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What changed in Champion Homes, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Champion Homes, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+279 added−310 removedSource: 10-K (2022-05-24) vs 10-K (2021-05-26)

Top changes in Champion Homes, Inc.'s 2023 10-K

279 paragraphs added · 310 removed · 211 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

72 edited+12 added−15 removed39 unchanged
Biggest changeIn connection with executing this business strategy, we are focused on the following four initiatives: • Increasing the operating capacity and profitability of our existing facilities • Investing in our customers’ online digital experience • Implementing production automation and enterprise-wide digital technology • Continuing a balanced organic and acquisition-based growth strategy Increasing the Operating Capacity and Profitability of our Existing Facilities We are currently focused on a number of ongoing operational initiatives to further enhance our operating margins and increase production capacity including: • refining our product floor plan designs and options to offer “designed flexibility” to our customers; • executing on continuous improvement initiatives related to identified procurement, operational and labor cost saving opportunities as well as streamlining overlapping functions; enhancing the efficiency and sustainability of our products through value-adding material substitution; and • standardizing our manufacturing processes and employing metrics-driven accountability measures across all of our facilities.
Biggest changeIncreasing the Operating Capacity and Profitability of our Existing Facilities We are currently focused on a number of ongoing operational initiatives to further enhance our operating margins and increase production capacity including: • refining our product floor plan designs and options to offer “designed flexibility” to our customers; • executing on continuous improvement initiatives related to procurement, operational and labor cost saving opportunities; enhancing the efficiency and sustainability of our products through value-adding material substitution; and • standardizing our manufacturing processes and employing metrics-driven accountability measures across all of our facilities.
We strive for an inclusive environment and reward individual contributions that foster innovative ideas for improving our products and workplace. We do not tolerate discrimination or harassment of any kind including but not limited to on the basis of gender identity, race, religion, age or disabilities. We are committed to the development of our employees.
We strive for an inclusive environment and reward individual contributions that foster innovative ideas for improving our products and workplace. We do not tolerate discrimination or harassment of any kind including but not limited discrimination or harassment to on the basis of gender identity, race, religion, age or disabilities. We are committed to the development of our employees.
Governmental authorities enforcing these numerous laws and regulations can impose fines and/or seek injunctive relief for violations. We believe that our operations are in compliance with the requirements of these applicable laws and regulations. Seasonality The housing industry is subject to seasonal fluctuations based on home buyer purchasing patterns.
Governmental authorities enforcing these numerous laws and regulations can impose fines and/or seek injunctive relief for violations. We believe that our operations are in compliance with the requirements of the applicable laws and regulations. Seasonality The housing industry is subject to seasonal fluctuations based on home buyer purchasing patterns.
Financing Commercial Financing. Independent retailers of factory-built homes generally finance their inventory purchases from manufacturers with floor plan financing provided by third-party lending institutions and secured by a lien on the homes. The availability and cost of floor plan financing can affect the amount of retailer new home inventory, the number of retail sales centers and related wholesale demand.
Independent retailers of factory-built homes generally finance their inventory purchases from manufacturers with floor plan financing provided by third-party lending institutions and secured by a lien on the homes. The availability and cost of floor plan financing can affect the amount of retailer new home inventory, the number of retail sales centers and related wholesale demand.
We build homes under some of the most well-known brand names in the factory-built housing industry including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada.
We build homes under some of the most well-known brand names in the factory-built housing industry including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada.
Available Information Our website address is www.skylinechampion.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC. 10
Available Information Our website address is www.skylinechampion.com and we make available, free of charge, on or through our website all of our periodic reports, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current reports on Form 8-K, as soon as reasonably practicable after we file such reports with the SEC. 11
Our modular homes and commercial structures are built to comply with applicable state and local building codes. Our park model RVs are built in conformance with the applicable standards approved by the American National Standards Institute, a private, non-profit organization that administers and coordinates voluntary standards and conformity programs.
Our modular homes and commercial structures are built to comply with applicable state and local building codes. Our park model RVs are built in conformity with the applicable standards approved by the American National Standards Institute, a private, non-profit organization that administers and coordinates voluntary standards and conformity programs.
In many of our plants, we have transitioned to LED lighting, and we recycle insulation material, lumber, metals, paper and many other products. In the course of executing our expansion plans, we have repurposed older buildings, both revitalizing the local community and preserving vacant land.
In many of our plants, we have transitioned to LED lighting, and we recycle insulation material, lumber, metals, plastics, paper and many other products. In the course of executing our expansion plans, we have repurposed older buildings, both revitalizing the local community and preserving vacant land.
Additional information on our Corporate Governance policies can be found in our Proxy Statement filed with the SEC. 5 Human Capital and Diversity The Skyline Champion team manages the business in accordance with the Company’s Core Operating Principles: • Build and develop exceptional teams • Create a safe work environment • Build strong relationships • Take pride in our craftsmanship • Act with integrity and respect • Be open and honest • Run the business like it is your own We appreciate each member of the Skyline Champion team and the unique skills and diversity of thought each provides to the overall success of the Company.
Additional information on our Corporate Governance policies can be found in our Proxy Statement filed with the SEC. 6 Human Capital and Diversity The Skyline Champion team manages the business in accordance with the Company’s Core Operating Principles: • Build and develop exceptional teams • Create a safe work environment • Build strong relationships • Take pride in our craftsmanship • Act with integrity and respect • Be open and honest • Run the business like it is your own We appreciate each member of the Skyline Champion team and the unique skills and diversity of thought each provides to the overall success of the Company.
There are three basic types of consumer financing in the factory-built housing industry: 1) conforming mortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Department of Veterans Affairs, Department of Agriculture or Government-Sponsored Enterprise (“GSE”) loans which include Fannie Mae and Freddie Mac agencies; 2) non-conforming mortgages for purchasers of the home and the land on which the home is placed; and 3) personal property loans (often referred to as home-only or chattel loans) for consumers where the home is the sole collateral for the loan (generally HUD-coded homes).
There are three basic types of consumer financing in the factory-built housing industry: 1) conforming mortgage loans which comply with the requirements of the Federal Housing Administration (“FHA”), Department of Veterans Affairs, Department of Agriculture or Government-Sponsored Enterprise (“GSE”) loans which include Fannie Mae and Freddie Mac loans; 2) non-conforming mortgage loans for purchasers of the home and the land on which the home is placed; and 3) personal property loans (often referred to as home-only or chattel loans) for consumers where the home is the sole collateral for the loan (generally HUD-coded homes).
Under a typical floor plan financing arrangement, an independent financial institution specializing in this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral.
Under a typical floor plan financing arrangement, an independent financial institution specializing in 9 this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral.
We believe that we maintained the following leading positions in the factory-built housing industry in the United States and western Canada (based on units) in calendar year 2020: • Number two position in the manufactured housing market segment in the United States • Number one modular builder in the United States • A leading position in western Canada • A leading position in park model RV sales We believe our market leading positions are driven by our comprehensive product offering, strong brand reputation, broad manufacturing footprint, and our complementary retail and logistics businesses.
We believe that we maintained the following leading positions in the factory-built housing industry in the United States and western Canada (based on units) in calendar year 2021: • Number two position in the manufactured housing market segment in the United States • Number one modular builder in the United States • A leading position in western Canada • A leading position in park model RV sales We believe our market leading positions are driven by our comprehensive product offering, strong brand reputation, broad manufacturing footprint, and our complementary retail and logistics businesses.
After production of a particular home has commenced, the order becomes noncancelable and the retailer is obligated to take delivery of the home. Although factory-built homes can be produced throughout the year in indoor facilities, demand for homes is usually affected by inclement weather and by the cold winter months in northern areas of the U.S. and in Canada.
After production of a particular home has commenced, the order becomes noncancelable and the customer is obligated to take delivery of the home. Although factory-built homes can be produced throughout the year in indoor facilities, demand for homes is usually affected by inclement weather and by the cold winter months in northern areas of the U.S. and in Canada.
These products aim to promote quality manufactured homes as an acceptable alternative to site-built homes and will allow moderate-income families to purchase a manufactured home with lending terms similar to those for site-built homes. Our Genesis brand of homes are built to these specifications. We continue to work with builder/developers to cultivate strategies to bring these products to the marketplace.
These products aim to promote quality manufactured homes as an acceptable alternative to site-built homes and will allow moderate-income families to purchase a manufactured home with lending terms similar to those for site-built homes. Our Genesis brand of homes is built to these specifications. We continue to work with builder/developers to cultivate strategies to bring these products to the marketplace.
With our award-winning product designs, we seek to meet the needs of our localized customers, while also providing them with an array of pre-designed options. Our leading brands are marketed and distributed through a network of independent and company-owned retailers, community operators, government agencies, and commercial developers.
With our award-winning product designs, we seek to meet the needs of our localized customers, while also providing them with an array of pre-designed options. Our leading brands are marketed and distributed through a network of independent and company-owned retailers, community operators, government agencies, and builder/developers.
According to statistics published by the Institute for Building Technology and Safety ("IBTS") and the United States Department of Commerce, Bureau of the Census, for the 2020 calendar year, manufactured housing wholesale shipments of homes constructed in accordance with the HUD code accounted for an estimated 10% of all new single-family homes starts.
According to statistics published by the Institute for Building Technology and Safety ("IBTS") and the United States Department of Commerce, Bureau of the Census, for the 2021 calendar year, manufactured housing wholesale shipments of homes constructed in accordance with the HUD code accounted for an estimated 10% of all new single-family homes starts.
Many of our manufacturing facilities participate in local programs to support programs such as Habitat for Humanity and other local charities as well as work-study programs with local community colleges and high schools. Skyline Champion is committed to good corporate governance.
Many of our manufacturing facilities participate locally to support programs such as Habitat for Humanity and other local charities as well as work-study programs with local community colleges and high schools. Skyline Champion is committed to good corporate governance.
We typically experience decreased home buyer traffic during holidays and popular vacation periods. Demand for our core single-family new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry. Typical seasonal patterns were not as prevalent in fiscal 2021 since demand for housing has increased significantly.
We typically experience decreased home buyer traffic during holidays and popular vacation periods. Demand for our core single-family new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry. Typical seasonal patterns were not as prevalent in fiscal 2022 and 2021 as demand for affordable housing has increased significantly.
Implementing Production Automation and Enterprise-wide Digital Technology • We are researching and installing production automation technology to mitigate reliance on direct labor, reduce material waste, and improve the precision of our construction processes. • In conjunction with our enhanced digital offering for the customer experience, we are moving to an enterprise-wide, cloud based integrated platform.
Implementing Production Automation and Enterprise-wide Digital Technology • We are investing in production automation technology to mitigate reliance on direct labor, reduce material waste, and improve the precision of our construction processes. • In conjunction with our enhanced digital offering for the customer experience, we are moving to an enterprise-wide, cloud based integrated platform.
We offer a leading portfolio of manufactured and modular homes, park model RVs, accessory dwelling units (“ADUs”) and modular buildings for the multi-family, hospitality, senior and workforce housing sectors. Our facilities are strategically located to serve strong markets in the United States and western Canada.
We offer a leading portfolio of manufactured and modular homes, park model RVs, accessory dwelling units (“ADUs”) and modular buildings for the multi-family and hospitality sectors. Our facilities are strategically located to serve strong markets in the United States and western Canada.
The two largest manufactured housing consumer demographics, Millennials (generally defined as those born between 1981 – 1996) and Baby Boomers (generally defined as those born between 1946 – 1964), comprise the fastest growing populations. Millennials are generally first-time home buyers who may be attracted by the affordability and diversity of style choices of factory-built homes.
The two largest manufactured housing consumer demographics are Millennials (generally defined as those born between 1981 – 1996) and Baby Boomers (generally defined as those born between 1946 – 1964). Millennials are generally first-time home buyers who may be attracted by the affordability and diversity of style choices of factory-built homes.
Investing in our Customers’ Online Digital Experience The Company continues to invest in the design and testing of enhanced digital offerings. We are in the process of creating an end-to-end platform where consumers can design, configure, price and order their homes online which we believe will ultimately drive revenue growth for Skyline Champion and our channel partners.
Investing in our Customers’ Online Digital Experience The Company continues to invest in the design and testing of enhanced digital offerings. We are currently piloting an end-to-end platform where consumers can design, configure, and price their homes online, which we believe will ultimately drive revenue growth for Skyline Champion and our channel partners.
Customers may purchase a home from an inventory of homes maintained at the location, including a model home, or may order a home that will be built at a manufacturing facility. The collective benefits of our retail organization provide industry leadership with the expertise to be proactive to local economic conditions and ultimately provide affordable homes to value-conscious homebuyers.
Customers may purchase a home from an inventory of homes maintained at the location, including a model home, or may order a home that will be built at a manufacturing facility. Our retail organization provides industry leadership with the expertise to be responsive to local economic conditions and ultimately provide affordable homes to value-conscious homebuyers.
ITEM 1. BUSINESS General Skyline Champion Corporation, an Indiana corporation, and its consolidated subsidiaries are referred to herein as " Skyline Champion," "us," "we," "our," the "Company," and any other similar terms, unless otherwise indicated in this Annual Report.
ITEM 1. B USINESS General Overview Skyline Champion Corporation, an Indiana corporation, and its consolidated subsidiaries are referred to herein as "Skyline Champion," "us," "we," "our," the "Company," and any other similar terms, unless otherwise indicated in this Annual Report.
