Registrant’s telephone number, including area code:code)

(574) 294-6521

Securities registered pursuant to Section 12 (b)12(b) of the Act:

Securities registered pursuantRegistered Pursuant to section 12 (g)Section 12(g) of the Act: None

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐   Yes ☑[X ]  No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐  Yes ☑[ ]  No [X]

Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑   Yes ☐[X]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑   Yes ☐[X]  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K.    ☑ [  ]

Indicate by check mark whether the registrantRegistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,filers,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Act:):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐[ ]

Indicate by check mark whether the registrantRegistrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐   Yes ☑[  ]  No [X]

TheAs of September 27, 2019, the aggregate market value of the Registrant’s common stock, par value $0.0277 per share, held by non-affiliates was $1,238,607,662 (computed by reference to the closing sales price of the registrant (6,899,780 shares) based on the closing price on the NYSE American on November 30, 2016 was $88,317,000.

Indicate the number of shares outstanding of each of the registrant’s classes ofRegistrant’s common stock as of September 27, 2019). For this computation, the latest practicable date.Registrant has excluded the market value of all shares of common stock reported as beneficially owned by executive officers and directors of the Registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Number of shares of common stock outstanding as of May 13, 2020: 56,665,681

FORM 10-K

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement used in connection with its 20172020 Annual Meeting of Shareholders to be held on SeptemberJuly 29, 2017,2020 and which will be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13, and 14.

TABLE OF CONTENTS

PART I

Cautionary Statement About Forward-Looking Statements

Some of the statements in this Annual Report on Form 10-K (this “Annual Report”) that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “could”, “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:

General DevelopmentIf any of Businessthe risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.

ITEM 1. BUSINESS

General

On June 1, 2018, Skyline Champion Corporation (formerly known as Skyline Corporation), an Indiana 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. 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. (“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”). 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. As a result, the financial results for all periods presented prior to the Exchange are comprised solely of the results of Champion Holdings.

The terms "Skyline Champion," "us," "we," "our," the "Company," and any other similar terms refer to Skyline Champion Corporation and its consolidated subsidiaries, unless otherwise indicated in this Annual Report.

We are the largest independent publicly traded factory-built housing company in North America with net sales for the year ended March 28, 2020 (“fiscal 2020”) of $1.4 billion. We have more than 65 years of homebuilding experience, approximately 6,600 employees and 38 manufacturing facilities located in 18 states across the United States and three provinces in western Canada. We offer a leading portfolio of manufactured and modular homes, park model RVs, 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 operated 13 manufacturing facilities in the top ten states with the highest number of manufactured homes shipped in fiscal 2020, as well as 16 manufacturing facilities in the ten states with the greatest growth in the number of manufactured homes shipped in the last ten years. We believe that we maintain the following leading positions in the factory-built housing industry in the United States and western Canada (based on units) in calendar year 2019:

We believe our market leading positions are driven by our comprehensive product offering, strong brand reputation, broad manufacturing footprint, and our complementary retail and logistics businesses. Our market share in the United States manufactured housing market segment has increased from 8% in the beginning of fiscal 2011 to approximately 17% in fiscal 2020 based on total number of units produced. We design and build a range of manufactured and modular homes, park model RVs, Accessory Dwelling Units (“ADUs”), and commercial structures. We believe that the high quality and broad scope of our product and service offerings provide us a competitive advantage relative to other factory-built and certain site-built homes. With our award-winning product designs, we seek to meet the needs of our localized customers, while also providing them with customizable options. Our leading brands are marketed and distributed through a network of independent and company-owned retailers, community operators, government agencies, and commercial developers.We build homes under some of the most well-known brand names in the factory-built housing industry including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, Shore Park, Silvercrest, and Titan Homes in the U.S., and Moduline and SRI Homes in western Canada.

In addition to our core home building business, we operate a factory-direct manufactured-home retail business, Titan Factory Direct, with 21 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.

Corporate Information

Skyline Champion Corporation was originally incorporated in Indiana as Skyline Corporation. Following the completion of the Exchange, we changed our name to Skyline Champion Corporation. Our principal executive offices are located at 755 West Big Beaver Road, Suite 1000, Troy, MI 48084. Our website is located at www.skylinechampion.com. Our website and the information contained on our website is not incorporated by reference and is not a part of this Annual Report.

Business Strategies

We intend to continue to pursue opportunities to profitably grow our revenue, as well as improve our operating margins by executing on our strategic initiatives. However, we feel that the COVID-19 pandemic will slow this progress during fiscal 2021 and possibly fiscal 2022, depending on the trajectory of the virus and its impact on the broader U.S. and Canadian economies including consumer confidence, unemployment and other home-buying trends. Our long-term business strategy is to grow our revenue and earnings by constructing quality-built, sustainable, and innovatively designed homes and other modular structures in 1959, as successoran environmentally friendly factory setting.

