ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Champion Homes’s Consolidated Financial Statements and the related notes that appear elsewhere in this Annual Report.
Certain statements set forth below under this caption constitute forward-looking statements. See Part I, “Cautionary Statement About Forward-Looking Statements,” of this Annual Report on Form 10-K for additional factors relating to such statements, and see Item 1A, “Risk Factors,” of this Annual Report for a discussion of certain risks applicable to our business, financial condition, results of operations and cash flows. See also Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year ended March 29, 2025, which provides additional information on comparisons of fiscal years 2025 and 2024.
Overview
The Company is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured construction, company-owned retail locations, construction services, and transportation logistics. The Company is the largest independent publicly traded factory-built solutions provider in North America based on revenue, and markets its homes under several nationally recognized brand names including Champion Homes, Genesis Homes, Skyline Homes, Regional Homes, Athens Park Models, Dutch Housing, Atlantic Homes, Excel Homes, Homes of Merit, New Era, J. Redman Homes, ScotBilt Homes, Shore Park, Silvercrest, and Titan Homes in the U.S. and Moduline and SRI Homes in western Canada. The Company operates 42 manufacturing facilities throughout the U.S. and four 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 84 sales centers that sell manufactured homes to consumers across the U.S. while the construction services business installs and sets up factory-built homes. 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
The Company is focused on operational improvements to increase capacity utilization and profitability at its existing manufacturing facilities as well as measured expansion of its manufacturing and retail footprint through facility and equipment investments and acquisitions. Those investments will help improve the Company's ability to satisfy demand for affordable housing. The current economic environment drives an even greater need for attainable housing solutions. As a result, the Company continues to focus on growing in strong housing markets across the U.S. and Canada, as well as expanding products and services to provide more holistic and affordable solutions to homebuyers.
In May 2025, the Company acquired Iseman Homes which operated 10 retail sales centers across the North Central U.S. This acquisition enhances the Company's ability to strengthen distribution from its nearby manufacturing facilities, furthering the Company’s commitment to integrated growth. In October 2023, the Company acquired Regional Homes, which operated three manufacturing facilities in Alabama and 44 retail sales centers across the Southeast U.S. Regional Homes' strong presence in large HUD markets expanded our captive retail and manufacturing distribution in that region.
In addition to those acquisitions, the Company is also focused on enhancing its U.S. manufacturing production capacity, as well as redeployment of capital and resources through strategic actions at specific plants. During the first half of fiscal 2026, the Company idled production at the Bartow, Florida manufacturing plant and ceased operations at the Kelowna, British Columbia manufacturing plant. The Company believes those actions will ultimately lead to greater operating efficiency and profitability. In addition, the Company sold a previously idled manufacturing facility during the second quarter of fiscal 2026. The Company continues to own six idle manufacturing facilities that could be used for further manufacturing capacity expansion in future periods.
During fiscal 2024, the Company made an equity investment in ECN Capital Corporation ("ECN"). The investment, in part, facilitated the creation of a captive finance company in partnership with Triad Financing Services, Inc. ("Triad"), a subsidiary of ECN. The captive finance company, Champion Financing, through Triad, provides factory-built home floor plan and consumer loans to manufactured home retailers and homebuyers. The Company believes this offering will provide customers needed financing solutions and improve the Company's market share. On November 13, 2025, ECN entered into a definitive arrangement to be acquired by a private investor group for CAD $3.10 per share, plus any accrued but unpaid dividends. The transaction closed on April 24, 2026, which resulted in the liquidation of the Company's investment in ECN common and preferred shares in the first quarter of fiscal 2027. The liquidation of the Company's investment in ECN common and preferred shares will not impact the future operations of Champion Financing.
The Company's acquisitions and investments are part of a strategy to grow and diversify revenue with a focus on increasing the Company’s homebuilding presence in the U.S. as well as improving the results of operations through streamlining production of similar product categories. These acquisitions and investments are included in the Company's consolidated results for periods subsequent to their respective acquisition dates.