According to data reported by the Manufactured Housing Institute (“MHI”), industry manufactured home shipments were 95,588, 97,553 and 93,377 units during fiscal 2021, 2020, and 2019, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959.
According to data reported by the Manufactured Housing Institute (“MHI”), industry manufactured home shipments were 108,964, 95,588, and 97,553 units during fiscal 2022, 2021, and 2020, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959.
During fiscal 2021, approximately 36% of our sales to independent retailers were financed under floor plan agreements with national lenders, while the remaining 64% were financed under various arrangements with local or regional banks or paid in cash. We generally receive payment from the lending institution 5 to 10 days after a home is sold and invoiced. Consumer Financing.
During fiscal 2022, approximately 39% of our sales to independent retailers were financed under floor plan agreements with national lenders, while the remaining 61% were financed under various arrangements with local or regional banks or paid in cash. We generally receive payment from the lending institution 5 to 10 days after a home is sold and invoiced. Consumer Financing.
We estimate that there were approximately 3,200 industry retail locations throughout the U.S. during calendar 2020. Based on industry data reported by IBTS, in fiscal 2021 our U.S. wholesale market share of HUD code homes sold was 16.9%, compared to 16.5% in fiscal 2020.
We estimate that there were approximately 3,200 industry retail locations throughout the U.S. during calendar 2021. 10 Based on industry data reported by IBTS, in fiscal 2022 our U.S. wholesale market share of HUD code homes sold was 19.3%, compared to 16.9% in fiscal 2021.
In addition to our traditional channels of distribution, we are one of a limited number of manufactured homebuilders who have been approved for contracts with the Federal Emergency Management Agency (“ FEMA”) and have historically provided housing assistance requirements following natural disasters and other housing emergencies.
In addition to our traditional channels of distribution, we are one of a limited number of manufactured homebuilders that have been approved for contracts with the Federal Emergency Management Agency (“FEMA”) and have historically provided housing assistance requirements following natural disasters and other housing emergencies.
We offer our employees a competitive compensation package, including an array of benefits and we deem our relationship with our employees to be generally good. At April 3, 2021, our manufacturing facilities in Canada employed approximately 900 workers of which the majority belong to trade associations that operate under collective bargaining agreements.
We offer our employees a competitive compensation package, including an array of benefits, and we deem our relationship with our employees to be generally good. At April 2, 2022, our manufacturing facilities in Canada employed approximately 950 workers of which the majority belong to trade associations that operate under collective bargaining agreements.
O ur captive retail distribution enhance s the reach of our factory-built housing products directly to the homebuyer. Each of our full-service retail sales centers has a sales office and a variety of model homes of various sizes, floor plans, features, and prices that are displayed in a residential setting with sidewalks and landscaping.
Our captive retail distribution enhances the reach of our factory-built housing products directly to the homebuyer. 8 Each of our full-service retail sales centers has a sales office and a variety of model homes of various sizes, floor plans, features, and prices that are displayed in a residential setting with sidewalks and landscaping.
Industry trade associations are working towards favorable legislative and GSE action to address the mortgage financing needs of potential buyers of affordable homes. Many moderate-income families cannot afford to buy a home due to the increasing costs of newly constructed homes and decreasing supply of existing, affordable homes.
Industry trade associations are working towards favorable legislative and GSE action to address the mortgage financing needs of potential buyers of affordable homes, and some progress has been achieved. Many moderate-income families cannot afford to buy a home due to the increasing costs of newly constructed homes, rising interest rates, and decreasing supply of existing, affordable homes.
Our market share in the United States manufactured housing market segment has increased from approximately 8% in the beginning of fiscal 2011 to approximately 17% in fiscal 2021 based on total number of units produced. In the broader housing market, our market share is approximately 2%.
Our market share in the United States total housing market is approximately 2.6%. Our market share in the United States manufactured housing market segment has increased from approximately 8% in the beginning of fiscal 2011 to approximately 19% in fiscal 2022 based on total number of units produced.
With forestry products central to the construction of homes, we have initiated a program to plant one tree for every tree used in construction of our homes in fiscal 2022. Reforestation contributes to the environment by replenishing forests, reducing greenhouses gases, and protecting the watershed.
With forestry products central to the construction of homes, we began participation in a program to plant one tree for every tree used in construction of our homes in fiscal 2022. Reforestation contributes to the environment by replenishing forests, reducing greenhouses gases ("GHG"), and protecting local watersheds.
The efficiency of the assembly-line process, protection from the weather, and favorable pricing of materials resulting from our substantial purchasing power enables us to produce homes more quickly and often at a lower cost than a conventional site-built home of similar quality.
The efficiency of the assembly-line process, protection from the weather, and favorable pricing of materials resulting from our substantial purchasing power enables us to produce homes more quickly and often at a lower cost than a conventional site-built home of similar quality. The production schedules of our homebuilding facilities are based upon customer orders.
The DTS plans also explored the potential for the GSEs to provide liquidity to the chattel lending market, first through a limited pilot and then through an ongoing program. The GSEs could potentially serve as additional sources of funding as there is unmet demand in the chattel loan industry, and GSE involvement could increase volume substantially.
The DTS plans also explored the potential for the GSEs to provide liquidity to the chattel lending market. The GSEs could potentially serve as additional sources of funding as there is unmet demand in the chattel loan industry, and GSE involvement could increase volume substantially.
We have built a diverse team with a wide range of experiences. At April 3, 2021, we employed approximately 7,700 full and part time employees. Our human capital resource objectives include identifying, recruiting, training, retaining and incentivizing our employees.
We have built a diverse team with a wide range of experiences. At April 2, 2022, we employed approximately 8,400 full and part time employees. Our human capital resource objectives include identifying, recruiting, training, retaining and incentivizing our employees.
We operated 12 manufacturing facilities in the top ten states with the highest number of manufactured homes shipped in fiscal 2021, as well as 17 manufacturing facilities in the ten states with the greatest growth in the number of manufactured homes shipped in the last ten years.
We operated 14 manufacturing facilities in the top ten states with the highest number of manufactured homes shipped in fiscal 2022, as well as 16 manufacturing facilities in the ten states with the greatest growth in the number of manufactured homes shipped in the last ten years.
The maximum amount of our contingent obligations under such repurchase agreements was approximately $219.5 million as of April 3, 2021. The risk of loss under these agreements is spread over many retailers and is further reduced by the resale value of the homes.
The maximum amount of our contingent obligations under such repurchase agreements was approximately $339.5 million a s of April 2, 2022. The risk of loss under these agreements is spread over many retailers and is further reduced by the resale value of the homes.
During fiscal 2021, the average selling price was $63,400 for our U.S. factory-built homes and $82,300 for our homes sold through our Canadian housing segment. Manufactured home sales prices ranged from $20,000 to over $250,000. Retail sales prices of the homes, without land, generally ranged from $25,000 to over $300,000, depending upon size, floor plan, features, and options.
During fiscal 2022, the average selling price was $80,656 for our U.S. factory-built homes and $107,589 for homes sold through our Canadian housing segment. Manufactured home sales prices ranged from $20,000 to over $350,000. Retail sales prices of the homes, without land, generally ranged from $35,000 to over $300,000, depending upon size, floor plan, features, and options.
Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report. We make available, as soon as reasonably practicable, on our website, all of the reports required to be filed with the Securities and Exchange Commission (“SEC”).
Our website is located at www.skylinechampion.com. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report. We make available on our website, as soon as reasonably practicable, all of the reports required to be filed with the SEC.
Homes sold to builders and developers are generally transported directly to the home site. At the home site, the home is placed on a foundation or otherwise affixed to the property and readied for occupancy, typically by setup contractors.
Homes sold to builders and developers are generally transported directly to the home site. At the home site, the home is placed on a foundation or otherwise affixed to the property and readied for occupancy, either by our employee set crews or third party contractors.
Manufactured and modular homes cost up to fifty percent less per square foot than conventional site-built homes, expanding the opportunity for individuals to own a home despite an ever-growing housing affordability gap. Skyline Champion manages its operations to minimize resource consumption and environmental impacts.
Manufactured and modular homes cost up to 50% less per square foot than conventional site-built homes, expanding the opportunity for individuals to own a home despite an ever-growing housing affordability gap.
The single-family homes that we manufacture generally range in size from 400 to 4,000 square feet and typically include two to four bedrooms, a living room or family room, a dining room, a kitchen and typically two full bathrooms.
The single-family homes that we manufacture generally range in size from 400 to 4,000 square feet and typically include two to four bedrooms, a living room or family room, a dining room, a kitchen and typically two full bathrooms. We also build park model RVs for resorts and campgrounds, ADUs for backyard or recreational living, and commercial modular structures.
We also intend to explore opportunities to acquire value enhancing retail locations, manufacturing facilities, and factory-built housing competitors to supplement our organic growth initiatives. We have a proven track-record of executing and integrating acquisitions.
We believe our idle manufacturing plants provide us with the ability to grow with demand over the longer term. We also continue to explore opportunities to acquire value-enhancing retail locations, manufacturing facilities, and factory-built housing competitors to supplement our organic growth initiatives. We have a proven track-record of executing and integrating acquisitions.
Because we produce homes to fulfill wholesale orders, our factories generally do not carry finished goods inventories, except for homes awaiting delivery. We manage our production levels, capacity and workforce size based upon current market demands. At April 3, 2021, we had a backlog of home orders with wholesale sales value of approximately $858.6 million.
Because we produce homes to fulfill wholesale orders, our factories generally do not carry finished goods inventories, except for homes awaiting delivery. We manage our production levels, capacity and workforce size based upon current market demands.
We compete with the other producers of manufactured homes, as well as companies selling homes repossessed from wholesalers or consumers. In addition, manufactured homes compete with new and existing site-built homes, as well as apartments, townhouses, and condominiums.
We compete with the other producers of manufactured homes, as well as companies selling homes repossessed from wholesalers or consumers. In addition, manufactured homes compete with new and existing site-built homes, as well as apartments, townhouses, and condominiums. Collectively, manufactured housing represents approximately only nine percent of annual U.S. single family home starts.
Capital requirements for entry into the industry are relatively low. Factory-built housing is also very competitive. According to MHI, in March 2021, there were 33 producers of manufactured homes in the U.S. operating an estimated 136 production facilities. For calendar 2020, the top three companies had a combined market share for HUD code homes of approximately 75%.
According to MHI, in March 2022, there were 33 producers of manufactured homes in the U.S. operating an estimated 141 production facilities. For calendar 2021, the top three companies had a combined market share for HUD code homes of approximately 75%.
We are the largest independent publicly traded factory-built housing company in North America with net sales for the year ended April 3, 2021 (“fiscal 2021”) of approximately $1.4 billion. We have more than 70 years of homebuilding experience, approximately 7,700 employees and 40 manufacturing facilities located in 19 states across the United States and three provinces in western Canada.
We are a leading producer of factory-built housing in North America with net sales for the year ended April 2, 2022 (“fiscal 2022”) of approximately $2.2 billion. We have more than 70 years of homebuilding experience, approximately 8,400 employees and 41 manufacturing facilities located in 19 states across the United States and three provinces in western Canada.
In addition to our core home building business, we operate a factory-direct manufactured home retail business, Titan Factory Direct, with 18 sales centers spanning the southern United States, and Star Fleet Trucking, which provides transportation services to the manufactured housing and other industries from several dispatch locations across the United States.
In addition to our core home building business, we provide construction services to install and set-up factory-built homes, we operate a factory-direct manufactured home retail business, Titan Factory Direct, with 18 sales centers spanning the southern United States, and we operate Star Fleet Trucking, which provides transportation services to the manufactured housing and other industries from several dispatch locations across the United States. 4 Our principal executive offices are located at 755 West Big Beaver Road, Suite 1000, Troy, Michigan 48084.
While most of the homes we build are single-family, multi-section, ranch-style homes, we also build two-story, single-section, and Cape Cod style homes as well as multi-family units such as town homes, apartments, duplexes, and triplexes.
We produce a broad range of manufactured and modular homes under a variety of brand names and in a variety of floor plans and price ranges. While most of the homes we build are single-family, multi-section, ranch-style homes, we also build two-story and single-section homes, as well as multi-family units such as town homes, apartments, duplexes, and triplexes.
The production schedules of our homebuilding facilities are based upon customer orders, which can fluctuate from week to week. Orders from retailers are generally subject to cancellation at any time up to the commencement of production without penalty and are not necessarily an indication of future business. Retailers place orders for retail stocking (inventory) purposes and for homebuyer orders.
Orders are generally subject to cancellation at any time up to the commencement of production without penalty and are not necessarily an indication of future business. Retailers place orders for retail stocking (inventory) purposes and for homebuyer orders. Before scheduling homes for production, orders and availability of financing are confirmed with our customer and, where applicable, their customer's lender.
We generally have been able to pass higher material costs on to customers in the form of surcharges and price increases.
We endeavor to mitigate the impact of supply chain challenges through sourcing alternative materials, where appropriate, and exploring alternative supply options. We generally have been able to pass higher material costs on to customers in the form of surcharges and price increases.
In fiscal 2020, we introduced our Genesis brand of homes which have features similar to site-built home amenities such as porches and garages . These homes are designed to be eligible for financing programs with terms similar to traditional mortgages . We are also very active in the design and construction of energy-efficient homes.