Capitalize on Market Trends and Other Key Drivers

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 the need for affordable housing, the underlying growth trends in key homebuyer groups, such as the population over 65 years of age, the population of first-time home buyers, and the population of households earning less than $50,000 per year. More recently, we see 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. We intend to capitalize on these trends and drivers to grow our business foundedover the medium to long-term. We believe that there is an opportunity for continued manufactured and modular construction market with medium term expansion driven by the foregoing trends and demand drivers, as well as construction labor shortages in 1951. Skyline Corporationcertain regions (which tend to adversely and its consolidated subsidiaries (the “Corporation”, “Skyline”) designs, producesdisproportionally impact supply and marketscost of site-built homes when compared to manufactured housing, modular housinghousing) and park modelsincreased affordability of factory-built homes relative to independent dealers andsite-built homes.

As the U.S. economy recovers to pre-COVID-19 levels, we will seek to capture additional demand from manufactured housing communities located throughoutthat increase spending on expansion and development projects. In addition, if financing availability continues to improve and related regulation continues to ease, we believe that there will be an increase in the United Statesnumber of prospective customers who qualify for home loans for manufactured and Canada.modular homes. Finally, 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.

Expand Products and Distribution Channels through Product Innovation

We design, produce, market, and transport a range of manufactured and modular homes, park model RVs, ADUs and commercial solutions through a variety of channels. We strive to grow our distribution through enhancing our digital offerings and our relationships with community operators, builder/developers, park model operators, and retailers. Through our newly launched Genesis brand, we are expanding our relationships with developers to meet pent-up demand for standardized homes that can be costed effectively and quickly constructed.

We plan to continue to innovate our home designs, home products, and commercial designs to meet the needs of existing and new customers. We have received numerous awards from the Manufactured Housing Institute (“MHI”), the National Association of Home Builders, and others for our leadership in manufactured and modular home designs, craftsmanship and quality. Most recently in calendar year 2020, MHI recognized us as an industry leader with three Excellence in Manufactured and Modular Home Design awards that spanned multiple categories including multi-section, single-section, and modular homes. These awards reflect the unparalleled homes, customer experiences and innovative solutions that we consistently bring to a competitive and dynamic market. We were awarded the Excellence in Home Design for Modular Homes over 4,000 Square Feet as well as recognized for our work on a hotel commercial project by the National Association for Home Builders. We maintain an active dialogue with residential and commercial developers to identify demand trends and anticipate the needs of customers. We also plan to continue to work closely with our suppliers to pilot new products and amenities, such as configurable smart living space ADU designs, in-home smart technologies and luxury interior finishes.

Continue to Implement Operational Initiatives to Enhance Margins Longer Term

We have been able to expand our operating margins over time as a result of increased volume, Exchange synergies, reduction of our material cost inputs, and company-wide efforts focused on standardization and simplification of our operations. We are currently focused on a number of ongoing operational initiatives to further enhance our long-term operating margins and construction innovation, including:

Among other initiatives, we plan to further develop our national product line under the Genesis brand, continue development of our modular platform, and standardize our engineering and design platform. We have a proven ability to distribute orders efficiently across our manufacturing footprint based on market demand, workforce availability, and our surrounding distribution capabilities. We are standardizing our manufacturing processes and employing metrics-driven accountability measures across all of our facilities to achieve these strategic initiatives.

Continue a Balanced Organic and Acquisition-Based Growth Strategy

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 is builtgrows and the global economy returns to standards established bypre-pandemic volumes, we will continue to execute on this growth strategy. We believe our idle manufacturing plants provide us with the ability to grow with demand over the longer term. We also 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.

Factory-Built Housing

A majority of our manufactured products are constructed in accordance with the regulations and rules of the U.S. Department of Housing and Urban Development modular homes are built according to state, provincial or local building codes,(“HUD”) and park models are built according to specifications established by the American National Standards Institute.

The Corporation sold 3,679 manufactured homes, 313 modular homes and 447 park models in fiscal 2017.

The Corporation’s housing products are marketed under a number of trademarks. They are available in lengths ranging from 30’ to 76’ and in singlewide widths from 12’ to 18’, doublewide widths from 18’ to 32’, and triplewide widths from 36’ to 46’. The area of a singlewide ranges from approximately 400 to 1,200 square feet, a doublewide from approximately 700 to 2,400 square feet, and a triplewide from approximately 1,600 to 2,900 square feet.

As noted in “Discontinued Operations” in Item 7, the Corporation sold its recreational vehicle business during fiscal 2015 in order to focus on its core housing business. The Corporation’s park model business, which was formerly reported in the recreational vehicle segment, was not disposed as part of the sale and is now reported in the housing segment because net sales do not warrant separate segment reporting.

Financial Information about Segments

The Corporation operates in one business segment: housing. Prior to fiscal 2015, the Corporation reported net sales, operating results and total assets in two business segments; housing and recreational vehicles. During the second quarter of fiscal 2015, however, the Corporation made a strategic decision to exit the recreational vehicle industry in order to focus on its core housing business. In this regard, in October 2014 the Corporation sold substantially all of its recreational vehicle-related assets to Evergreen Recreational Vehicles, LLC. Operating results of the former recreational vehicle business are reported as discontinued operations in the consolidated statements of operations for all periods presented herein, and the recreational vehicle segment is no longer included in segment reporting (see Note 2 to the Consolidated Financial Statements).