Industry and Company Outlook
The need for newly built affordable, single-family housing has continued to drive demand for new homes in the U.S. and Canadian markets. In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including underlying growth trends in key homebuyer groups, such as the population over 55 years of age, the population of first-time home buyers, and the population of households earning less than $60,000 per year. We have also seen a number of market trends pointing to increased sales of ADUs and rent-to-own single-family options.
The Company's manufacturing backlog decreased to $316.0 million as of March 28, 2026 compared to $343.4 million as of March 29, 2025. The decrease in backlog is a function of production rates exceeding order rates during fiscal 2026 compared to fiscal 2025.
For fiscal 2026, approximately 87% 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 100,380, 105,206, and 92,288 units during fiscal 2026, 2025, and 2024, respectively. Based on industry data, the Company’s U.S. wholesale market share of HUD code homes sold was 22.5%, 22.0%, and 19.9% in fiscal 2026, 2025, and 2024, respectively. Annual industry shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, current manufactured housing shipments are still at lower levels than the long-term historical average of over 200,000 units per year. Manufactured home sales represent approximately 10% of all U.S. single family home starts.
RESULTS OF OPERATIONS FOR FISCAL 2026 VS. 2025
Year Ended
(Dollars in thousands)
March 28,
March 29,
Results of Operations Data:
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Operating income
Interest (income), net
Other income
Income from operations before income taxes
Income tax expense
Net income before equity in net (income) loss of affiliates
Equity in net (income) loss of affiliates
Net income
Net income attributable to non-controlling interest
Net income attributable to Champion Homes, Inc.
Reconciliation of Adjusted EBITDA:
Net income attributable to Champion Homes, Inc.
Income tax expense
Interest (income), net
Depreciation and amortization
Equity in net (income) loss of ECN
Change in fair value of contingent consideration
Plant closure costs
Gain on sale of idle facility
Product liability - water intrusion, net
Transaction costs
Other
Adjusted EBITDA
As a percent of net sales:
Gross profit
Selling, general and administrative expenses
Operating income
Net income attributable to Champion Homes, Inc.
Adjusted EBITDA
FISCAL PERIODS
The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest March 31. Fiscal 2026 and 2025 were each 52-week periods.
NET SALES
The following table summarizes net sales for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Net sales
U.S. manufacturing and retail net sales
U.S. homes sold
U.S. manufacturing and retail average home selling price
Canadian manufacturing net sales
Canadian homes sold
Canadian manufacturing average home selling price
Corporate/Other net sales
U.S. manufacturing facilities in operation at year end
U.S. retail sales centers in operation at year end
Canadian manufacturing facilities in operation at year end
Net sales for fiscal 2026 were $2.7 billion, an increase of $180.2 million, or 7.3%, over fiscal 2025. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
Fiscal 2026 net sales for the Company’s U.S. manufacturing and retail operations increased by $157.9 million, or 6.7%, from fiscal 2025. The increase was due to an increase of 1.8% in the number of new homes sold and an increase of 4.8% in the average selling price per new home. The increase in the number of homes sold was primarily due to the inclusion of Iseman Homes since the acquisition in May 2025 and higher wholesale unit sales sold to independent retail channels. The increase in average selling price was driven by a shift in product mix to more multi-wide units and increased pricing at our company-owned retail sales centers.
Canadian Factory-built Housing:
The Canadian Factory-built Housing segment net sales increased by $16.8 million, or 17.9% in fiscal 2026 compared to the prior year, primarily due to an increase of 15.2% in homes sold and an increase in average selling price. The increase in homes sold is due to higher demand in certain markets. Net sales for the Canadian segment were also favorably impacted by approximately $0.6 million as the Canadian dollar weakened relative to the U.S. dollar during fiscal 2026 as compared to the prior year.
Corporate/Other:
Net sales for Corporate/Other includes the Company’s transportation business, financing activities and the elimination of intersegment sales. During fiscal 2026, net sales for the segment increased by $5.5 million, or 17.4%, compared to fiscal 2025, primarily due to increased operating activities in Champion Financing, partially offset by a decrease in recreational vehicle shipments.