We design and build homes with a traditional residential or site-built appearance through the use of, among other features, dormers and higher pitched roofs. We offer our Genesis brand of homes which have features similar to site-built home amenities such as porches and garages. These homes are designed to be eligible for financing programs with terms similar to traditional mortgages.
HUD code homes also generally contain factory installed floor coverings, appliances and window treatments. Optional factory installed features include fireplaces, dormers, entertainment centers and skylights. Upon completion of the home at the factory, homes sold to retailers are transported to a retail sales center or directly to the home site.
Most completed factory-built homes have components consistent with conventional site-builders, such as cabinets, wall and floor coverings, appliances, and electrical, heating and plumbing systems. Optional factory installed features include fireplaces, dormers, entertainment centers and skylights. Upon completion of the home at the factory, homes sold to retailers are transported to a retail sales center or directly to the home site.
More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working from home patterns as well as people seeking rent-to-own single-family options. 8 In addition, if financing availability continues to improve and related regulation continues to ease, we believe that there will be an increase in the number of prospective customers who qualify for home loans for manufactured and modular homes.
More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working from home patterns as well as people seeking rent-to-own single-family options. Financing Commercial Financing.
FNMA and FHLMC released their final Underserved Markets Plan that describes, with specificity, the actions they will take over a three-year period to fulfill the DTS obligation. These plans became effective on January 1, 2018. The GSEs have obtained feedback from various stakeholders during their outreach efforts on advancing the underserved markets since the DTS plans became effective in 2018.
Fannie Mae and Freddie Mac released their final Underserved Markets Plan for 2022 – 2024 that describes, with specificity, the actions they will take over that three-year period to fulfill the DTS obligation. These plans became effective on January 1, 2022.
Their DTS plans continue to evolve based on the feedback received and their current areas of focus are as follows: 1) purchase more loans used to finance manufactured homes titled as real property; 2) enhance current products and create new offerings; and 3) provide consumer education to help borrowers navigate both the real property and personal property markets.
The GSEs' Underserved Markets Plan's current areas of focus are as follows: 1) purchase more loans used to finance manufactured homes titled as real property; 2) enhance current products and create new offerings; and 3) enhance tenant protections in manufactured housing communities.
In January 2021, we closed on the purchase of two idled manufacturing facilities in North Carolina, one of the strongest growth states in the U.S. We anticipate beginning production at this campus in fiscal 2023. We have demonstrated our ability to broaden our manufacturing and retail presence through the successful execution of a balanced organic growth and acquisition-based strategy.
We anticipate beginning production at one of these facilities in late fiscal 2023. 5 We have demonstrated our ability to broaden our manufacturing and retail presence through the successful execution of a balanced organic growth and acquisition-based strategy. As demand for affordable housing grows and the raw material supply chain normalizes, we will continue to execute on this growth strategy.
We encourage employees to report concerns through a variety of channels, including a compliance and ethics line which allows for anonymous reporting. All reports are investigated and resolved. We also maintain an anti-retaliation policy such that any employee who reports a concern in good faith is protected from harassment, retaliation or adverse employment consequences.
We also maintain an anti-retaliation policy such that any employee who reports a concern in good faith is protected from harassment, retaliation or adverse employment consequences. We take the health and safety of our employees seriously.
Our corporate marketing and engineering departments work with our manufacturing facilities to design homes that appeal to consumers’ changing tastes at appropriate price points for their respective markets. We design and build homes with a traditional residential or site-built appearance through the use of , among other features, dormers and higher pitched roofs.
We regularly introduce homes with new floor plans, exterior designs and elevations, decors and features. Our corporate marketing and engineering departments work with our manufacturing facilities to design homes that appeal to consumers’ changing 7 tastes at appropriate price points for their respective markets.
The components and products used in factory-built housing are generally of the same quality as those used by other home builders, including conventional site-builders. The primary components include lumber, plywood, OSB, drywall, steel, floor coverings, insulation, exterior siding (vinyl, composites, wood and metal), doors, windows, shingles, kitchen appliances, furnaces, plumbing and electrical fixtures and hardware.
The primary components include lumber, plywood, OSB, drywall, steel, floor coverings, insulation, exterior siding (vinyl, composites, wood and metal), doors, windows, shingles, kitchen appliances, furnaces, plumbing and electrical fixtures and hardware. These components are presently available from a variety of sources and we are not dependent upon any single supplier.
This enhanced technology will offer real-time analytics for improved decision making and will facilitate additional improvements in our manufacturing operations. Continuing a Balanced Organic and Acquisition-Based Growth Strategy 4 On February 28, 2021, we acquired ScotBilt Homes, LLC and related companies from SHI Group Holdings, Inc. (collectively, “ScotBilt”).
This enhanced technology will offer real-time analytics for improved decision making and will facilitate additional improvements in our manufacturing operations. Continuing a Balanced Organic and Acquisition-Based Growth Strategy In June 2021, the Company acquired two idle facilities in Navasota, Texas in order to increase our production capabilities in the Texas market.
The Fannie Mae DTS plan still includes a provision indicating that they are exploring a pilot to establish a secondary market for chattel or home-only loans. Expansion of the secondary market for home-only lending through the GSEs could provide further demand for housing, as lending options would likely become more available to home buyers.
The Fannie Mae DTS plan also includes an objective to explore opportunities to facilitate financing of loans secured by manufactured homes tiled as real property in certain manufactured housing communities. Expansion of the secondary market for home-only lending through the GSEs could provide further demand for housing, as lending options would likely become more available to homebuyers.
Lumber and related products experienced significant cost increases in fiscal 2021, primarily as a result of COVID-19 related supply chain issues. Those issues have also impacted the availability of certain materials such as lumber, OSB, insulation and appliances. We mitigate the impact of supply chain challenges through sourcing alternative materials, where appropriate, and exploring alternative supply options.
Prices of certain materials such as lumber, insulation, steel, and drywall can fluctuate significantly due to changes in demand and supply. Lumber and related products experienced significant cost increases in fiscal 2022, primarily as a result of supply chain disruptions. Those disruptions have also impacted the availability of certain raw materials and components.
We offer a wide selection of manufactured and modular homes as well as park model RVs at company-owned retail locations marketed under the Titan Factory Direct brand. We maintain our company-owned retail presence through 18 retail sales centers in 7 Florida, Georgia, Louisiana, North Carolina, Oklahoma, and Texas.
We maintain our company-owned retail presence through 18 retail sales centers in Florida, Georgia, Louisiana, North Carolina, Oklahoma, and Texas.
Typically, a one to three-week supply of raw materials is maintained, however, during the second half of fiscal 2021, supply chain availability became more volatile causing our manufacturing operations to increase the amount of frequently used raw materials on hand versus what is typically carried. Most completed factory-built homes have cabinets, wall coverings and electrical, heating and plumbing systems.
Typically, a one to three-week supply of raw materials is maintained, but continued supply chain volatility has caused our manufacturing operations to increase the amount of frequently used raw materials on hand versus what is typically carried.
We believe ScotBilt is an excellent fit for Skyline Champion given our compatible company cultures, and its strong presence in the attractive mid-south region which helps to balance our national distribution and complement our existing manufacturing footprint. The operations of ScotBilt are included in our financial results since the date of the acquisition.
The acquisition helped to balance our national distribution and complement our existing manufacturing footprint in the attractive mid-south region. The operations of ScotBilt are included in our financial results since the date of the acquisition. During fiscal 2022, we completed the successful cultural, processes, systems and internal controls integration of the acquired facilities into our operations.
Although some limited progress has been made in this area, a meaningful positive impact in the form of increased home orders has yet to be realized. 9 Competition The housing industry is highly competitive based upon several factors, including price, product features, reputation for service and quality, depth of distribution or location, and financing.
Competition The housing industry is highly competitive based upon several factors, including price, product features, reputation for service and quality, depth of distribution or location, and financing. Capital requirements for entry into the industry are relatively low. Factory-built housing is also very competitive.
Separate from the GSE involvement in chattel markets, there have been four secondary market chattel private placement offerings over the last two years.
Separate from the GSE involvement in chattel markets, there have been several secondary market chattel private placement offerings over the last three years. Although some limited progress has been made in this area, a meaningful positive impact in the form of increased home orders has yet to be realized.
Freddie Mac has made the decision to suspend activities on pursuing a pilot on manufactured homes titled as personal property and instead allocate resources on pursuing activities including loan purchases of manufactured homes titled as real property.
Freddie Mac has indicated that it plans to develop requirements and a process to support loan purchases of manufactured homes titled as real property.
We take the health and safety of our employees seriously. We expect each employee to follow our safety standards and protocols. We added an Environmental Health and Safety team member this year to benchmark and install best practices at our plants.
We provide a variety of Company sponsored healthcare programs, including health, dental, and vision, that allow employees to manage their and their family's health and wellbeing. We expect each employee to follow our safety standards and protocols. Our corporate Environmental Health and Safety (“EHS”) team works to benchmark and implement EHS best practices at our plants.
We are committed to conducting our business with integrity and in compliance with all applicable laws of the cities, states and countries in which we operate. We have adopted a written Code of Conduct and Ethics to assist employees in this regard.
There are five collective bargaining agreements (one for each Canadian manufacturing facility) and each has separate expiration dates. The agreements are set to expire at various dates between June 2022 and June 2024. We are committed to conducting our business with integrity and in compliance with all applicable laws of the cities, states and countries in which we operate.
Removed
Corporate Information On June 1, 2018, Skyline Champion Corporation (formerly known as Skyline Corporation), and Champion Enterprises Holdings, LLC (“Champion Holdings”) combined their operations pursuant to the Share Contribution & Exchange Agreement (the “Exchange Agreement”), dated as of January 5, 2018, by and between Skyline Corporation and Champion Holdings.
Added
In connection with executing this business strategy, we are focused on the following four initiatives: • Increasing the operating capacity and profitability of our existing facilities; • Investing in our customers’ online digital experience; • Implementing production automation and enterprise-wide digital technology; and • Continuing a balanced organic and acquisition-based growth strategy.
Removed
Pursuant to the Exchange Agreement, Champion Holdings contributed to Skyline Corporation all of the issued and outstanding shares of capital stock of Champion Holdings’ wholly owned operating subsidiaries, Champion Home Builders, Inc. (“CHB”), and CHB International B.V.
Added
The Company began production and completed the certification process at one of these facilities in the fourth quarter of fiscal 2022. On February 28, 2021, we acquired ScotBilt Homes, LLC and related companies from SHI Group Holdings, Inc. (collectively, “ScotBilt”). ScotBilt operated two manufacturing facilities in Georgia providing affordable housing throughout Alabama, Florida, Georgia and the Carolinas.
Removed
(“CIBV”) (the shares of stock of CHB and CIBV contributed to Skyline Corporation, the “Contributed Shares”), and in exchange for the Contributed Shares, Skyline Corporation issued to the members of Champion Holdings, in the aggregate, 47,752,008 shares of Skyline Corporation common stock, $0.0277 par value per share (such issuance, the “Shares Issuance”).
Added
In January 2021, we closed on the purchase of two idled manufacturing facilities in North Carolina, one of the strongest growth states in the U.S.
Removed
The contribution of the Contributed Shares by Champion Holdings to the Corporation, and the Shares Issuance by Skyline Corporation to the members of Champion Holdings are collectively referred to herein as the “Exchange.” The Exchange was treated as a purchase of the Company by Champion Holdings for accounting and financial reporting purposes.
Added
The Board of Directors has formal responsibility for the oversight and integration of all of the Company’s sustainability programs and policies, and the Audit Committee, Compensation Committee, and Nominating and Governance Committee have lead responsibility for the Company’s strategy, policies and practices with respect to environmental sustainability, social and human capital matters, and governance, respectively.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFor example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons. Also, business combinations are typically subject to closing conditions, including regulatory approvals and the absence of a material adverse change.
Biggest changeWe cannot be certain that we will be able to identify, consummate and successfully integrate business combinations, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons.
Increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in home insurance premiums, also can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and in turn can have adverse impacts on our business and results of operations.
Increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in home insurance premiums, can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and in turn can have adverse impacts on our business and results of operations.
Government regulations proposed or enacted in response to climate change could result in increased costs of raw materials and other production costs of our homes. We believe that a variety of new legislation may be considered at the federal, state and local levels relating to climate change and energy efficiency.
Government regulations proposed or enacted in response to climate change could result in increased costs of raw materials and other manufacturing production costs of our homes. We believe that a variety of new legislation may be considered at the federal, state and local levels relating to climate change and energy efficiency.
Compliance 13 with these new standards may also cause an increase in our costs and use of human capital resources. As climate change and energy efficiency remains a global focus, energy-related initiatives will impact many companies including our suppliers of many of our raw materials such as lumber and steel.
Compliance with these new standards may also cause an increase in our costs and use of human capital resources. As climate change and energy efficiency remains a global focus, energy-related initiatives will impact many companies including our suppliers of many of our raw materials such as lumber and steel.
An increase in competitive conditions could have any of the following impacts on us: sale of fewer homes or higher cancellations by our home buyers; an increase in selling incentives or reduction of prices; and realization of lower gross margins due to lower selling prices or an inability to increase selling prices to offset increased costs of 12 the homes delivered.
An increase in competitive conditions could have any of the following impacts on us: sale of fewer homes or higher cancellations by our home buyers; an increase in selling incentives or reduction of prices; and realization of lower gross margins due to lower selling prices or an inability to increase selling prices to offset increased costs of the homes delivered.