Narrative Description of Business

Principal Products and Markets

The Corporation’s homes are marketed under a number of trademarks, and are available in a variety of dimensions. Manufactured housing models are built according to standards established by the U.S. Department of Housing and Urban Development.

Modular homes are built according to state, provincial or local building codes. Each home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom options may include but are not limited to: exterior dormers and windows; interior or exterior accent columns; fireplaces and whirlpool tubs. Materials used to construct a manufactured or a modular home are similar to those used in site-built housing. The Corporation also sells homes that are “Energy-Star” compliant.

Park models are marketed under the “Shore Park” trademark. The Corporation’s park models are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.

The principal markets for manufactured and modular housing are the suburban and rural areas of the continental United States and Canada. The principal buyers continue to be individuals over the age of fifty, but the market tends to broaden when conventional housing becomes more difficult to purchase and finance.

Item 1.

Business  —  (Continued).

Principal Products and Markets — (Continued)

The park model market is made up of primarily vacationing families and retired couples.

The Corporation provides the retail purchaser of its homes and park models with a full fifteen-month warranty against defects in design, materials and workmanship. The warranties are backed by service departments located at the Corporation’s manufacturing facilities and an extensive field service system.

The amount and percentage of net sales contributed by manufactured housing, modular housing and park model products is noted in Item 7.

Method of Distribution

The Corporation’s products are distributed by approximately 318 independent dealers at 653 locations throughout the United States and Canada. These are generally not exclusive dealerships and it is believed that most dealers also sell products of other manufacturers.

The Corporation’s products are sold to dealers either through floor plan financing with various financial institutions or on a cash basis. Payments to the Corporation are made either directly by the dealer or by financial institutions, which have agreed to finance dealer purchases of the Corporation’s products. In accordance with industry practice, certain financial institutions which finance dealer purchases require the Corporation to execute repurchase agreements in which the Corporation agrees, that in the event a dealer defaults on its repayment of the financing, the Corporation will repurchase its products from the financial institution in accordance with a declining repurchase price schedule agreed to by the financial institution and the Corporation. Any loss under these agreements is the difference between the repurchase cost and the resale value of the units repurchased. Further, the risk of loss is spread over numerous dealers.

The Corporation had no losses related to repurchases in fiscal year 2017, and losses of $50,000 related to repurchases of recreational vehicles in fiscal year 2016.

Additional information regarding these repurchase agreements is included in Note 10, Commitments and Contingencies, in the Notes to Consolidated Financial Statements under Item 8.

Raw Materials and Supplies

The Corporation is basically an assembler and installer of components purchased from outside sources. The major components used by the Corporation are electrical components, lumber, plywood, shingles, vinyl and wood siding, steel, aluminum, insulation, home appliances, furnaces, plumbing fixtures, hardware, floor coverings and furniture. The suppliers are many and range in size from large national companies to very small local companies. At the present time the Corporation is obtaining sufficient materials to fulfill its needs.

Patents, Trademarks, Licenses, Franchises and Concessions

The Corporation does not rely upon any terminable or nonrenewable rights such as patents, licenses or franchises under the trademarks or patents of others, in the conduct of its business.

Seasonal Fluctuations

While the Corporation maintains production of homes and park models throughout the year, seasonal fluctuations in sales do occur. Sales and production of homes are affected by winter weather conditions at the Corporation’s northern plants. Park model sales are generally higher in the spring and summer months than in the fall and winter months.

Inventory

The Corporation does not maintain significant finished goods inventories. In addition, there are no inventories sold on consignment.

Item 1.

Business  —  (Continued).

Dependence Upon Individual Customers

During fiscal 2017, no individual customer had net sales exceeding 10 percent of total net sales. During fiscal 2016, net sales to Sun Home Services, Inc. (“Sun Home”) totaled $22,231,000 or 10 percent of total net sales. Based on past sales to Sun Home, the Corporation could have a material adverse effect on its financial condition and results of operations if the Corporation experienced a loss of this customer or if the volume of sales significantly decreased.

Backlog

The Corporation does not consider the existence and extent of backlog to be significant in its business. The Corporation’s production is based on a relatively short manufacturing cycle and customer orders, which continuously fluctuate.

As such, the existence of backlog is insignificant at any given date and does not typically provide a reliable indication of the status of the Corporation’s business.

Government Contracts

The Corporation has had no government contracts during the past three years.

Competitive Conditions

The Corporation’s primary competitors range from multi-billion dollar corporations to relatively small and specialized manufacturers. The principal methods of competition include but are not limited to price, features, service, warranty and product performance. Service and product performance are believed to be competitive advantages, while lack of vertical integration is considered a competitive disadvantage. The Corporation also competes with companies that provide other forms of housing, such as new and existing site-built homes, apartments, condominiums and townhouses.

The following tables show the Corporation’s competitive position on a calendar and fiscal year basis in the product lines it sells.