GROSS PROFIT
The following table summarizes gross profit for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Gross profit:
U.S. Factory-built Housing
Canadian Factory-built Housing
Corporate/Other
Total gross profit
Gross profit as a percent of net sales
Gross profit as a percent of sales during fiscal 2026 was 26.4% compared to 26.7% during fiscal 2025. 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 $24.3 million, or 3.9%, during fiscal 2026 compared to the prior year. As a percent of net sales, gross profit was 25.5% for fiscal 2026 compared to 26.2% in the prior fiscal year. The increase in gross profit was primarily driven by higher revenue as discussed above. The decrease in gross profit as a percent of segment net sales was driven by higher material and labor costs and the $8.4 million charge in the fourth quarter of fiscal 2026 to adjust our estimated costs to remediate water intrusion in certain homes built in one of our manufacturing facilities, partially offset by $3.5 million of reimbursements received from the material distributor for the Company's remediation costs incurred.
Canadian Factory-built Housing:
Gross profit for the Canadian Factory-built Housing segment increased by $8.3 million, or 34.7%, during fiscal 2026 compared to the prior year. The increase in gross profit was due to higher sales volumes. Gross profit increased to 28.9% as a percent of segment net sales from 25.3% in the prior year due to increased leverage of fixed manufacturing costs.
Corporate/Other:
Gross profit for the Corporate/Other segment increased by $7.7 million, or 33.7%, during fiscal 2026 compared to the same period in the prior year. Gross profit increased as a result of increased operating activity of Champion Financing.
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 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Selling, general, and administrative expenses:
U.S. Factory-built Housing
Canadian Factory-built Housing
Corporate/Other
Total selling, general, and administrative expenses
Selling, general, and administrative expenses as a percent of net sales
SG&A expenses were $452.6 million during fiscal 2026, an increase of $25.6 million compared to the prior year. The following is a summary of the change by operating segment.
U.S. Factory-built Housing:
SG&A expenses for the U.S. Factory-built Housing segment increased by $17.3 million, or 5.3%, during fiscal 2026 as compared to the prior year. SG&A expenses, as a percent of segment net sales, decreased to 13.7% in fiscal 2026 compared to 13.9% during fiscal 2025. The increase in SG&A expenses was primarily due to higher salaries and incentive compensation costs, which are generally based on sales volume or measures of profitability, the inclusion of Iseman Homes, and $1.0 million of costs associated with the idling of the Bartow, Florida plant, partially offset by a $3.7 million gain on the sale of an idle facility in the second quarter of fiscal 2026 and $4.1 million less charges related to the change in fair value of the contingent consideration from acquisitions.
Canadian Factory-built Housing:
SG&A expenses for the Canadian Factory-built Housing segment increased $5.7 million, or 52.7% compared to the prior year. SG&A expenses, as a percent of segment net sales, were 15.0% during fiscal 2026 compared to 11.6% in fiscal 2025. The increases were due to $5.2 million of costs associated with the Kelowna, BC plant closure.
Corporate/Other:
SG&A expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. SG&A expenses for Corporate/Other increased by $2.6 million, or 2.9%, during fiscal 2026 as compared to the prior year due primarily to higher stock compensation and professional fees, partially offset by lower IT costs.
INTEREST INCOME, NET
The following table summarizes the components of interest income, net for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Interest income
Interest expense
Interest income, net
Average outstanding floor plan payable
Average outstanding debt
Average cash balance
Interest income, net was $16.4 million during fiscal 2026, compared to $17.0 million in the prior year. The change was primarily due to lower interest rates on invested cash balances and average floor plan payables.
OTHER INCOME
The following table summarizes other income for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Other income
Other income of $2.4 million for fiscal 2026 represents dividend income from the investment in ECN Preferred shares. Other income of $3.4 million for fiscal 2025 represents dividend income from the investment in ECN Preferred shares and $1.0 million of insurance proceeds for partial settlement of certain Champion Home Builders’ pre-bankruptcy workers' compensation claims.
INCOME TAX EXPENSE
The following table summarizes income tax expense for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Income tax expense
Effective tax rate
Income tax expense during fiscal 2026 was $56.8 million, representing an effective tax rate of 21.0%, compared to income tax expense of $53.7 million, representing an effective tax rate of 20.9%, in fiscal 2025.