Unfavorable ESG ratings may lead to negative investor sentiment which could have a negative impact on our stock price. Regulatory Risks Environmental laws and regulations relating to climate change and energy can have an adverse impact on our business, our results of operations and on the availability and price of certain raw materials.
Unfavorable ESG ratings may lead to negative investor sentiment which could have a negative impact on our stock price. 13 Regulatory Risks Environmental laws and regulations relating to climate change and energy can have an adverse impact on our business, our results of operations and on the availability and price of certain raw materials.
If goodwill has become impaired, we charge the impairment as an expense in the period in which the impairment occurs. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies" and Note 1 to the Consolidated Financial Statements.
If goodwill has become impaired, we charge the impairment as an expense in the period in which the impairment occurs. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and estimates" and Note 1 to the Consolidated Financial Statements.
In connection with the floor plan financing programs, we generally have separate agreements with the financing companies that require us to repurchase homes upon default by the retailer and repossession of the homes by the financing companies.
In connection with those floor plan financing programs, we generally have separate agreements with the financing companies that require us to repurchase homes upon default by the retailer and repossession of the homes by the financing companies.
Any future determination to pay dividends to shareholders will be at the sole discretion of our board of directors and will depend upon many factors, including general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our shareholders or by our subsidiaries to us, and any other factors that the board of directors may deem relevant. 18 ITEM 1B.
Any future determination to pay dividends to shareholders will be at the sole discretion of our board of directors and will depend upon many factors, including general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory 18 restrictions, the implications of the payment of dividends by us to our shareholders or by our subsidiaries to us, and any other factors that the board of directors may deem relevant.
In addition, there are independent factory-built housing retail locations that sell competitors’ products in most areas where our homes are sold and in most areas where we have Company-owned retail operations.
In addition, there are independent factory-built housing retail locations that sell competitors’ products in most areas where our homes are sold and in most areas where we have Company-owned 12 retail operations.
As a result, if the availability of wholesale financing is reduced, we could experience sales declines or a higher level of customer defaults and its operating results and cash flows could suffer. We have contingent repurchase obligations related to wholesale financing provided to industry retailers.
As a result, if the availability of wholesale financing is reduced, we could experience sales declines or a higher level of customer defaults and our operating results and cash flows could suffer. We have contingent repurchase obligations related to wholesale financing provided to industry retailers.
Over 90% of our shipments of homes in fiscal 2021 were made to independent distributors throughout the U.S. and western Canada. We may not be able to establish relationships with new independent distributors or maintain good relationships with independent distributors that sell our homes.
Over 90% of our shipments of homes in fiscal 2022 were made to independent distributors throughout the U.S. and western Canada. We may not be able to establish relationships with new independent distributors or maintain good relationships with independent distributors that sell our homes.
The extent to which the COVID-19 pandemic continues to impact us will depend on future developments that are highly uncertain and cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19, the availability and efficacy of vaccines and the impact of the COVID-19 pandemic on economic activity.
The extent to which the COVID-19 pandemic continues to impact us will depend on future developments that cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19, the availability and efficacy of vaccines and the impact of the COVID-19 pandemic on economic activity.
A large portion of the people who buy our homes finance their home purchases through third-party lenders. Interest rates have been near historical lows for several years, which has made purchasing new factory-built homes more affordable. Increases in interest rates or decreases in the availability of consumer financing could adversely affect the market for homes.
A large portion of the people who buy our homes finance their home purchases through third-party lenders. Increases in interest rates or decreases in the availability of consumer financing could adversely affect the market for homes. Interest rates have been near historical lows for several years, which has made purchasing new factory-built homes more affordable. However, in 2022, the U.S.
ITEM 1A. RISK FACTORS Our business involves a number of risks and uncertainties. You should carefully consider the following risks, together with the information provided elsewhere in this Annual Report. The items described below are not the only risks facing us.
ITEM 1A. RI SK FACTORS Our business involves a number of risks and uncertainties. You should carefully consider the following risks, together with the information provided elsewhere in this Annual Report. The items described below are not the only risks facing us.
We rely on information systems and technology to manage our business and summarize and report our operating results. In fiscal 2022, we will begin a multi-year replacement of our current information systems with a suite of cloud-based functionality.
We rely on information systems and technology to manage our business and summarize and report our operating results. In fiscal 2022, we began a multi-year replacement of our current information systems with a suite of cloud-based functionality.
These factors could adversely affect the sales or pricing of our factory-built homes. These developments have historically had, and may once again have, an adverse effect on the overall demand for factory-built housing and its competitiveness with other forms of housing and could adversely affect our results of operations and financial condition.
These developments have historically had, and may once again have, an adverse effect on the overall demand for factory-built housing and its competitiveness with other forms of housing and could adversely affect our results of operations and financial condition.
Our management is responsible for maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States.
A number of factors may adversely affect the labor force available to us and our subcontractors in one or more of our markets, including high employment levels, federal unemployment subsidies, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration. These factors can also impact the cost of labor.
A number of factors may adversely affect the labor force available to us and our subcontractors in one or more of our markets, including high employment levels, federal unemployment subsidies, changing work preferences of the labor force, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration.
An impairment of all or part of our goodwill could adversely affect our operating results and net worth. As of April 3, 2021, 20.9% of our total assets consisted of goodwill, all of which is allocated to reporting units included in the U.S. Factory-built Housing segment.
An impairment of all or part of our goodwill could adversely affect our operating results and net worth. As of April 2, 2022, 15.5% of our total assets consisted of goodwill, all of which is allocated to reporting units included in the U.S. Factory-built Housing segment.
Our risk management practices may leave us exposed to unidentified or unanticipated risk. Our management team is responsible for managing risk, subject to oversight by our board of directors. Our risk management methods may not identify all future risk exposures and may not be completely effective in mitigating all key risks.
Our management team is responsible for managing risk, subject to oversight by our board of directors. Our risk management methods may not identify all future risk exposures and may not be completely effective in mitigating all key risks.
Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, any of which could adversely affect our business. 16 Engaging in mergers, acquisitions, and start-up operations involves risks that could adversely affect our business.
We have historically experienced high turnover rates among our direct labor employees, which can lead to increased spending on training and retention and, as a result, increased costs of production.
These factors can also increase the cost of labor. We have historically experienced high turnover rates among our direct labor employees, which can lead to increased spending on training and 14 retention and, as a result, increased costs of production.
There is no assurance that all such defects will be detected prior to the distribution of our products. In addition, although we endeavor to compel suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor-supplied part were to occur that the vendor would have the financial ability to rectify the defect.
In addition, although we endeavor to compel suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor-supplied part were to occur that the vendor would have the financial ability to rectify the defect.
Business combinations entail numerous risks, including: • difficulties in the integration of acquired operations and products, which can impact the retention of customer accounts; • failure to achieve expected synergies, implement appropriate internal controls or integrate information systems; • diversion of management's attention from other business concerns; • assumption of unknown material liabilities of acquired companies, which could become material or subject us to litigation or regulatory risks; • amortization of acquired intangible assets, which could reduce future reported earnings; and • potential loss of customers or key employees. 16 We cannot be certain that we will be able to identify, consummate and successfully integrate business combinations, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction.
Business combinations and start-up operations entail numerous risks, including: • difficulties in the integration of acquired operations and products, which can impact the retention of customer accounts; • failure to achieve expected synergies, implement appropriate internal controls or integrate information systems; • diversion of management's attention from other business concerns; • assumption of unknown material liabilities of acquired companies, which could become material or subject us to litigation or regulatory risks; • amortization of acquired intangible assets, which could reduce future reported earnings; • potential loss of customers or key employees; and • not adequately anticipating customer demands in new markets.
The COVID-19 pandemic poses many risks including the following, among others: • Our employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter-in-place or stay-at-home orders, travel restrictions, and other actions and restrictions that may be requested or mandated by governmental authorities. • Due to social distancing protocols and higher than normal employee absenteeism caused by the COVID-19 pandemic, the capacity output of our manufacturing facilities has decreased when compared to pre-COVID-19 levels.
The COVID-19 pandemic continues to pose many risks including the following, among others: • Our employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, and other actions and restrictions that may be requested or mandated by governmental authorities. • Social distancing protocols and higher than normal employee absenteeism can lead to a decrease in capacity output of our manufacturing facilities. • We have experienced, and may continue to experience, disruptions and delays in our supply chain as a result of the effects of the COVID-19 pandemic.
The focus on managing and mitigating the impacts of the COVID-19 pandemic on our business may cause us to divert or delay the application of our resources toward other initiatives or investments, which in turn may have a material adverse impact on our results of operations. • We may experience impacts from market downturns and changes in consumer behavior including uncertainty in consumer confidence, increasing unemployment, and reductions in discretionary spending related to pandemic fears as a result of the COVID-19 pandemic.
The focus on managing and mitigating the impacts of the COVID-19 pandemic on our business may cause us to divert or delay the application of our resources toward other initiatives or investments, which in turn may have a material adverse impact on our results of operations.
An overall labor shortage or lack of skilled labor, increased turnover or labor inflation could cause significant increases in costs or delays in construction of homes, which could have a material adverse effect on our net sales and results of operations. 14 Complications with the implementation of our new e nterprise -wide system could adversely impact our business and operations.
An overall labor shortage or lack of skilled labor, increased turnover or labor inflation could cause significant increases in costs or delays in construction and delivery of homes, which could have a material adverse effect on our net sales and results of operations. Increased costs of transportation may adversely affect our operating results and cash flows.
Therefore, if and when we enter into a business combination agreement, there can be no guarantee that the transaction will close when expected, or at all. If a material transaction does not close, then our stock price could decline. Nevertheless, opportunities arise from time to time that we choose to evaluate.
Also, business combinations are typically subject to closing conditions, including regulatory approvals and the absence of a material adverse change. Therefore, if and when we enter into a business combination agreement, there can be no guarantee that the transaction will close when expected, or at all. If a material transaction does not close, then our stock price could decline.
If we are unable to locate suitable sources of capital when needed, we may be unable to maintain or expand our business. We depend on our cash balances, cash flows from operations, and our revolving credit facility (the “Credit Facility”) to finance our operating requirements, capital expenditures, and other needs.
We depend on our cash balances, cash flows from operations, and our revolving credit facility (the “Credit Facility”) to finance our operating requirements, capital expenditures, and other needs.
Raw material shortages from these and 11 other suppliers can be more severe during periods following natural disasters or broader economic disruptions such as the COVID-19 pandemic.
Raw material shortages from these and other suppliers can be more severe during periods following natural disasters or broader economic disruptions such as the COVID-19 pandemic. Pricing for raw materials can also be affected by the factors mentioned above as well as national, regional, local, economic and political factors, including tariffs.
We may attempt to pass the higher material costs onto customers, but it is not certain that we will be able to achieve this without adversely affecting demand.
As a result, we may continue to see raw material cost pressures in future periods as strong housing demand continues. We may attempt to pass the higher material costs on to customers, but it is not certain that we will be able to achieve this without adversely affecting demand.
Changes in our senior management team or other key employees may result in operational disruptions and changes to the strategy of our business, and our business might be harmed as a result.
Changes in our senior management team or other key employees may result in operational disruptions and changes to the strategy of our business, and our business might be harmed as a result. Our business could be further disrupted and harmed if we were unable to find appropriate replacements on a timely basis following future departures.
If we are unable to successfully implement the system as planned, our business, results of operations and financial condition could be negatively impacted.
If we are unable to successfully implement the system as planned, our business, results of operations and financial condition could be negatively impacted. We have capitalized significant costs related to the development of the new system. A write-off of all or part of our capitalized costs could adversely affect our results of operations and financial condition.
Potential customers may be less willing or able to pay the increased monthly costs or to obtain financing. In addition, recent increases in the prices of homes may limit consumers’ ability to obtain financing. Lenders may increase the qualifications needed for financing or adjust their terms to address any increased credit risk.
In addition, recent increases in the prices of homes may limit consumers’ ability to obtain financing. Lenders may increase the qualifications needed for financing or adjust their terms to address any increased credit risk. These factors could adversely affect the sales or pricing of our factory-built homes.
A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns could cause harm to our business and reputation. In addition, organizations that provide information to investors on corporate governance and other matters have developed ratings systems for evaluating companies on their approach to ESG.
In addition, organizations that provide information to investors on corporate governance and other matters have developed ratings systems for evaluating companies on their approach to ESG.
Estimated warranty costs are accrued at the time of product sale to reflect our best estimate of the amounts necessary to settle future and existing claims on products. An increase in actual warranty claims costs as compared to our estimates could result in increased warranty reserves and expense, which could have adverse impacts on our earnings.
Estimated warranty costs are accrued at the time of product sale to reflect our best estimate of the amounts necessary to settle existing and future claims on products.
Natural disasters and severe weather conditions could delay deliveries, increase costs, and decrease demand for new factory-built homes in affected areas. Our operations are located in many areas that are subject to natural disasters and severe weather.
Any changes to individual tax rules concerning the deductibility of mortgage interest expenses and real estate taxes could deter customers from home ownership. Natural disasters and severe weather conditions could delay deliveries, increase costs, and decrease demand for new factory-built homes in affected areas. Our operations are located in many areas that are subject to natural disasters and severe weather.