The competitive position for modular housing on a fiscal year basis is omitted because industry data is only available on a calendar quarter basis.

The Corporation’s business is affected by the availability of wholesale and retail financing. Consequently, increases in interest rates and the availability of credit through governmental action or otherwise, have adversely affected the Corporation’s business in the past and may do so again in the future.

Environmental Quality

The Corporation believes that compliance with federal, state and local requirements with respect to environmental quality will not require any material capital expenditures for plant or equipment modifications which would adversely affect earnings.

Item 1.

Business — (Continued).

Government Regulations

The manufacture, distribution and sale of manufactured housing, modular housing and park models are subject to government regulations in the United States at federal, state and local levels. The U.S. Department of Housing and Urban Development (HUD) has set national manufactured home construction and safety standards and implemented recall and other regulations since 1976. The National Manufactured Housing Construction and Safety Standards Act of 1974, as amended ("HUD code"). We produce a broad range of manufactured and modular homes under a variety of brand names and in a variety of floor plans and price ranges. While most of the homes we build are single-family, multi-section, ranch-style homes, we also build two-story, single-section, and Cape Cod style homes as well as multi-family units such as town homes, apartments, duplexes, and triplexes. The single-family homes that we manufacture generally range in size from 400 to 4,000 square feet and typically include two to four bedrooms, a living room or family room, a dining room, a kitchen and typically two full bathrooms. We also build park model RVs for resorts and campgrounds, ADUs for backyard or recreational living, and commercial modular structures, including hotels, and student and workforce housing.

We regularly introduce homes with new floor plans, exterior designs and elevations, decors and features. Our corporate marketing and engineering departments work with our manufacturing facilities to design homes that appeal to consumers’ changing tastes at appropriate price points for their respective markets. We design and build homes with a traditional residential or site-built appearance through the use of, among other features, dormers and higher pitched roofs. In fiscal 2020, we introduced our Genesis brand of homes which have features similar to site-built home amenities such as porches and garages, and are eligible for recently launched financing programs with terms similar to traditional mortgages. We also are very active in the design and construction of energy-efficient homes. Many of our U.S. manufacturing facilities are certified to produce “Energy Star®” rated homes through a special EPA program for manufactured housing.  

The components and products used in factory-built housing are generally of the same quality as those used by other home builders, including conventional site-builders. The primary components include lumber, plywood, OSB, drywall, steel, floor coverings, insulation, exterior siding (vinyl, composites, wood and metal), doors, windows, shingles, kitchen appliances, furnaces, plumbing and electrical fixtures and hardware. These components are presently available from a variety of sources and we are not dependent upon any single supplier. Prices of certain materials such as lumber, insulation, steel and drywall can fluctuate significantly due to changes in demand and supply. Additionally, availability of certain materials such as drywall and insulation have sometimes

been limited, resulting in higher prices and/or the need to find alternative suppliers. Typically, a one to three-week supply of raw materials is maintained. We generally have been able to pass higher material costs on to customers in the form of surcharges and price increases.

Most completed factory-built homes have cabinets, wall coverings and electrical, heating and plumbing systems. 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. 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. The sections (also referred to as floors) of a multi-section home are joined and the interior and exterior seams are finished at the home site. The consumer purchase of the home may also include retailer or contractor supplied items such as additional appliances, air conditioning, furniture, porches, decks, and garages.

We construct homes in indoor facilities using an assembly-line process employing approximately 100 to 200 production employees at each facility. Factory-built HUD code homes are constructed in one or more sections affixed to a steel support frame that allows the sections to be moved through the assembly line and transported upon sale. The sections of many of the modular homes we produce are built on wooden floor systems and transported on carriers that are removed upon placement of the home at the home site. Each section or floor is assembled in stages, beginning with the construction of the frame and the floor, then adding the walls, ceiling and roof assembly, and other constructed and purchased components, and ending with a final quality control inspection. The efficiency of the assembly-line process, protection from the weather, and favorable pricing of materials resulting from our substantial purchasing power enables us to produce homes more quickly and often at a lower cost than a conventional site-built home of similar quality.

The production schedules of our homebuilding facilities are based upon customer orders, 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. Before scheduling homes for production, orders and availability of financing are confirmed with our customer and, where applicable, their lender. Orders are generally filled within 90 days of receipt, depending upon the level of unfilled orders and requested delivery dates. 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 March 28, 2020, we had a backlog of home orders with wholesale sales value of approximately $127.5 million. 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. Charges to transport homes increase with the distance from the factory to the retailer or home site. As a result, most of the retailers and builders/developers we sell to are located within a 500-mile radius of our manufacturing plants.

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 21 retail sales centers in Florida, Georgia, Louisiana, North Carolina, Oklahoma, Texas, and Virginia. We have benefited from the strategic expansion of our captive distribution to enhance 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 display model homes of various sizes, floor plans, features, and prices that are displayed in a residential setting with sidewalks and landscaping. Customers may purchase a home from an inventory of homes maintained at the location, including a model home, or may order a home that will be built at a manufacturing facility. 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.