The Company’s effective tax rate for both fiscal 2026 and 2025 differs from the federal statutory income tax rate of 21.0%, due primarily to the effect of non-deductible expenses, state and local income taxes, and foreign rate differential, partially offset by tax credits.
Equity in net (income) loss of affiliates
The following table summarizes equity in net (income) loss of affiliates for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Equity in net (income) loss of affiliates
The Company's investment in ECN is accounted for under the equity method and the Company’s share of the earnings or losses of ECN are recorded on a three-month lag. Equity in net income of affiliates of $0.4 million in fiscal 2026 represents net income on the equity method investment in ECN of $1.2 million and net losses from other unconsolidated affiliates of $0.8 million. Equity in net loss of affiliates of $2.0 million for fiscal 2025 represented net losses on the equity method investment in ECN of $0.4 million and net losses from other unconsolidated affiliates of $1.6 million.
NON-CONTROLLING INTEREST
The following table summarizes net income attributable to non-controlling interest for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Net income attributable to non-controlling interest
Net income attributable to non-controlling interest, which is a reduction to net income attributable to Champion Homes, Inc., represents the minority partner's 49% share of the results of operations of Champion Financing.
ADJUSTED EBITDA
The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA, a non-GAAP financial measure, for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Change
Change
Net income attributable to Champion Homes, Inc.
Income tax expense
Interest (income), net
Depreciation and amortization
Equity in net (income) loss of ECN
Change in fair value of contingent consideration
Plant closure costs
Gain on sale of idle facility
Product liability - water intrusion, net
Transaction costs
Other
Adjusted EBITDA
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for fiscal 2026 was $308.2 million, an increase of $23.2 million from fiscal 2025. The increase is a result of higher sales volumes and gross profit, partially offset by higher SG&A expenses. See the definition of Adjusted EBITDA under “Non-GAAP Financial Measures” below for additional information regarding the definition and use of this metric in evaluating the Company’s results.
BACKLOG
Although orders from customers can be cancelled at any time without penalty, and unfilled orders are not necessarily an indication of future business, the Company’s unfilled U.S. and Canadian manufacturing orders at March 28, 2026 totaled $316.0 million compared to $343.4 million at March 29, 2025. The decrease in backlog is a function of production rates exceeding order rates during fiscal 2026 compared to fiscal 2025.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents summary cash flow information for fiscal 2026 and 2025:
Year Ended
(Dollars in thousands)
March 28,
March 29,
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The Company’s primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements, capital expenditures, maturities of long-term debt, and strategic initiatives and investments. The Company's Second Amended and Restated Credit Agreement provides for a $200.0 million revolving credit facility, including a $45.0 million letter of credit sub-facility ("Second Amended Credit Agreement"). At March 28, 2026, there were no borrowings under the Second Amended Credit Agreement and letters of credit issued under the Second Amended Credit Agreement totaled $27.5 million. Total available borrowings under the Second Amended Credit Agreement as of March 29, 2025 were $172.5 million. The Company’s revolving credit facility includes (i) a maximum consolidated total net leverage ratio of 3.25 to 1.00, subject to an upward adjustment upon the consummation of a material acquisition, and (ii) a minimum interest coverage ratio of 3.00 to 1.00. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year and beyond. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company’s liquidity needs, and one or more capital resources were to become unavailable, the Company would revise its operating strategies.
Cash provided by operating activities was $303.9 million in fiscal 2026 compared to $240.9 million in fiscal 2025. The increase was driven by changes in deferred taxes and favorable changes in working capital items primarily a result of the decrease in finished goods inventories at the company-owned retail sales centers.
Cash used in investing activities was $57.2 million in fiscal 2026 versus $46.2 million in fiscal 2025. The increase in cash used in investing activities was related to the acquisition of Iseman Homes in the first quarter of fiscal 2026, offset in part by a reduction in expenditures for property, plant and equipment.