The purchase price for possible acquisitions of businesses and assets might be paid from cash, borrowings, or through the issuance of common stock or other securities, or a combination of these methods.
As part of our growth strategy, we may choose to engage in discussions and negotiations regarding mergers, acquisitions, start-ups, and other business combinations. The purchase price for possible acquisitions of businesses and assets might be paid from cash, borrowings, or through the issuance of common stock or other securities, or a combination of these methods.
Increases in the after-tax costs of owning a factory-built home could deter potential customers from buying our products and adversely affect our business or results of operations.
Increases in tax rates or fees on developers by local government authorities could deter potential customers from buying our products and adversely affect our business or results of operations.
Recently, more attention has been directed to publicly traded companies and their activities related to environmental, social and governance (“ESG”) matters. Advocacy groups have campaigned for action to promote change at public companies related to ESG matters. These activities include increasing action related to climate change and the use of energy efficient building products.
Increased attention continues to be directed to publicly traded companies and their activities related to environmental, social and governance (“ESG”) matters, including new proposed rules by the SEC regarding climate-related disclosures. Advocacy groups have campaigned for action to promote change at public companies related to ESG matters.
Any transactions that we pursue and consummate would involve these risks and uncertainties, as well as others. The risks of a business combination could result in the failure of the anticipated benefits of that particular combination to be realized, which in turn could have adverse effects on our business, financial condition, results of operations and prospects.
The risks of a business combination or startup of a greenfield or idled facility could result in the failure of the anticipated benefits of that particular combination to be realized, which in turn could have adverse effects on our business, financial condition, results of operations and prospects. Our risk management practices may leave us exposed to unidentified or unanticipated risk.
As a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high.
Product liability claims and litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our results of operations. As a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business.
Our business could be further disrupted and harmed if we were unable to find appropriate replacements on a timely basis following future departures. 15 We may not be able to attract or motivate qualified management and operations personnel in the future. Inability to do so would result in constraints that would significantly impede the achievement of our objectives.
We may not be able to attract or motivate qualified management and operations personnel in the future. Inability to do so would result in constraints that would significantly impede the achievement of our objectives. We may also have difficulty attracting experienced personnel and may be required to expend significant financial resources in our employee recruitment efforts.
Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and can harm our reputation. Our products contain thousands of parts, many of which are supplied by a network of approved vendors. Product defects may occur, including components purchased from material vendors.
Our products contain thousands of parts, many of which are supplied by a network of approved vendors. Product defects may occur, including components purchased from material vendors. There is no assurance that all such defects will be detected prior to the distribution of our products.
The global outbreak of COVID-19 has caused a material adverse effect on the level of economic activity around the world, including in all of the markets that we serve.
This outbreak caused a material adverse effect on the level of economic activity around the world, including in all of the markets that we serve, and prompted federal and local governments to institute preventative measures, including quarantines and shelter-in-place orders, to mitigate the public health effects.
We may be required to honor contingent repurchase obligations in the future and may incur additional expense and reduced cash flows because of these repurchase agreements. 17 Industry conditions and future operating results could limit our sources of capital.
Our contingent repurchase obligation as of April 2, 2022, was estimated to be approximately $339.5 million, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense and reduced cash flows because of these repurchase agreements.
There can be no assurance that this coverage will not be restricted and become more costly.
These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high. There can be no assurance that this coverage will not be restricted and become more costly.
The secure maintenance of this information is critical to our operations and business strategy.
The secure maintenance of this information is critical to our operations and business strategy. Our ability to conduct our business may be negatively impacted if our or our service providers’ computer resources or connectivity are compromised, degraded, damaged, or if they fail.
We have implemented numerous measures attempting to manage and mitigate the effects of the virus on our financial condition, results of operations, cash flows, and business, but there can be no assurance that these measures will succeed. We cannot predict the degree to which, or the time period over which, our sales and operations will be affected by this outbreak.
In response to the outbreak, we implemented numerous measures attempting to manage and mitigate the effects of the virus on our financial condition, results of operations, cash flows, and business. In fiscal 2022, the global economy began reopening and distribution of vaccines has encouraged greater economic activity.
Removed
COVID-19 Pandemic Risks The COVID-19 pandemic has materially and adversely impacted and disrupted our financial condition, results of operations, cash flows and business and we expect it could continue to do so.
Added
These activities include increasing action related to climate change and the use of energy efficient building products. A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns could cause harm to our business and reputation.
Removed
Lower capacity utilization of our facilities could continue to persist until the effects of the pandemic subside. • We have experienced, and may continue to experience, disruptions and delays in our supply chain as a result of the COVID-19 pandemic.
Added
We rely on qualified truck drivers to deliver homes from our manufacturing facilities to retail centers and customer home sites. A lack of qualified drivers to deliver manufactured homes could result in an increase in our cost of goods sold and operating expenses.
Removed
The consequences of the COVID-19 pandemic include widespread unemployment and uncertainty, among other problems, reducing the likelihood of people seeking new or improved housing. • The impacts of the COVID-19 pandemic have caused uncertainty and volatility in the credit markets.
Added
Additionally, delays in the shipment of completed homes due to lack of qualified drivers could impact our ability to meet customer demand on a timely basis. Customer cancellations could have a negative impact on our revenue and margins. Our backlog represents home orders from customers that will be produced in future periods.
Removed
We rely on the credit markets to provide us with liquidity to operate and grow our business beyond the liquidity that operating cash flows provide.
Added
Orders in the backlog may be cancelled by customers at any time without penalty. Our backlog has increased significantly in fiscal 2022 driven by higher demand for single-family housing, which has resulted in order levels that have outpaced production.
Removed
If our access to capital were to become significantly constrained, or if costs of capital were to increase significantly due to the impact of the COVID-19 pandemic, then our financial condition, results of operations, cash flows, and business, could be materially adversely affected.
Added
While cancellations have historically been low, longer lead times caused by the higher backlog could result in an increase in customer cancellations which could have an adverse impact on future financial performance. Orders in backlog may also be impacted by inflation. Customers obtain financing approval prior to ordering a home.
Removed
Specifically, during fiscal 2021, we saw a significant increase in the cost, and decrease in the availability, of forest products as a result of increased demand and shutdowns of lumber mills due to the COVID-19 pandemic. It is uncertain whether these shortages will continue as is, improve or worsen.
Added
Significant increases in prices may prevent customers from being able to qualify for financing at the time the home is ready to be produced causing the customer to cancel their order in our backlog. Complications with the implementation of our new enterprise-wide system could adversely impact our business and operations.
Removed
Pricing for raw materials can also be affected by the factors mentioned above as well as national, regional, local, economic and political factors, including tariffs. As a result, we may continue to see raw material cost pressures in future periods as strong housing demand continues.
Added
An increase in actual warranty claims costs as compared to our estimates could result in increased warranty reserves and expense, which could have adverse impacts on our earnings. 15 Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and can harm our reputation.
Removed
Significant expenses of owning a factory-built home, including mortgage interest expenses and real estate taxes, generally were, under prior tax law, deductible expenses for an individual’s federal income taxes and, in some cases, state income taxes, subject to certain limitations.
Added
Nevertheless, opportunities arise from time to time that we choose to evaluate. Any transactions that we pursue and consummate would involve these risks and uncertainties, as well as others.
Removed
The Tax Cuts and Jobs Act, signed into law in December 2017 (the “Tax Act”), included provisions that impose limitations with respect to these income tax deductions.
Added
Federal Open Market Committee raised the target rate for the fed funds rate for the first time in three years and indicated that it foresees additional future increases in that rate in order to combat rising inflation in the U.S. economy. Potential customers may be less willing or able to pay the increased monthly costs or to obtain financing.
Removed
We may also have difficulty attracting experienced personnel and may be required to expend significant financial resources in our employee recruitment efforts. Product liability claims and litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our results of operations.
Added
Inflation could adversely affect our business and financial results. 17 Inflation can adversely affect us by increasing costs of raw materials, labor and transportation. Efforts made by the U.S. government to stimulate the economy and combat the impact of the COVID-19 pandemic has increased and may continue to increase the risk of significant, persistent inflation.
Removed
Engaging in mergers and acquisitions, such as the acquisition of ScotBilt Homes, involve risks that could adversely affect our business. As part of our growth strategy, we recently acquired ScotBilt Homes and may choose to engage in discussions and negotiations regarding additional mergers, acquisitions and other business combinations.
Added
Inflation can also lead to higher interest rates, which can have a negative impact on the housing industry, as well as increases in our borrowing rates. While we have historically been able to pass along price increases to our customers, in a persistent inflationary environment we may not be able to raise prices sufficiently in order to maintain our margins.
Removed
The impact of COVID-19 may have an adverse impact on the solvency of independent industry retailers, and as a result, we may be required to honor the contingent repurchase agreements if the retailers default under terms of the floor plan financing arrangements.
Added
Industry conditions and future operating results could limit our sources of capital. If we are unable to locate suitable sources of capital when needed, we may be unable to maintain or expand our business.
Removed
Our contingent repurchase obligation as of April 3, 2021, was estimated to be approximately $219.5 million, without reduction for the resale value of the homes.
Added
A write-off of all or part of our goodwill could adversely affect our results of operations and financial condition. Our failure to maintain effective internal control over financial reporting could harm our business and financial results. Our management is responsible for maintaining effective internal control over financial reporting.
Removed
A write-off of all or part of our goodwill could adversely affect our results of operations and financial condition. The replacement or modification of LIBOR as a reference rate could increase our interest expense in the future. The London Inter-Bank Offered Rate (“LIBOR”) is expected to be phased out by the end of 2021.
Added
COVID-19 Pandemic Risks The COVID-19 pandemic has and may continue to materially and adversely impact our business. The global outbreak of COVID-19 was declared a global pandemic by the World Health Organization in March 2020.
Removed
LIBOR is currently used as the reference rate on our credit facility, which matures on June 5, 2023. Currently, no replacement rate has been identified. The transition from LIBOR could result in higher interest expense than has historically been recognized. Our failure to maintain effective internal control over financial reporting could harm our business and financial results.
Added
These measures caused, and may continue to cause, significant business and financial market disruption in affected areas, and had a detrimental impact to our business in the first half of fiscal 2021.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

81 edited+22 added−69 removed31 unchanged
Biggest changeRESULTS OF OPERATIONS FOR FISCAL 2021 VS. 2020 Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 Results of Operations Data: Net sales $ 1,420,881 $ 1,369,730 Cost of sales 1,133,186 1,090,755 Gross profit 287,695 278,975 Selling, general, and administrative expenses 178,936 192,520 Operating income 108,759 86,455 Interest expense, net 3,248 1,401 Other income, net (5,889 ) — Income from operations before income taxes 111,400 85,054 Income tax expense 26,501 26,894 Net income $ 84,899 $ 58,160 Reconciliation of Adjusted EBITDA: Net income $ 84,899 $ 58,160 Income tax expense 26,501 26,894 Interest expense, net 3,248 1,401 Depreciation and amortization 17,704 18,546 Equity-based compensation (for awards granted prior to December 31, 2018) 1,359 4,576 Transaction costs 1,044 — Acquisition integration costs — 2,674 Fair market value adjustment for asset classified as held for sale — 986 Property, plant, and equipment impairment charge — 550 Restructuring costs and other — 577 Adjusted EBITDA $ 134,755 $ 114,364 As a percent of net sales: Gross profit 20.2 % 20.4 % Selling, general and administrative expenses 12.6 % 14.1 % Operating income 7.7 % 6.3 % Net income 6.0 % 4.2 % Adjusted EBITDA 9.5 % 8.3 % 26 FISCAL PERIODS The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest March 31.
Biggest changeThrough December 2020, the Company deferred $11.8 million of payroll taxes, of which, the Company repaid $5.9 million in the third quarter of fiscal 2022, with the remaining amount expected to be paid in December 2022. 25 RESULTS OF OPERATIONS FOR FISCAL 2022 VS. 2021 Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 Results of Operations Data: Net sales $ 2,207,229 $ 1,420,881 Cost of sales 1,618,106 1,133,186 Gross profit 589,123 287,695 Selling, general, and administrative expenses 256,218 178,936 Operating income 332,905 108,759 Interest expense, net 2,512 3,248 Other income, net (36 ) (5,889 ) Income from operations before income taxes 330,429 111,400 Income tax expense 82,385 26,501 Net income $ 248,044 $ 84,899 Reconciliation of Adjusted EBITDA: Net income $ 248,044 $ 84,899 Income tax expense 82,385 26,501 Interest expense, net 2,512 3,248 Depreciation and amortization 20,936 17,704 Equity-based compensation (for awards granted prior to December 31, 2018) — 1,359 Transaction costs — 1,044 Adjusted EBITDA $ 353,877 $ 134,755 As a percent of net sales: Gross profit 26.7 % 20.2 % Selling, general and administrative expenses 11.6 % 12.6 % Operating income 15.1 % 7.7 % Net income 11.2 % 6.0 % Adjusted EBITDA 16.0 % 9.5 % FISCAL PERIODS The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest March 31.
The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada. Acquisitions and Expansions Over the last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve.
The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles, and other products throughout the U.S. and Canada. Acquisitions and Expansions Over last several years, demand for the Company’s products, primarily affordable housing in the U.S., has continued to improve.
The Company has prioritized the safety and well-being of its employees and customers and has implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand.
The Company has prioritized the safety and well-being of its employees and customers and implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand.