During fiscal 2020, the average selling price was $61,000 for our U.S. factory-built homes and $84,000 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.

Logistics

We operate a logistics business, Star Fleet Trucking, specializing in the transportation of manufactured homes and recreational vehicles from manufacturing facilities to retailers. Star Fleet’s delivery logistics are coordinated through dispatch terminals located in Idaho, Indiana, Oklahoma, Pennsylvania, and Texas. Star Fleet has strong relationships with its customer base, which includes some of the largest manufactured housing companies (including our own factory-built housing operations), and recreational vehicle manufacturers in the U.S.

Market Overview

General. Factory-built housing provides an affordable alternative to other types of housing such as site-built housing and condominiums, and to existing housing such as pre-owned homes and apartments. According to statistics published by the Institute for Building Technology and Safety ("IBTS") and the United States Department of Commerce, Bureau of the Census, for the 2019 calendar year, manufactured housing wholesale shipments of homes constructed in accordance with the HUD code accounted for an estimated 10.7% of all new single-family homes starts.

According to data reported by MHI, industry home shipments were 97,553; 93,265 and 90,729 units (excluding FEMA units) during fiscal 2020, 2019, and 2018, respectively. Industry shipments of HUD-code FEMA units were 112 and 4,315 in fiscal 2019 and 2018, respectively. There were no industry shipments of HUD-coded FEMA units in fiscal 2020 or 2019. Annual shipments have generally increased each year since calendar year 2009 when only 50,000 HUD-coded manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD-coded manufactured homes have improved modestly in recent years, manufactured housing’s most recent annual shipment levels still operate at lower levels than the long-term historical average of over 200,000 units annually.

The market for factory-built housing is affected by a number of factors, including the availability, cost and credit underwriting standards of consumer financing, consumer confidence, employment levels, general housing market, interest rates and other economic conditions and the overall affordability of factory-built housing versus other forms of housing. In the past, a number of factors have restricted demand for factory-built housing, including, in some cases, less-favorable financing terms compared to site-built housing, the effects of restrictive zoning on the availability of certain locations for home placement and, in some cases, an unfavorable public image. Certain of these adverse factors have lessened considerably in recent years with the improved quality and appearance of factory-built housing.

Home Buyer Demographics. We believe the segment of the housing market in which manufactured housing is most competitive includes consumers with household incomes under $60,000. This segment has a high representation of young single persons and married couples, first time home buyers, and homebuyers age 55 and older. The comparatively low cost of manufactured homes attracts these consumers. People in rural areas, where fewer housing alternatives exist, and those who presently live in factory-built homes, also make up a significant portion of the demand for new factory-built housing. We believe higher-priced, multi-section manufactured and modular homes are attractive to households with higher incomes as an alternative to rental housing and condominiums and are well suited to meet the needs of the retiree buyer in many markets.

The two largest manufactured housing consumer demographics, 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. Baby Boomers are similarly interested in the value proposition; however, they are also motivated by the energy efficiency and low maintenance requirements of factory-built homes, and by the lifestyle offered by planned communities that are specifically designed for homeowners that fall into this age group.

Financing

Commercial Financing. Independent retailers of factory-built homes generally finance their inventory purchases from manufacturers with floor plan financing provided by third-party lending institutions and secured by a lien on the homes. The availability and cost of floor plan financing can affect the amount of retailer new home inventory, the number of retail sales centers and related wholesale demand.Under a typical floor plan financing arrangement, an independent financial institution specializing in this line of business provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral. The financial institution customarily requires us, as the manufacturer of the home, to enter into a separate repurchase agreement with the financial institution that, upon default by the retailer and under certain other circumstances, obligates us to repurchase the financed home at declining prices over the term of the repurchase agreement (which, in most cases, is 18 to 36 months). The price at which we may be obligated to repurchase a home under these agreements is based upon the amount financed, plus certain administrative and shipping expenses. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $152.7 million as of March 28, 2020. 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 2020, approximately 32% of our sales to independent retailers were financed under floor plan agreements with national lenders, while the remaining 68% 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 to an independent retailer.

Consumer Financing. Sales of factory-built homes are significantly affected by the availability, credit underwriting standards, and regulationscost of consumer financing. There are promulgated, prohibits statesthree 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).

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. Federal law required the GSEs to issue a regulation to implement the Duty to Serve (“DTS”) requirements specified in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. 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 establishingvarious stakeholders during their outreach efforts on advancing the underserved markets since the DTS plans became effective in 2018. 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 have rolled out new financing programs specifically for homes built to the HUD code, which include CHOICEHome® from Freddie Mac and MH Advantage® from Fannie Mae. HUD-coded homes manufactured for these programs have features comparable to site-built homes, including, drywall throughout, higher-pitch roof line, energy-efficient features, lower profile foundation, plus additional options such as a garage or continuing in effect anycarport. 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 standard that is not identicalwith lending terms similar to those for site-built homes.