Cash used in financing activities was $222.2 million in fiscal 2026 versus $73.0 million in fiscal 2025. The increase in cash used in financing activities was primarily a result of an increase in repurchases of the Company's stock in fiscal 2026 and reduction of floor plan payables.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Credit Facility
The Second Amended Credit Agreement matures in July 2030 and has no scheduled amortization. The interest rate on borrowings under the Second Amended Credit Agreement is based on the Secured Overnight Financing Rate ("SOFR") or an Alternative Base Rate ("ABR") plus an interest rate spread. The interest rate spread adjusts based on the consolidated total net leverage of the Company. The interest rate ranges from a high of SOFR plus 1.875% or the ABR plus 0.875% (when the consolidated total net leverage ratio is equal to or greater than 2.25 to 1.00), to a low of SOFR plus 1.125% or the ABR plus 0.125% (when the consolidated total net leverage ratio is less than 0.50 to 1.00). In addition, the Company is obligated to pay an unused line fee ranging between 0.15% and 0.30% depending on the consolidated total net leverage ratio, in respect of unused commitments under the Amended Credit Agreement.
Letter of Credit Facility
The Company has a letter of credit sub-facility under the Second Amended Credit Agreement. At March 28, 2026, letters of credit issued under the sub-facility totaled $27.5 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.
Notes Payable
As part of the acquisition of Regional Homes, the Company assumed notes payable to Romeo Juliet, LLC, a subsidiary of Wells Fargo Community Investment Holdings, Inc. ("WFC") of $7.3 million, which mature at various dates from 2026 through 2039. The notes have a fixed rate of 5.42% and are secured by certain assets of Regional Homes. In addition, the Company assumed a note payable to United Bank of $4.9 million with a fixed interest rate of 3.85% that is secured by a Note Receivable from HHB Investment Fund, LLC, a subsidiary of WFC.
Floor Plan Payable
At March 28, 2026, the Company had outstanding borrowings on floor plan financing arrangements of $94.6 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 $308.0 million. Floor plan payables 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 March 28, 2026, including surety bonds and letters of credit totaling $14.8 million and $27.5 million, respectively. Additionally, the Company is contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to independent retailers. The contingent repurchase obligation as of March 28, 2026 is approximately $233.7 million, without reduction for the resale value of the homes collateralizing the potential repurchases. 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 $1.7 million at March 28, 2026. See “ Critical Accounting Polices and Estimates – Reserve for Repurchase Commitments ” below.
The Company has provided various representations, warranties, and other standard indemnifications in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.
In the normal course of business, the Company’s subsidiaries historically provided certain parent company guarantees to two U.K. customers. These guarantees provided contractual liability for proven construction defects up to 12 years from the date of delivery of the units. The guarantees remain a contingent liability subsequent to the fiscal 2017 disposition of the U.K. operations, which declines over time through October 2027. As of the date of this report, no claims have been reported under the terms of the guarantees.
Product Liability - Water Intrusion
The Company has received consumer complaints for damages related to water intrusion in homes built in one of its manufacturing facilities prior to fiscal 2022. The Company has investigated, and believes, the cause of the damage is the result of materials that did not perform in accordance with the manufacturer's contractual obligations. The Company has identified that certain homes constructed over that period that may be affected. Based on the results of ongoing investigation and repair efforts, the Company developed a remediation plan under Subpart I of the HUD code, which was approved in fiscal 2025. The plan called for inspection and repair of affected homes if there is evidence of damage, or procedures to mitigate the opportunity for future damage. As a result of the proposal, the Company recorded a charge of $34.5 million during the fourth quarter of fiscal 2024 related to the estimated costs of the planned remediation efforts. The Company estimated the charges by establishing a range of total expected costs determined by an actuary using a Monte Carlo simulation. The analysis, which was completed at the end of the fourth quarter of fiscal 2024, resulted in a range of losses between $34.5 million and $85.0 million. The Company was not able to determine a value in the range that was more likely than any other value, and as prescribed by U.S. GAAP, recorded the charge for remediation based on the low end of the range of potential losses. During fiscal 2026, the Company reassessed the total expected remaining estimated costs of the planned remediation efforts and determined, through completed inspection, repair and settlement efforts, that there was sufficient experience such that recording to the low end of a range of losses was no longer appropriate. The actuarial analysis completed in the fourth quarter of fiscal 2026 resulted in a charge of $8.5 million to increase the remaining estimated liability to $35.6 million at March 28, 2026. The Company will continue to monitor the population of affected homes and the results of the inspection and repair activities, including actual repair costs on the affected homes and the number of affected homes to be repaired, and may revise the amount of the estimated liability, which could result in an increase or decrease in the estimated liability in future periods.