The Company is the largest independent publicly traded factory-built solutions provider in North America based on revenue, and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S. and Moduline and SRI Homes in western Canada.
The Company is the largest independent publicly traded factory-built solutions provider in North America based on revenue, and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S. and Moduline and SRI Homes in western Canada.
Estimated self-insurance costs are accrued for all expected future expenditures for reported and unreported claims based on historical experience. 38 Warranty Reserves The Company’s factory-built housing operations generally provide each retail homebuyer or builder/developer with a 12-month assurance warranty from the date of retail purchase. Estimated warranty costs are accrued as cost of sales at the time of sale.
Estimated self-insurance costs are accrued for all expected future expenditures for reported and unreported claims based on historical experience. Warranty Reserves The Company’s factory-built housing operations generally provide each retail homebuyer or builder/developer with a 12-month assurance warranty from the date of retail purchase. Estimated warranty costs are accrued as cost of sales at the time of sale.
The annual assessment was completed on of the first day of March. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
The annual assessment was completed on of the first day of fiscal March. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
The increase in cost is generally a function of the increase in net sales and profits for the segment which translates to higher sales commissions and incentive compensation. Corporate/Other: SG&A expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations.
The increase in cost is generally a function of the increase in net sales and profits for the segment which translates to higher incentive compensation. Corporate/Other: SG&A expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations.
Warranty provisions and reserves are based on various factors, including estimates of the amounts necessary to settle existing and future claims on homes sold as of the balance sheet date.
Warranty provisions and reserves are based on various factors, including estimates of the amounts necessary to settle existing and future claims 32 on homes sold as of the balance sheet date.
The Company operates 35 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured homes to consumers primarily in the southern U.S.
The Company operates 36 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 18 sales centers that sell manufactured homes to consumers primarily in the southern U.S.
If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. As the analysis depends upon judgments, estimates and assumptions, such testing is subject to inherent uncertainties, which could cause the fair value to fluctuate from period to period. In fiscal 2021, the Company performed qualitative assessments of its reporting units.
If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. As the analysis depends upon judgments, estimates and assumptions, such testing is subject to inherent uncertainties, which could cause the fair value to fluctuate from period to period. In fiscal 2022, the Company performed qualitative assessments of its reporting units.
The Company’s effective tax rate for fiscal 2021 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, and results in foreign jurisdictions.
The Company’s effective tax rate for fiscal 2022 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, and results in foreign jurisdictions.
Reserve for Repurchase Commitments As is customary in the factory-built housing industry, a significant portion of the manufacturing operations’ sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers.
Reserve for Repurchase Commitments As is customary in the factory-built housing industry, a significant portion of the home sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers.
Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 16.9%, 16.5%, and 16.6% in fiscal 2021, 2020, and 2019, respectively. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959.
Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 19.3%, 16.9%, and 16.5% in fiscal 2022, 2021, and 2020, respectively. Annual industry shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959.
At April 3, 2021, letters of credit issued under the sub-facility totaled $30.4 million. Industrial Revenue Bonds Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
At April 2, 2022, letters of credit issued under the sub-facility totaled $30.4 million. Industrial Revenue Bonds Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.
The Company’s effective tax rate for fiscal 2020 differed from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, changes in valuation allowances, and results in foreign jurisdictions. ADJUSTED EBITDA The following table reconciles net income, the most directly comparable U.S.
The Company’s effective tax rate for fiscal 2021 differed from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, tax credits, state and local income taxes, and results in foreign jurisdictions. ADJUSTED EBITDA The following table reconciles net income, the most directly comparable U.S.
Losses under repurchase obligations represent the difference between the repurchase price and net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Losses incurred on homes repurchased have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $1.4 million at April 3, 2021.
Losses under repurchase obligations represent the difference between the repurchase price and net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Losses incurred on homes repurchased have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $2.3 million at April 2, 2022.
More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options. The robust demand environment has resulted in backlog at the end of fiscal 2021 of $858.6 million compared to $127.5 million at the end of fiscal 2020.
More recently, we have seen a number of market trends pointing to increased sales of ADUs and urban-to-rural migration as customers accommodate working-from-home patterns, as well as people seeking rent-to-own single-family options. The robust demand environment has resulted in backlog at the end of fiscal 2022 of $1.6 billion compared to $858.6 million at the end of fiscal 2021.
The Company has the ability to resell the repurchased collateral to other retailers, and losses incurred on repurchased homes have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $1.4 million at April 3, 2021. See “ Critical Accounting Polices – Reserve for Repurchase Commitments ” below.
The Company has the ability to resell the repurchased collateral to other retailers, and losses incurred on repurchased homes have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $2.3 million at April 2, 2022. See “ Critical Accounting Polices and Estimates – Reserve for Repurchase Commitments ” below.
Fiscal 2021 was a 53-week period and fiscal 2020 was a 52-week period. The results of operations and discussion below should be read considering the impact of an additional week of operation in fiscal 2021.
Fiscal 2022 was a 52-week period and fiscal 2021 was a 53-week period. The results of operations and discussion below should be read considering the impact of an additional week of operation in the prior year.
Additionally, the Company is contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to independent retailers. The contingent repurchase obligation as of April 3, 2021 is approximately $219.5 million, without reduction for the resale value of the homes.
Additionally, the Company is contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to independent retailers. The contingent repurchase obligation as of April 2, 2022 is approximately $339.5 million, without reduction for the resale value of the homes.
After 24 or 30 months from the date of the Company’s sale of the home, the risk of loss on these homes is low, and by the 46th month, most programs require that the home be paid in full, at which time the Company no longer has risk of loss.
After 18 to 36 months from the date of the Company’s sale of the home, the risk of loss on these homes is low, and by the 46th month, most programs require that the home be paid in full, at which time the Company no longer has risk of loss.
Borrowings are secured by the homes acquired and are required to be repaid when the Company sells the financed home to a customer. Contingent Obligations The Company has contingent liabilities and obligations at April 3, 2021, including surety bonds and letters of credit totaling $34.4 million and $30.4 million, respectively.
Borrowings are secured by the homes acquired and are required to be repaid when the Company sells the financed home to a customer. Contingent Obligations The Company has contingent liabilities and obligations at April 2, 2022, including surety bonds and letters of credit totaling $35.6 million and $30.4 million, respectively.
Pursuant to these agreements, during the repurchase period, generally upon default by the retailer and repossession by the financial institution, the Company is obligated to repurchase the homes from the Floor Plan Lender. The contingent repurchase obligation as of April 3, 2021, is estimated to be approximately $219.5 million, without reduction for the resale value of the homes.
Pursuant to these agreements, during the repurchase period, generally upon default by the retailer and repossession by the financial institution, the Company is obligated to repurchase the homes from the floor plan lenders. The contingent repurchase obligation as of April 2, 2022 is estimated to be approximately $339.5 million, without reduction for the resale value of the homes.
In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise operating strategies accordingly. Cash provided by operating activities was $153.9 million in fiscal 2021 compared to $76.7 million in fiscal 2020.
In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise its operating strategies. Cash provided by operating activities was $224.5 million in fiscal 2022 compared to $153.9 million in fiscal 2021.
The Company anticipates compliance with its leverage ratio debt covenant and projects its level of cash availability to be in excess of cash needed to operate the business for the next year.
The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year and beyond.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: Gross profit for the U.S. Factory-built Housing segment increased by $2.7 million, or 1.1%, during fiscal 2021 compared to the prior year. The increase in gross profit is due to the increase in revenue in fiscal 2021.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: Gross profit for the U.S. Factory-built Housing segment increased by $277.4 million, or 109.7%, during fiscal 2022 compared to the prior year. The increase in gross profit is due to the increase in revenue in fiscal 2022.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: SG&A expenses for the U.S. Factory-built Housing segment decreased by $9.2 million, or 6.8%, during fiscal 2021 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 10.0% for fiscal 2021 compared to 11.0% for fiscal 2020.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: SG&A expenses for the U.S. Factory-built Housing segment increased by $61.6 million, or 48.8%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 9.4% in fiscal 2022 compared to 10.0% during fiscal 2021.
The Company is liable for the first $150,000 of incurred losses for each workers’ compensation and auto liability claim and is responsible for losses up to the first $500,000 per occurrence for general, product liability, and property insurance. Generally catastrophic losses are insured up to $50 million. The health plan is subject to a stop-loss limit of $500,000 per occurrence.
The Company is liable for the first $150,000 of incurred losses for each workers’ compensation and auto liability claim and is responsible for losses up to the first $500,000 per occurrence for general, product liability, and property insurance. Generally catastrophic losses are insured up to $80 million.
The Company recognized $6.2 million for payroll subsidies under CEWS, and $0.7 million under the CARES Act. The Company incurred transaction costs of $1.0 million during fiscal 2021 related to the acquisition of ScotBilt, partially offsetting the payroll subsidies.
In fiscal 2021, the Company recognized $6.2 million for payroll subsidies under CEWS, and $0.7 million under the CARES Act, which were partially offset by transaction costs of $1.0 million related to the acquisition of ScotBilt.
Canadian Factory-built Housing: SG&A expenses for the Canadian Factory-built Housing segment increased by $0.7 million, or 9.0%, during fiscal 2021 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 8.9% for fiscal 2021 compared to 9.9% for fiscal 2020.
Canadian Factory-built Housing: SG&A expenses for the Canadian Factory-built Housing segment increased by $3.9 million, or 42.5%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 8.1% during fiscal 2022 compared to 8.9% in fiscal 2021.
Cash balances and cash flow from operations for the next year are expected to be adequate to cover working capital requirements, fund capital expenditures, and floor plan payment obligations. The Company does not have any scheduled long term debt maturities in the next twelve months.
Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements, capital expenditures, and strategic initiatives and investments. The Company does not have any scheduled long-term debt maturities in the next twelve months.
Floor Plan Payable At April 3, 2021, the Company had outstanding borrowings on floor plan financing arrangements of $25.7 million. The Company’s retail operations utilize floor plan financing to fund the acquisition of manufactured homes for display or resale. The arrangements provide for borrowings up to $48.0 million.
Floor Plan Payable At April 2, 2022, the Company had outstanding borrowings on floor plan financing arrangements of $35.5 million. The Company’s retail operations utilize floor plan financing to fund the acquisition of manufactured homes for display or resale. The arrangements provide for borrowings up to $67.0 million.
Corporate/Other: Gross profit for the Corporate/Other segment increased by $1.0 million, or 8.3%, during fiscal 2021 compared to the same period in the prior year. Corporate/Other gross profit improved as a percent of segment net sales to 24.9% from 20.7%. Gross margin for the Company’s transportation business improved due to a change in revenue mix and lower variable expenses.
Corporate/Other: 27 Gross profit for the Corporate/Other segment increased by $2.1 million, or 15.9%, during fiscal 2022 compared to the same period in the prior year. Corporate/Other gross profit improved as a percent of segment net sales to 27.0% from 24.9%. Gross margin for the Company’s transportation business improved due to a change in revenue mix.
The increase is primarily related to the cash paid for the acquisition of ScotBilt, net of cash acquired, of $52.5 million, partially offset by a decrease in capital expenditures compared to the prior year. Cash used in investing activities was $14.1 million in fiscal 2020 versus $2.0 million in 2019.
Cash used in investing activities was $32.0 million in fiscal 2022 versus $56.8 million in fiscal 2021. The decrease is primarily related to the cash paid for the acquisition of ScotBilt, net of cash acquired, of $52.5 million, in fiscal 2021, partially offset by an increase in capital expenditures compared to the prior year.
Management believes the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. 37 NON - GAAP FINANCIAL MEASURES - A DJUSTED EBITDA The Company defines Adjusted Earnings Before Interest Taxes and Depreciation and Amortization (“Adjusted EBITDA ”) as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) equity based compensation for awards granted prior to December 31, 2018; (f) non-cash restructuring charges and impairment of assets; and (g) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities.
NON-GAAP FINANCIAL MEASURES - ADJUSTED EBITDA The Company defines Adjusted Earnings Before Interest Taxes and Depreciation and Amortization (“Adjusted EBITDA”) as net income or loss plus; (a) the provision for income taxes; (b) interest expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) equity based compensation for awards granted prior to December 31, 2018; (f) non-cash 31 restructuring charges and impairment of assets; and (g) other non-operating costs including those for the acquisition and integration or disposition of businesses and idle facilities.
Cash used in financing activities in fiscal 2021 is primarily a result of payments made on the revolving credit facility and floor plan financing facilities totaling $38.0 million and $8.2 million, respectively.
Cash used in financing activities in fiscal 2021 is primarily a result of payments made on the revolving credit facility and floor plan financing facilities totaling $38.0 million and $8.2 million, respectively. CONTRACTUAL OBLIGATIONS AND COMMITMENTS Credit Facility The Amended Credit Agreement matures in July 2026 and has no scheduled amortization.
SG&A expenses for Corporate/Other decreased by $5.1 million, or 10.5%, during fiscal 2021 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 82.1% for fiscal 2021 compared to 82.6% for fiscal 2020.
SG&A expenses for Corporate/Other increased by $11.9 million, or 27.1%, during fiscal 2022 as compared to the prior year. SG&A expenses, as a percent of segment net sales, were 97.5% during fiscal 2022 compared to 82.1% in fiscal 2021.