The DTS plans also explored the potential for the GSEs to provide liquidity to the federal standardschattel lending market, first through a limited pilot and then through an ongoing program. The GSEs could potentially serve as additional source of funding as there is unmet demand in the chattel loan industry, and GSE involvement could increase volume substantially. Freddie Mac has made the decision to any covered aspect of performance. Implementation of these standardssuspend activities on pursuing a pilot on manufactured homes titled as personal property and regulations involves inspection agency approvalinstead allocate resources on pursuing activities including loan purchases of manufactured home designs, plant and home inspection by states or other HUD-approved third parties, manufacturer certificationhomes titled as real property. The Fannie Mae DTS plan still includes a provision indicating that the standards are met, and possible recalls if they are notexploring a pilot to establish a secondary market for chattel or if homes contain safety hazards.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. Separate from the GSE involvement in chattel markets, there have been three secondary market chattel private placement offerings in the last twelve months. Although some limited progress has been made in this area, a meaningful positive impact in the form of increased home orders has yet to be realized.

Competition

HUD has promulgated rules requiringThe factory-built housing industry is highly competitive at both the manufacturing and retail levels, with competition based upon several factors, including price, product features, reputation for service and quality, depth of distribution, and retail customer financing. Capital requirements for entry into the industry are relatively low.

According to MHI, in March 2020, there were 33 producers of manufactured homes to utilize wood products certified by their suppliers to meet HUD’s established limits on formaldehyde emissions, and to place in each home written notice to prospective purchasers of possible adverse reaction from airborne formaldehyde in the homes. These rules are designated as preemptiveU.S. operating an estimated 136 production facilities. For calendar year 2019, the top 3 companies had a combined market share of state regulation. Some componentsHUD code homes of approximately 76%, according to data published by MHI. We estimate that there were approximately 4,000 industry retail locations throughout the U.S. during calendar year 2019.

Based on industry data reported by IBTS, in fiscal 2020 our U.S. wholesale market share of HUD code homes sold was 16.5%, compared to 16.6% in fiscal 2019. We compete with the 32 other producers of manufactured homes, as well as companies offering for sale homes repossessed from wholesalers or consumers. In addition, manufactured homes compete with new and modularexisting site-built homes, as well as apartments, townhouses, and condominiums.

There are a number of other national manufacturers competing for a significant share of the manufactured housing market in the U.S., including Clayton Homes, Inc. and Cavco Industries. Certain of these competitors may also be subject to Consumer Product Safety Commission standardspossess greater financial, manufacturing, distribution, and recall requirements.marketing resources.

Regarding park models, the Corporation has voluntarily subjected itself to third party inspection in order to further assure the Corporation, its dealers, and customers of compliance with established standards.Government Regulation

Manufactured housing, modular housing and park model sales may be subject to the Magnuson–Moss Warranty – Federal Trade Commission Improvement Act, which regulates warranties on consumer products.

The Corporation’s operationsOur manufactured homes are subject to numerous federal, state and local laws, codes and regulations. The majority of our homes are built to comply with the HUD code which include regulations that cover all aspects of manufactured home construction and installation, including structural integrity, fire safety, wind loads, thermal protection and ventilation. To the extent state and local regulations conflict with the HUD code, they are pre-empted. Our modular homes and commercial structures are built to comply with applicable state and local building codes. Our park model RVs are built in 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.

A variety of laws affect the financing of the homes we manufacture. The Federal Occupational Safety and HealthConsumer Credit Protection Act and are routinely inspected thereunder.

The transportation and placement (inRegulation Z promulgated thereunder require written disclosure of information relating to such financing, including the case of manufactured and modular housing)amount of the Corporation’s productsannual percentage interest rate and the finance charge. A variety of state laws also regulate the form of financing documents and the allowable deposits, finance charge and fees charged. Federal laws permit manufactured housing retailers to assist home buyers with securing financing for the purchase of homes; however, they are subject to state highway useprohibited from negotiating the financing terms.

Governmental authorities enforcing these numerous laws and regulations and local ordinances which control the size of unitscan impose fines and/or seek injunctive relief for violations. We believe that may be transported, the roads to be used, speed limits, hours of travel, and allowable locations for manufactured homes and communities.

The Corporation is also subject to many state manufacturer licensing and bonding requirements, and to dealer dayour operations are in court requirements in some states.

The Corporation believes that it is currently insubstantial compliance with the aboverequirements of these applicable laws and regulations.

Number of EmployeesSeasonality

The Corporation employed approximately 1,300 people at May 31, 2017.housing industry is subject to seasonal fluctuations based on home buyer purchasing patterns. We typically experience decreased home buyer traffic during holidays and popular vacation periods. Demand for our core single-family new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry, although this pattern was partially interrupted during the winter of fiscal 2018, when we produced a limited number of disaster-relief homes for FEMA.

Executive OfficersThe U.S. has experienced extreme weather events over the past few years resulting in widespread property damage. It has been widely reported that the overall economic toll in the affected market areas that have experienced severe weather events is substantial. There has been somewhat increased consumer demand for replacement of homes lost as a result of these events. This may include demand for additional disaster-relief manufactured home orders from federal and state agencies. We have produced disaster-relief homes for FEMA previously. These homes were built in factories located in unaffected regions of the Corporationcountry, primarily during the winter months, which lessened disruptions to existing order demand from our core customer base.