In January 2026, the Company entered into an agreement with the distributor of the roofing material to share certain costs of the remediation. As a result, the Company received $3.5 million cash payment in the fourth quarter of fiscal 2026 and will receive $2.5 million of future purchase credits. Reimbursements are reflected as a reduction to cost of goods sold as cash is received or purchase credits are applied. Additionally, the distributor will reimburse the Company for a portion of future remediation costs which will be both in the form of cash and purchase credits. Such amounts will be reflected as a reduction to cost of goods sold when those purchase credits are applied.
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 attributable to Champion Homes, Inc. plus expenses or minus income for: (a) the provision for income taxes; (b) interest income or expense, net; (c) depreciation and amortization; (d) gain or loss from discontinued operations; (e) non-cash restructuring charges and impairment of assets; (f) equity in net earnings or losses of ECN; (g) charges related to the remediation of the water intrusion product liability claims and reimbursement of water intrusion costs; and (h) other non-operating income or expense including but not limited to those costs for the acquisition and integration or disposition of businesses, including the change in fair value of contingent consideration, and idle facilities. Adjusted EBITDA is not a measure of earnings calculated in accordance with U.S. GAAP and should not be considered an alternative to, or more meaningful than, net income or loss prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in the Statement of Cash Flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
Adjusted EBITDA is presented as a supplemental measure of the Company’s financial performance that management believes is useful to investors, because the excluded items may vary significantly in timing or amounts and/or may obscure trends useful in evaluating and comparing the Company’s operating activities across reporting periods. Management believes Adjusted EBITDA is useful to an investor in evaluating operating performance for the following reasons: (i) Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest income and expense, taxes, depreciation and amortization and other non-operating income or loss, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired; and (ii) analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry.
Management uses Adjusted EBITDA for planning purposes, including the preparation of internal annual operating budget and periodic forecasts: (i) in communications with the Board of Directors and investors concerning financial performance; (ii) as a factor in determining bonuses under certain incentive compensation programs; and (iii) as a measure of operating performance used to determine the ability to provide cash flows to support investments in capital assets, acquisitions and working capital requirements for operating expansion.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are more fully described in Note 1, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included in this Report. Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assumptions and estimates of future earnings and cash flow are used in the periodic analyses of the recoverability of goodwill, intangible assets, deferred tax assets and property, plant, and equipment. Historical experience and trends are used to estimate reserves, including reserves for self-insured risks, warranty costs, and wholesale repurchase losses. The Company considers an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations. The Company believes that the following discussion addresses the Company’s critical accounting estimates.
Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain more information regarding asset valuations and liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable, but that are inherently uncertain, and therefore, may not be realized. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.
Reserves for Self-Insured Risks
The Company is self-insured for a significant portion of its general insurance, product liability, workers’ compensation, auto, health, and property insurance. Insurance coverage is maintained for catastrophic exposures and those risks required to be insured by law. The Company is currently liable for the first $500,000 of incurred losses for each workers’ compensation incident, $150,000 for each auto liability claim and is responsible for losses up to the first $500,000 per occurrence for general, product liability, and property insurance. Generally catastrophic losses are insured up to $80 million. The Company establishes reserves for reported and unreported losses and insurance company reimbursements under these programs using an actuarial determined value which takes into consideration prior claim experience, estimates of losses for known occurrences and the respective volume of business activity for a given period. Estimated self-insurance costs are accrued for all expected future expenditures for reported and unreported claims based on historical experience.
Impairment of Long-Lived Assets
It is the Company’s policy to evaluate the recoverability of property, plant, and equipment whenever events and changes in circumstances indicate that the carrying amount of assets may not be recoverable, primarily based on estimated selling price, appraised value, or projected undiscounted future cash flows.