In addition, the Company is obligated to pay a commitment fee ranging between 0.25% and 0.40% (depending on first lien net leverage) in respect of unused commitments under the Credit Agreement. Letter of Credit Facility The Company has a letter of credit sub-facility under the Credit Agreement.
In addition, the Company is obligated to pay an unused line fee ranging between 0.15% and 0.30% (depending on the consolidated total net leverage ratio) in respect of unused commitments under the Amended Credit Agreement. Letter of Credit Facility The Company has a letter of credit sub-facility under the Amended Credit Agreement.
The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets.
Industry and Company Outlook 24 Since July 2020, U.S. and Canadian housing industry demand has been robust. The limited availability of existing homes for sale and the broader need for newly built affordable, single-family housing has continued to drive demand for new homes in these markets.
Increasing production rates to keep pace with orders is limited by individual plant capacity, time to train new employees, employee attendance and availability of materials.
Our ability to increase production rates to keep pace with orders is limited by individual plant capacity, the availability of and time needed to train new employees, employee attendance and availability of materials, including certain allocations of raw materials by our suppliers.
The raw material price increases have generally been passed on to customers or mitigated through working with supply chain partners, sourcing alternative materials or other operational improvements to minimize the effect on profitability.
OTHER MATTERS Inflation Inflation of raw materials, especially commodities such as forest products, was significant during fiscal 2022. The raw material price increases have generally been passed on to customers or mitigated through working with supply chain partners, sourcing alternative materials or other operational improvements to minimize the effect on profitability.
CEWS provides a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $6.2 million for payroll subsidies under CEWS during fiscal 2021. The Company also recognized $0.7 million during the fiscal year for wage subsidies under the CARES Act and other state level programs in the United States.
CEWS provided a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $6.2 million for payroll subsidies under CEWS and $0.7 million for payroll subsidies under the CARES Act during fiscal 2021. In addition, the CARES Act allows for deferring payment of certain payroll taxes.
On January 14, 2021, the Company acquired two idled facilities in Pembroke, North Carolina which may provide an opportunity to further expand its manufacturing footprint in the Southeast markets. The Company is currently assessing prospects for initiating production in one or both of those facilities.
In January, 2021, the Company acquired two idle facilities in Pembroke, North Carolina which provide an opportunity to further expand its manufacturing footprint in the Southeast markets. The Company is currently renovating one of those facilities for expected production in late fiscal 2023.
Cash was generated by operating income (before non-cash charges) from higher sales and operating margins compared to the prior year. Operating cash was also favorably impacted by changes in other working capital items, primarily an increase in customer deposits of $36.4 million. We generally collect a deposit at the time an order is placed by a customer.
Cash provided by operating activities was $153.9 million in fiscal 2021 compared to $76.7 million in fiscal 2020. Cash was generated by operating income (before non-cash charges) from higher sales and operating margins compared to the prior year. Operating cash was also favorably impacted by changes in other working capital items, primarily an increase in customer deposits of $36.4 million.
Seasonality The housing industry, which includes factory-built homes, is affected by seasonality. Sales during the period from March to November are traditionally higher than other months. As a result, quarterly results of a particular period are not necessarily representative of the results expected for the year.
Seasonality The housing industry, which includes factory-built homes, is affected by seasonality. Sales during the period from March to November are traditionally higher than other months.
INCOME TAX EXPENSE The following table summarizes income tax expense for fiscal 2021 and 2020: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 $ Change % Change Income tax expense $ 26,501 $ 26,894 $ (393 ) (1.5 %) Effective tax rate 23.8 % 31.6 % Income tax expense for fiscal 2021 was $26.5 million, representing an effective tax rate of 23.8%, compared to income tax expense of $26.9 million, representing an effective tax rate of 31.6%, for fiscal 2020.
INCOME TAX EXPENSE The following table summarizes income tax expense for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Income tax expense $ 82,385 $ 26,501 $ 55,884 210.9 % Effective tax rate 24.9 % 23.8 % Income tax expense during fiscal 2022 was $82.4 million, representing an effective tax rate of 24.9%, compared to income tax expense of $26.5 million, representing an effective tax rate of 23.8%, in fiscal 2021.
There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.
COVID-19 Pandemic The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.
By the end of the fiscal year, the Company was able to increase daily production rates over the levels achieved in the prior year period as direct labor staffing levels increased and production efficiencies improved. The Company’s availability of labor and certain materials was negatively impacted throughout fiscal 2021, and remains subject to disruption and uncertainty.
In the second half of fiscal 2021, the Company was able to increase daily production rates over the levels achieved in the prior fiscal year period as direct labor staffing levels increased and production efficiencies improved.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: Sales of homes for the Company’s U.S. manufacturing and retail operations increased by $48.7 million, or 4.1%.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: Fiscal 2022 net sales for the Company’s U.S. manufacturing and retail operations increased by $724.8 million, or 57.2%, over fiscal 2021.
GROSS PROFIT The following table summarizes gross profit for fiscal 2020 and 2019: Year Ended (Dollars in thousands) March 28, 2020 March 30, 2019 $ Change % Change Gross profit: U.S.
GROSS PROFIT The following table summarizes gross profit for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Gross profit: U.S.
Overview The Company is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, and transportation logistics.
The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, construction services, and transportation logistics.
The increase in backlog is driven by increased demand for single-family homes which has resulted in order levels that have significantly outpaced production in both the U.S. and Canada. Production levels, which vary by plant, gradually increased each quarter in fiscal 2021 and surpassed last year’s average daily production rates in both the third and fourth quarters of fiscal 2021.
The increase in backlog is driven by increased demand for single-family homes which has resulted in order levels that have significantly outpaced production in both the U.S. and Canada.
Production may also be limited by additional instances of COVID-19 related impacts, including intermittent facility shutdowns and supply channel disruption, including most recently raw material allocations by certain suppliers. 35 LIQUIDITY AND CAPITAL RESOURCES The following table presents summary cash flow information for fiscal 2021, 2020, and 2019: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 March 30, 2019 Net cash provided by (used in): Operating activities $ 153,897 $ 76,743 $ 65,228 Investing activities (56,808 ) (14,093 ) (2,030 ) Financing activities (47,813 ) 21,569 (72,518 ) Effect of exchange rate changes 3,850 (1,398 ) (662 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 53,126 82,821 (9,982 ) Cash, cash equivalents, and restricted cash at beginning of period 209,455 126,634 136,616 Cash, cash equivalents, and restricted cash at end of period $ 262,581 $ 209,455 $ 126,634 The Company’s primary sources of liquidity are cash flows from operations and existing cash balances.
LIQUIDITY AND CAPITAL RESOURCES The following table presents summary cash flow information for fiscal 2022, 2021, and 2020: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 March 28, 2020 Net cash provided by (used in): Operating activities $ 224,479 $ 153,897 $ 76,743 Investing activities (31,967 ) (56,808 ) (14,093 ) Financing activities (19,936 ) (47,813 ) 21,569 Effect of exchange rate changes 256 3,850 (1,398 ) Net increase in cash, cash equivalents, and restricted cash 172,832 53,126 82,821 Cash, cash equivalents, and restricted cash at beginning of period 262,581 209,455 126,634 Cash, cash equivalents, and restricted cash at end of period $ 435,413 $ 262,581 $ 209,455 The Company’s primary sources of liquidity are cash flows from operations and existing cash balances.
The interest rate under the Credit Agreement will adjust based on the first lien net leverage of the Company which will range from a high of LIBOR plus 2.25% and ABR plus 1.25% when first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when first lien net leverage is below 0.50:1.00.
The interest rate on borrowings under the Amended Credit Agreement adjusts based on the consolidated total net leverage of the Company from a high of the London Inter-Bank Offered Rate ("LIBOR") plus 1.875% and Alternative Base Rate ("ABR") plus 0.875%, at the election of the Company, when the consolidated total net leverage ratio is equal to or greater than 2.25:1.00, to a low of LIBOR plus 1.125% and ABR plus 0.125% when the consolidated total net leverage is below 0.50:1.00.
Recently Issued Accounting Standards Refer to Note 1, “Summary of Significant Accounting Policies,” in our accompanying Consolidated Financial Statements for information regarding new accounting pronouncements. 40
As a result, quarterly results of a particular period are not necessarily representative of the results expected for the year. 33 Recently Issued Accounting Standards Refer to Note 1, “Summary of Significant Accounting Policies,” in our accompanying Consolidated Financial Statements for information regarding new accounting pronouncements. 34
Generally higher backlog at our manufacturing facilities creates an opportunity to increase production efficiencies. Although the higher demand brings opportunities, it also has resulted in significant increases in certain material input costs, especially forest products. We manage our business to anticipate these cost increases and generally are able to pass them along to our customers.
Generally, higher backlog at our manufacturing facilities creates an opportunity to increase production efficiencies. Although the higher demand brings opportunities, it also has resulted in significant increases in raw material and labor costs. In addition, we are experiencing intermittent supply disruption and higher freight costs.
INTEREST EXPENSE The following table summarizes the components of interest expense, net for fiscal 2021 and 2020: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 $ Change % Change Interest expense $ 3,813 $ 4,632 $ (819 ) (17.7 %) Interest income (565 ) (3,231 ) 2,666 (82.5 %) Interest expense, net $ 3,248 $ 1,401 $ 1,847 131.8 % Average outstanding floor plan payable $ 26,992 $ 31,962 Average outstanding long-term debt $ 64,663 $ 48,747 Interest expense, net was $3.2 million for fiscal 2021, an increase of $1.8 million compared to the prior year.
INTEREST EXPENSE The following table summarizes the components of interest expense, net for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Interest expense $ 3,245 $ 3,813 $ (568 ) (14.9 %) Interest income (733 ) (565 ) (168 ) 29.7 % Interest expense, net $ 2,512 $ 3,248 $ (736 ) (22.7 %) Average outstanding floor plan payable $ 31,485 $ 26,992 Average outstanding long-term debt $ 19,155 $ 64,663 28 Interest expense, net was $2.5 million for fiscal 2022, a decrease of $0.7 million compared to the prior year.
By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members and social distancing protocols. As of April 3, 2021, only one manufacturing facility remained temporarily idled due to labor availability constraints.
By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members, and social distancing protocols. During fiscal 2021, the Company experienced intermittent closures due to COVID-19 outbreaks at the facilities or surrounding communities causing higher than normal absenteeism.
BACKLOG Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at April 3, 2021 totaled $858.6 million compared to $127.5 million at March 28, 2020.
See the definition of Adjusted EBITDA under “Non-GAAP Financial Measures” below for additional information regarding the definition and use of this metric in evaluating the Company’s results. 29 BACKLOG Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at April 2, 2022 totaled $1.6 billion compared to $858.6 million at April 3, 2021.
NET SALES The following table summarizes net sales for fiscal 2021 and 2020: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 $ Change % Change Net sales $ 1,420,881 $ 1,369,730 $ 51,151 3.7 % U.S. manufacturing and retail net sales $ 1,266,308 $ 1,226,393 $ 39,915 3.3 % U.S. homes sold 19,983 20,110 (127 ) (0.6 %) U.S. manufacturing and retail average home selling price $ 63.4 $ 61.0 $ 2.4 3.9 % Canadian manufacturing net sales $ 101,328 $ 84,196 $ 17,132 20.3 % Canadian homes sold 1,231 1,002 229 22.9 % Canadian manufacturing average home selling price $ 82.3 $ 84.0 $ (1.7 ) (2.0 %) Corporate/Other net sales $ 53,245 $ 59,141 $ (5,896 ) (10.0 %) U.S. manufacturing facilities in operation at year end 35 33 2 6.1 % U.S. retail sales centers in operation at year end 18 21 (3 ) (14.3 %) Canadian manufacturing facilities in operation at year end 5 5 — — % Net sales for fiscal 2021 were $1,420.9 million, an increase of $51.2 million, or 3.7%, over fiscal 2020.
NET SALES The following table summarizes net sales for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Net sales $ 2,207,229 $ 1,420,881 $ 786,348 55.3 % U.S. manufacturing and retail net sales $ 1,991,066 $ 1,266,308 $ 724,758 57.2 % U.S. homes sold 24,686 19,983 4,703 23.5 % U.S. manufacturing and retail average home selling price $ 80.7 $ 63.4 $ 17.3 27.3 % Canadian manufacturing net sales $ 159,124 $ 101,328 $ 57,796 57.0 % Canadian homes sold 1,479 1,231 248 20.1 % Canadian manufacturing average home selling price $ 107.6 $ 82.3 $ 25.3 30.7 % Corporate/Other net sales $ 57,039 $ 53,245 $ 3,794 7.1 % U.S. manufacturing facilities in operation at year end 36 35 1 3 % U.S. retail sales centers in operation at year end 18 18 — — % Canadian manufacturing facilities in operation at year end 5 5 — — % 26 Net sales for fiscal 2022 were $2.2 billion an increase of $786.3 million, or 55.3%, over fiscal 2021.
Production at the Leola facility began in April 2019. The Exchange, discussed below, added eight manufacturing plants to the Company during fiscal 2019. These acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations.
The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s HUD and modular homebuilding presence in the U.S. as well as improving the results of operations. These acquisitions and investments are included in the consolidated results for periods subsequent to their respective acquisition dates.
The following table summarizes selling, general, and administrative expenses for fiscal 2021 and 2020: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 $ Change % Change Selling, general, and administrative expenses: U.S.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general, and administrative (“SG&A”) expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes SG&A expenses for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Selling, general, and administrative expenses: U.S.
