at end of period | $128,985 | $101,748 | +$27,237 | - Primary sources of liquidity are net cash from operating activities and available borrowings under the revolving credit facility (**$32.1 million** unused capacity)[178](index=178&type=chunk) - Cash used in financing activities was **$66.6 million** higher, primarily due to **$65.3 million** in distributions to Champion Holdings' members prior to the Exchange[182](index=182&type=chunk) [Adjusted EBITDA (Definition and Limitations)](index=41&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA is a non-GAAP measure used by management to assess operating performance by excluding certain non-representative items, but it has limitations as an analytical tool - Adjusted EBITDA is a non-GAAP measure defined as net income/loss plus taxes, interest, depreciation, amortization, foreign currency gains/losses, equity-based compensation, restructuring charges, and other non-operating costs[183](index=183&type=chunk) - Management uses Adjusted EBITDA for business planning and performance comparison, believing it enhances understanding of core business performance[141](index=141&type=chunk)[175](index=175&type=chunk) - Limitations of Adjusted EBITDA include not reflecting interest expense, cash expenditures for capital or replacements, and potential variations in calculation across companies[185](index=185&type=chunk)[186](index=186&type=chunk) [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) - Management makes estimates and assumptions for financial statements, affecting reported amounts of assets, liabilities, revenues, and expenses, particularly for goodwill, intangible assets, deferred tax assets, and various reserves[187](index=187&type=chunk) - No significant changes in critical accounting policies occurred during the nine months ended December 29, 2018, except for revenue recognition (Note 10)[188](index=188&type=chunk) [Recently Issued Accounting Pronouncements](index=42&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - The Company is evaluating ASU 2016-02, Leases (Topic 842), effective for fiscal years beginning after December 31, 2018, expecting a significant impact to its consolidated balance sheet[30](index=30&type=chunk)[31](index=31&type=chunk) - The Company plans to adopt ASU 2016-02 using the modified retrospective method and elect the package of practical expedients[31](index=31&type=chunk) - The Company is assessing ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which simplifies goodwill impairment testing, effective for public entities after December 15, 2019[32](index=32&type=chunk) [Forward-Looking Statements](index=43&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements about future liquidity, earnings, expenditures, and financial condition, subject to various risks and uncertainties[191](index=191&type=chunk) - Key risk factors include economic and financial market conditions, demand fluctuations in the housing industry, interest rate changes, material prices, labor costs, competitive pressures, and regulatory changes[191](index=191&type=chunk)[192](index=192&type=chunk) - The Company does not assume any obligation to update, amend, or clarify forward-looking statements after the report date[192](index=192&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to interest rate risk on variable-rate debt (revolving credit facility, industrial revenue bonds, floor plan financing) and foreign exchange risk from Canadian operations, with specific impacts quantified for interest rate and currency fluctuations [Interest Rate Risk](index=44&type=section&id=Interest%20Rate%20Risk) - The Company's debt (New Credit Agreement, industrial revenue bonds, floor plan financing) is subject to variable interest rates[193](index=193&type=chunk) - A **100-basis point** increase in interest rates would result in an additional annual interest expense of approximately **$1.0 million**, based on **$98.3 million** of outstanding variable-rate debt at December 29, 2018[193](index=193&type=chunk) [Foreign Exchange Risk](index=44&type=section&id=Foreign%20Exchange%20Risk) - The Company is exposed to foreign exchange risk from its Canadian operations, which had net sales of **$104.0 million Canadian dollars** for the nine months ended December 29, 2018[194](index=194&type=chunk) - A **1.0%** change in the USD/CAD exchange rate would change quarterly consolidated net sales by **$1.0 million**[194](index=194&type=chunk) - The Company does not financially hedge its investment in Canadian operations or Canadian denominated bank deposits[194](index=194&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of December 29, 2018, due to a material weakness in internal controls over financial reporting related to raw material inventory accuracy and valuation [Changes in Internal Control Over Financial Reporting](index=44&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - Disclosure controls and procedures were not effective as of December 29, 2018, due to a material weakness in internal controls over financial reporting[195](index=195&type=chunk) - The material weakness relates to the accuracy and valuation of raw material inventories, specifically in compiling inventory listings and valuing raw materials at cost[199](index=199&type=chunk) - Remedial activities include establishing policies for inventory accuracy and valuation, implementing more robust inventory count procedures, count testing, analytical procedures, and price testing[200](index=200&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings and claims in the ordinary course of business, including commercial disputes and product liability, but expects no material adverse effect on its financial condition - The Company is involved in various legal proceedings and claims, including commercial/contractual disputes and product liability claims, arising in the ordinary course of business[204](index=204&type=chunk) - Management believes the ultimate liability with respect to these contingent obligations will not have a material adverse effect on the Company's financial condition, results of operations, or cash flows[100](index=100&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks including the cyclical nature of the factory-built housing industry, economic sensitivity, dependence on distributors, material/labor fluctuations, extensive regulation, product quality issues, and integration challenges from acquisitions - The factory-built housing industry is cyclical, seasonal, and highly sensitive to economic conditions, including employment rates, consumer confidence, and interest rate levels[205](index=205&type=chunk)[206](index=206&type=chunk) - Increases in interest rates, more stringent credit standards, or tightening of financing terms could limit customer purchasing power and adversely affect sales[208](index=208&type=chunk) - The Company faces risks related to the availability and pricing of materials (e.g., lumber, insulation), labor shortages and turnover, and dependence on a small group of key suppliers[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - Competition from other home builders and alternative housing forms, changes in consumer preferences, product quality problems, and unfavorable local zoning ordinances could negatively impact sales and profitability[221](index=221&type=chunk)[223](index=223&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) - The integration of Skyline and Champion Holdings may not be successful, and anticipated synergies may not be fully realized, potentially impacting business, liquidity, and financial results[247](index=247&type=chunk)[248](index=248&type=chunk) - The Company is subject to extensive government regulation, product liability claims, and warranty claims, which can be costly and adversely affect profitability[229](index=229&type=chunk)[232](index=232&type=chunk) - Certain shareholders beneficially own a substantial amount of common stock, exerting significant influence, and their interests may conflict with other shareholders[239](index=239&type=chunk)[240](index=240&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL formatted financial information - The exhibits include certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32) and XBRL formatted financial information (Exhibit 101)[255](index=255&type=chunk) [SIGNATURES](index=56&type=section&id=SIGNATURES) This section contains the required signatures for the Form 10-Q, confirming its submission by authorized officers of Skyline Champion Corporation - The report is signed by Keith Anderson, Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer, and Treasurer, on February 6, 2019[259](index=259&type=chunk)

Skyline Champion Corp (NYSE:SKY) Q3 2018 Earnings Conference Call February 6, 2019 8:30 AM ET Company Participants Keith Anderson - CEO Laurie Hough - EVP & CFO Conference Call Participants Greg Palm - Craig-Hallum Colin Devine - Jefferies Rohit Seth - SunTrust Operator Good morning, and welcome to Skyline Champion Corporation's Third Quarter Fiscal 2019 Earnings Call. The company issued an earnings press release yesterday. Before we begin, I would like to remind everyone that yesterday's press release and ...