Impairment of Goodwill
Goodwill is not amortized but is tested for impairment at least annually. Impairment testing is required more often if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. As the analysis depends upon judgments, estimates and assumptions, such testing is subject to inherent uncertainties, which could cause the fair value to fluctuate from period to period.
In fiscal 2026, the Company performed qualitative assessments of its reporting units. The annual assessment was completed on the first day of fiscal March. The assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. The Company does not believe that any reporting units are at risk for impairment.
Income Taxes and Deferred Tax Assets
Deferred tax assets and liabilities are determined based on temporary differences between the financial statement amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided when the Company determines that it is more likely than not that some or all of the deferred tax assets will not be realized.
Reserve for Repurchase Commitments
As is customary in the factory-built housing industry, a significant portion of the home sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Certain homes sold pursuant to repurchase agreements are subject to repurchase, generally up to 24 months after the sale of the home to the retailer. Certain other homes sold pursuant to repurchase agreements are subject to repurchase until the home is sold by the retailer. For those homes with an unlimited repurchase period, the Company’s risk of loss upon repurchase declines due to required monthly principal payments by the retailer. After 18 to 36 months from the date of the Company’s sale of the home, the risk of loss on these homes is low, and by the 46th month, most programs require that the home be paid in full, at which time the Company no longer has risk of loss. Pursuant to these agreements, during the repurchase period, generally upon default by the retailer and repossession by the financial institution, the Company is obligated to repurchase the homes from the floor plan lenders. The contingent repurchase obligation as of March 28, 2026 was estimated to be approximately $233.7 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and net proceeds from the resale of the homes, less accrued rebates, which will not be paid. Losses incurred on homes repurchased have been insignificant in recent periods. The reserve for estimated losses under repurchase agreements was $1.7 million at March 28, 2026.
OTHER MATTERS
Inflation
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 our profitability. However, continued, frequent and sudden increases in specific costs, as well as price competition, can affect the ability to pass on costs and adversely impact results of operations. Therefore, there is no assurance that inflation or the impact of rising material costs will not have a significant impact on revenue or results of operations in the future.
Seasonality
The housing industry, which includes factory-built homes, is affected by seasonality. Sales during the period from March to November are traditionally higher than other months. As a result, quarterly results of a particular period are not necessarily representative of the results expected for the year.
Recently Issued Accounting Standards
Refer to Note 1, “Summary of Significant Accounting Policies,” in our accompanying Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 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 SOFR or an ABR, at the election of the Company. Changes in interest rates will affect interest payments on outstanding debt balances. At March 28, 2026, there were no outstanding borrowings on the Amended Credit Agreement.
The Company’s approach to interest rate risk is to balance borrowings between fixed rate and variable rate debt as management deems appropriate. At March 28, 2026, the Company’s borrowings under the industrial revenue bonds were at variable rates, borrowings under notes payable assumed from the acquisition of Regional Homes are at fixed rates and borrowings under floor plan financing arrangements were at a combination of fixed and variable rates.
Obligations under industrial revenue bonds and certain floor plan financing arrangements are subject to variable rates of interest based on a municipal bond index rate and on terms negotiated with the floor plan lenders respectively. At March 28, 2026, there was $94.6 million outstanding on floor plan agreements and $12.4 million outstanding on borrowings under industrial revenue bonds. A 100 basis point increase in the underlying interest rates would result in additional annual interest expense of approximately $0.9 million on outstanding floor plan balances and industrial revenue bonds.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk with its factory-built housing operations in Canada. The Canadian operations had fiscal 2026 net sales of $153.4 million Canadian dollars. Assuming future annual Canadian net sales equivalent to fiscal 2026, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $1.5 million. The Company also has foreign exchange risk for cash balances maintained in Canadian dollars that are subject to fluctuating values when exchanged into U.S. dollars. The Company does not financially hedge its investment in the Canadian operations or in Canadian denominated bank deposits.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
Financial statements, exhibits and schedules are filed herewith under Item 15.