Employees

Information regardingWe have approximately 6,600 employees. We deem our relationship with our employees to be generally good. Currently, our manufacturing facilities in Canada employ approximately 700 workers, and most of the Corporation’s executive officersworkers belong to trade associations that operate under collective bargaining agreements. There are five collective bargaining agreements (one for each Canadian plant) and each have separate expiration dates. One agreement expired in November 2019 and is locatedstill under renegotiation, two agreements are set to expire in this document under Item 4.5.June 2020, one agreement is set to expire in November 2021, and one agreement is set to expire in November 2022.

Available Information

The Corporation makesOur website address is www.skylinechampion.com and we make available, free of charge, on or through the Investors sectionour website all of its internet website its annualour periodic reports, including our Annual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, and current reports on Form 8-K, Proxy Statements and all amendments to those reports as soon as reasonably practicable after we file such material is electronically filed or furnished to the United States Securities and Exchange Commission (SEC). The Corporation’s internet site is http://www.skylinecorp.com. A copy of the Corporation’s annual report on Form 10-K will be provided without charge upon written request to Skyline Corporation, Investor Relations Department, Post Office Box 743, Elkhart, Indiana 46515.

The public may read and copy any materials the Corporation has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may also obtain information on the

Item 1.

Business — (Continued).

Available Information — (Continued)

operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website (http://www.sec.gov) that contains reports proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A. RISK FACTORS

Investors or potential investorsOur 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.below are not the only risks facing us. Additional risks of which the Corporation is presently unawarethat are currently unknown to us or that the Corporation considerswe currently consider to be immaterial may also impair our business or adversely affect our financial condition or results of operations.

The COVID-19 pandemic has had, and is expected to continue to have, significant adverse effects on our financial condition, results of operations, cash flows, and business.

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. In response to this outbreak, the governments of many countries, states, cities and regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations. 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 and the preventative measures. The effects could be highly material.

The COVID-19 pandemic poses many risks, including that we or 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. Beginning in March 2020, we experienced the temporary shutdown of several of our facilities in the U.S. and Canada. Certain government orders related to COVID-19 mitigation efforts may further restrict our ability to operate our business and may impact our financial condition and results of operations. Finally, while certain facilities are considered essential and can remain in operation during the COVID-19 pandemic, there can be no assurance that these facilities will continue to be classified as essential in each of the jurisdictions in which we operate and will remain in operation. In addition, many of our facilities that remain in operation are not utilized as fully as they were before the COVID-19 pandemic. Underutilization of facilities could increase if and as the pandemic persists and spreads further.

Further, we have experienced, and may continue to experience, disruptions or delays in our supply chain as a result of such actions. This is likely to result in higher supply chain costs to us, incurred in order to maintain the supply of component parts needed to produce our products.

Our management of the impacts of COVID-19 has required, and will continue to require, significant investment of time by our management and employees. The focus on managing and mitigating the impacts of COVID-19 on our business may cause us to divert or delay the application of our resources toward other or new initiatives or investments, which in turn may have a material adverse impact on our results of operations.

We may also 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 COVID-19. 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.

Further, the impacts of COVID-19 have caused significant uncertainty and volatility in the credit markets. We rely on the credit markets to provide us with liquidity to operate and grow our businesses beyond the liquidity that operating cash flows provide. If our access to capital were to become significantly constrained, or if costs of capital were to increase significantly due to the impact of COVID-19, then our financial condition, results of operations, cash flows, and business, could be materially adversely affected.

The extent to which the COVID-19 outbreak 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 and the impact of COVID-19 on economic activity. The COVID-19 pandemic also may have the effect of significantly heightening other risks associated with our business and our financial condition, including several of the risks disclosed below.

The factory-built housing industry is cyclical, is affected by seasonality and is sensitive to changes in general economic or other business conditions.

The factory-built housing industry is affected by seasonality. Sales during the period from March to November are typically higher than in other months. As a result, our sales and operating results sometimes fluctuate and may continue to fluctuate in the future.

The factory-built housing industry is also sensitive to changes in economic conditions and other factors, such as pandemics, employment rates, job growth, population growth, consumer confidence, consumer income, availability of financing, interest rate levels, and an oversupply of homes for sale. Changes in any of these conditions generally, or in the markets where we operate, could reduce demand and constrain pricing for new factory-built homes in these areas or result in customer cancellations of pending shipments. Reductions in the number of homes shipped by us or constraints on the prices we can charge, could result in a decrease in our net sales and earnings, which could adversely affect our financial condition.

We are subject to demand fluctuations in the housing industry. Reductions in demand could adversely affect our business, results of operations, and hinder financial performance.condition.

IncurrenceDemand for our homes is subject to fluctuations in the housing market generally. In a housing market downturn, our sales and results of Net Losses

Due to negative economic conditions that impacted the manufactured housing, modular housingoperations could be adversely affected; there might be significant inventory impairments and recreational vehicle industries, the Corporation incurred netother write-offs; our gross margins could decline significantly from historical levels; and we might incur losses from fiscaloperations. We cannot predict the future demand for housing. If it were to decline significantly, our financial condition could be adversely affected.