Factory-built Housing $ 126,141 $ 135,329 $ (9,188 ) (6.8 %) Canadian Factory-built Housing 9,059 8,313 746 9.0 % Corporate/Other 43,736 48,878 (5,142 ) (10.5 %) Total selling, general, and administrative expenses $ 178,936 $ 192,520 $ (13,584 ) (7.1 %) Selling, general, and administrative expenses as a percent of net sales 12.6 % 14.1 % 28 SG&A expenses were $178.9 million for fiscal 2021, a decrease of $13.6 million compared to the prior year.
Factory-built Housing $ 187,697 $ 126,141 $ 61,556 48.8 % Canadian Factory-built Housing 12,912 9,059 3,853 42.5 % Corporate/Other 55,609 43,736 11,873 27.1 % Total selling, general, and administrative expenses $ 256,218 $ 178,936 $ 77,282 43.2 % Selling, general, and administrative expenses as a percent of net sales 11.6 % 12.6 % SG&A expenses were $256.2 million during fiscal 2022, an increase of $77.3 million compared to the prior year.
Canadian Factory-built Housing: The Canadian Factory-built Housing segment net sales decreased by $14.4 million, or 14.6% for fiscal 2020 compared to the same period in the prior year, primarily due to an 18.7% decrease in homes sold. This decrease was partially offset by a 5.0% increase the average selling price of homes.
Canadian Factory-built Housing: The Canadian Factory-built Housing segment net sales increased by $57.8 million, or 57.0% for fiscal 2022 compared to the prior year, primarily due to a 20.1% increase in homes sold and a 30.7% increase in average selling price per new home. The increase in homes sold was driven by increased production in response to strong demand.
SG&A costs increased due to a combination of factors, and was primarily driven by: (i) an increase in salaries and benefits to maintain competitive compensation packages to retain and recruit team members, and (ii) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability.
SG&A costs increased due to a combination of factors, primarily (i) higher sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) higher wage expense from increased headcount as we staffed to respond to the growth in housing demand; and (iii) the impact of the acquisition of the ScotBilt operations.
Canadian Factory-built Housing: Gross profit for the Canadian Factory-built Housing segment increased by $5.0 million, or 30.5%, during fiscal 2021 compared to the prior year due to the increase in revenue. Gross margin increased to 21.3% as a percent of segment net sales from 19.6% due to direct labor and manufacturing efficiencies from the increase in home sales volumes.
Gross margin increased to 27.3% as a percent of segment net sales from 21.3% due to price increases in response to rising material and labor costs, as well as direct labor and manufacturing efficiencies from the increase in home sales volumes.
As a result, the Company has focused on operational improvements to make existing manufacturing facilities more profitable as well as executing measured expansion of its manufacturing and retail footprints. The Company has increased capacity through strategic acquisitions and expansions of its manufacturing operations.
As a result, the Company has focused on operational improvements to increase the capacity utilization and profitability at its existing manufacturing facilities as well as executing measured expansion of its manufacturing footprint. The Company is focused on growing in strong housing markets across the U.S. and Canada.
Factory-built Housing $ 252,880 $ 250,222 $ 2,658 1.1 % Canadian Factory-built Housing 21,552 16,512 5,040 30.5 % Corporate/Other 13,263 12,241 1,022 8.3 % Total gross profit $ 287,695 $ 278,975 $ 8,720 3.1 % Gross profit as a percent of net sales 20.2 % 20.4 % Gross profit as a percent of sales during fiscal 2021 was 20.2% compared to 20.4% during fiscal 2020.
Factory-built Housing $ 530,252 $ 252,880 $ 277,372 109.7 % Canadian Factory-built Housing 43,493 21,552 21,941 101.8 % Corporate/Other 15,378 13,263 2,115 15.9 % Total gross profit $ 589,123 $ 287,695 $ 301,428 104.8 % Gross profit as a percent of net sales 26.7 % 20.2 % Gross profit as a percent of sales during fiscal 2022 was 26.7% compared to 20.2% during fiscal 2021.
Net sales for the Canadian segment were also favorably impacted by approximately $0.5 million as the Canadian dollar strengthened relative to the U.S. dollar during fiscal 2021 as compared to the same period of the prior year. Corporate/Other: Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales.
The increase in average selling price was due to pricing actions enacted in response to rising material and labor costs. Net sales for the Canadian segment were also favorably impacted by approximately $8.2 million as the Canadian dollar strengthened relative to the U.S. dollar during fiscal 2022 as compared to the prior year.
For fiscal 2021, approximately 77% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the Federal HUD code construction standard in the U.S. According to data reported by MHI, HUD-code industry home shipments were 95,588, 97,553 and 93,377 units during fiscal 2021, 2020, and 2019, respectively.
Industry shipments of HUD-code homes are reported on a one-month lag. According to data reported by MHI, HUD-code industry home shipments were 108,964, 95,588, and 97,553 units during fiscal 2022, 2021, and 2020, respectively.
As a percent of net sales, g ross profit was 20.0% for fiscal 2021 compared to 20.4% in the prior year. The year-over-year decrease in gross margin was primarily due to rapid increases in raw material inflation, especially related to forest products.
As a percent of net sales, gross profit was 26.6% for fiscal 2022 compared to 20.0% in the prior fiscal year. The year-over-year increase in gross margin was primarily due to a combination of improved operational and labor efficiencies and price increases we implemented in response to rising input costs.
GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2021 and 2020: Year Ended (Dollars in thousands) April 3, 2021 March 28, 2020 $ Change % Change Net income $ 84,899 $ 58,160 $ 26,739 46.0 % Income tax expense 26,501 26,894 (393 ) (1.5 %) Interest expense, net 3,248 1,401 1,847 131.8 % Depreciation and amortization 17,704 18,546 (842 ) (4.5 %) Equity-based compensation (for awards granted prior to December 31, 2018) 1,359 4,576 (3,217 ) (70.3 %) Transaction costs 1,044 — 1,044 * Acquisition integration costs — 2,674 (2,674 ) * Fair market value adjustment for asset classified as held for sale — 986 (986 ) * Property, plant, and equipment impairment charge — 550 (550 ) * Restructuring costs and other — 577 (577 ) * Adjusted EBITDA $ 134,755 $ 114,364 $ 20,391 17.8 % * indicates that the calculated percentage is not meaningful Adjusted EBITDA for fiscal 2021 was $134.8 million, an increase of $20.4 million over fiscal 2020.
GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2022 and 2021: Year Ended (Dollars in thousands) April 2, 2022 April 3, 2021 $ Change % Change Net income $ 248,044 $ 84,899 $ 163,145 192.2 % Income tax expense 82,385 26,501 55,884 210.9 % Interest expense, net 2,512 3,248 (736 ) (22.7 %) Depreciation and amortization 20,936 17,704 3,232 18.3 % Equity-based compensation (for awards granted prior to December 31, 2018) — 1,359 (1,359 ) (100.0 %) Transaction costs — 1,044 (1,044 ) (100.0 %) Adjusted EBITDA $ 353,877 $ 134,755 $ 219,122 162.6 % Adjusted EBITDA for fiscal 2022 was $353.9 million, an increase of $219.1 million over fiscal 2021.
The expenditures for capital items are part of the Company’s focus on safety and operating efficiency initiatives as well as the expansion of production capacity. In fiscal 2021, cash used in financing activities was $47.8 million, versus the prior year which had net cash provided by financing activities of $21.6 million.
The decrease in cash used for financing activities was primarily related to lower repayments during fiscal 2022 of the Company's previously existing revolving credit facility and an increase in floor plan financing. In fiscal 2021, cash used in financing activities was $47.8 million, versus the prior year which had net cash provided by financing activities of $21.6 million.
The net sales increase was attributable to the following factors including: (i) an increase of 667, or 3.4%, in the number of homes sold and (ii) a 0.7% increase in the average home selling price.
The increase was primarily due to an increase in the number of homes sold during the period of 23.5% and an increase in the average home selling price of 27.3%.
In response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and waived premium payments on healthcare benefits for furloughed employees. The Company’s U.S. operations incurred $2.2 million of expense related to those extended benefits.
The Company’s U.S. operations incurred $2.2 million of expense during fiscal 2021 related to those extended benefits.
The following is a summary of the change by operating segment. U.S. Factory-built Housing: Gross profit for the U.S. Factory-built Housing segment increased by $36.1 million, or 16.8%, during fiscal 2020 compared to the prior year. The increase in gross profit is due to the increase in sales volume and improved margins resulting from a reduction in manufacturing costs.
We have focused on product simplification and material SKU rationalization to improve operational efficiencies to better leverage increased production and manufacturing fixed costs. Canadian Factory-built Housing: Gross profit for the Canadian Factory-built Housing segment increased by $21.9 million, or 101.8%, during fiscal 2022 compared to the prior year due to the increase in sales volume.
Net sales for the Canadian segment were also unfavorably impacted by approximately $1.3 million as the Canadian dollar weakened relative to the U.S. dollar during fiscal 2020 as compared to the same period of the prior year. Corporate/Other: Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales.
Corporate/Other: Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. During fiscal 2022, net sales for the segment increased by $3.8 million, or 7.1%, compared to fiscal 2021. The increase was primarily attributable to an increase in shipments of manufactured homes and recreational vehicles.
While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually. COVID-19 Pandemic The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020.
While shipments of HUD-coded manufactured homes have improved modestly in recent years, current manufactured housing shipments are still at lower levels than the long-term historical average of over 200,000 units per year. Manufactured home sales represent approximately nine percent of all U.S. single family home starts.
The favorable changes in working capital items were partially offset by an increase in inventory compared to the prior period which was a result of rising material prices and increasing the amount of raw materials stocked as a result of supply channel challenges.
We generally collect a deposit at the time an order is placed by a customer. The significant increase in backlog drove the increase in deposits. The favorable changes in working capital items were partially offset by an increase in inventory compared to the prior period.
The increase is primarily related to the benefit of $9.7 million of cash acquired in the Exchange in fiscal 2019, and an increase in capital expenditures of $3.3 million, partially offset by proceeds of $1.1 million from the disposition of a held for sale property.
The increase is primarily related to the cash paid for the acquisition of ScotBilt, net of cash acquired, of $52.5 million, partially offset by a decrease in capital expenditures compared to the prior year. 30 In fiscal 2022, cash used in financing activities was $19.9 million, versus $47.8 million in the prior fiscal year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Debt obligations under the Credit Agreement are subject to variable rates of interest based on LIBOR, the administrative agent’s prime rate or the U.S. federal funds rate.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Debt obligations under the Amended Credit Agreement are subject to variable rates of interest based on LIBOR and ABR, at the election of the Company.
Assuming future annual Canadian net sales equivalent to fiscal 2021, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $1.3 million. The Company also has foreign exchange risk for cash balances maintained in Canadian dollars that are subject to fluctuating values when exchanged into U.S. dollars.
Assuming future annual Canadian net sales equivalent to fiscal 2022, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $2.0 million. The Company also has foreign exchange risk for cash balances maintained in Canadian dollars that are subject to fluctuating values when exchanged into U.S. dollars.
A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.1 million, assuming related debt of $12.4 million, which is the amount of outstanding borrowings on industrial revenue bonds at April 3, 2021.
A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.1 million, assuming related debt of $12.4 million, which is the amount of outstanding borrowings on industrial revenue bonds at April 2, 2022.
The Company does not financially hedge its investment in the Canadian operations or in Canadian denominated bank deposits. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are filed herewith under Item 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
The Company does not financially hedge its investment in the Canadian operations or in Canadian denominated bank deposits. ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA Financial statements and supplementary data are filed herewith under Item 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
The Company’s approach to interest rate risk is to balance borrowings between fixed rate and variable rate debt as management deems appropriate. At April 3, 2021, the Company’s borrowings under the Credit Agreement, industrial revenue bonds and floor plan financing arrangements are all at variable rates.
The Company’s approach to interest rate risk is to balance borrowings between fixed rate and variable rate debt as management deems appropriate. At April 2, 2022, the Company’s borrowings under the Amended Credit Agreement, industrial revenue bonds and floor plan financing arrangements were all at variable rates.
Foreign Exchange Risk The Company is exposed to foreign exchange risk with its factory-built housing operations in Canada. The Canadian operations had fiscal 2021 net sales of $133.9 million Canadian dollars.
Foreign Exchange Risk The Company is exposed to foreign exchange risk with its factory-built housing operations in Canada. The Canadian operations had fiscal 2022 net sales of $199.5 million Canadian dollars.
A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.3 million, assuming related floor plan borrowings of $25.7 million, which is the amount of outstanding borrowings on floor plan financing at April 3, 2021.
A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.4 million, assuming related floor plan borrowings of $35.5 million, which is the amount of outstanding borrowings on floor plan financing at April 2, 2022.
A 100 basis point increase in the underlying interest rate would result in an additional annual interest expense of approximately $0.3 million, assuming related debt of $26.9 million, which is the amount of outstanding borrowings under the Credit Agreement at April 3, 2021.
A 100 basis point increase in the underlying interest rate would result in an additional annual interest expense of approximately $0.2 million, assuming related debt of $19.2 million, which is the amount of average outstanding borrowings under the Amended Credit Agreement during the year ended April 2, 2022.

Other SKY 10-K year-over-year comparisons