Future increases in interest rates, more stringent credit standards, tightening of financing terms, or other increases in the effective costs of owning a factory-built home (including those related to regulation or other government actions) could limit the purchasing power of our potential customers and could adversely affect our business and financial results.

A large majority of our customers finance their home purchases through third-party lenders. Interest rates have been near historical lows for several years, 2008 to 2015. Losseswhich has made purchasing new factory-built homes more affordable. Increases in future yearsinterest rates or decreases in the availability of consumer financing could negativelyadversely affect the Corporation’s liquidity.

Changing Consumer Preferences

Changes in consumer preferencesmarket for manufactured housing, modular housinghomes. Potential customers may be less willing or able to pay the increased monthly costs or to obtain financing. Lenders may increase the qualifications needed for financing or adjust their terms to address any increased credit risk. These factors could adversely affect the sales or pricing of our factory-built homes. These developments have historically had, and park models occur over time, and consequently the Corporation responds to changing demand by evaluating the market acceptability of its products. Delays in responding to changing consumer preferences couldmay once again have, an adverse effect on net sales, operating results and cash flows.

Dependence on Independent Dealers

The Corporation sells its manufactured homes, modular homes and park models to independent dealers. These dealers are not obligated to exclusively sell the Corporation’s products, and may choose to sell competitor’s products. In addition, a dealer may become financially insolvent and be forced to close its business. Both scenarios could have an adverse effect on net sales, operating results and cash flows.

Cost and Availability of Raw Materials

Prices and availability of raw materials used to manufacture the Corporation’s products can change significantly due to fluctuations in supply and demand. In addition, the cost of raw materials is also influenced by transportation costs. The Corporation has historically been able to have an adequate supply of raw materials by maintaining good relations with its vendors. Increased prices have historically been passed on to dealers by raising the price of manufactured housing, modularoverall demand for factory-built housing and park models. There is no certainty that the Corporation will be able to pass on future price increases and maintain an adequate supply of raw materials. The inability to raise the price of its products and to maintain a proper supply of materials could have a negative impact on net sales, operating results and cash flows.

Dealer Inventories

As wholesale shipments of manufactured homes, modular homes and park models exceed retail sales, dealer inventories reach a level where dealers decrease orders from manufacturers. As manufacturers respond to reduced demand, many either offer discounts to maintain production volumes or curtail production levels. Both outcomes could have a negative impact on net sales, operating results and cash flows.

Competition

As noted in Item 1, the manufactured housing, modular housing and park model industries are highly competitive with particular emphasis on price and features offered. Some of the Corporation’s competitors are vertically integrated by owning retail, consumer finance and insurance operations. This integration may provide competitors with an advantage with dealers. In addition, the Corporation’s housing products competecompetitiveness with other forms of housing, such asand could adversely affect our results of operations and financial condition.

The liquidity provided by the GSEs and the FHA is also critical in insuring or purchasing home mortgages and creating or insuring investment securities that are either sold to investors or held in their portfolios. Any limitations or restrictions on the availability of financing by these agencies could adversely affect interest rates, financing, and our sales of new and existing site-built homes, apartments, condominiums and townhouses. The inability to effectively compete in this environment could result in lower net sales, operating results and cash flows.homes.

Item 1A.

Risk Factors. — (Continued).

Retail Financing Availability

Customers who purchase the Corporation’s products generally obtain retail financing from third party lenders. The availability terms and cost of retailwholesale financing depend on the lending practices of financial institutions, governmental policies and economic and other conditions, all of which are beyond the Corporation’s control. A customer seeking to purchase a manufactured home without land will generally pay a higher interest rate and have a shorter loan maturity versus a customer financing the purchase of land and a home. This differencefor retailers is limited due to most states classifying home-only manufactureda limited number of floor plan lenders and reduced lending limits.

Factory-built housing loans as personal property rather than real property for purposes of taxation and lien perfection.

In past years, many lenders of home-only financing have tightened credit underwriting standards, with some deciding to exit the industry. These actions resulted in decreased availability of retail financing, causing a negative effect on sales and operating results. If retail financing were to be further curtailed, net sales, operating results and cash flows could be adversely affected.

Wholesale Financing Availability

Independent dealers of the Corporation’s productsretailers generally finance their inventory purchases with wholesale floor plan financing provided by lending institutions. A dealer’s ability to obtainThe availability of wholesale financing is significantly affected by the number of lending institutions offering floor planning,plan lenders and by an institution’stheir lending limits. In past years,Limited availability of floor plan lending negatively affects the industries in which the Corporation operates experienced a reduction in bothinventory levels of our independent retailers, the number of lenders offering floor planningretail sales center locations and related wholesale demand, and adversely affects the amountavailability of money available for financing. Any further decline inand access to capital on an ongoing basis. As a result, if the availability of wholesale financing is reduced, we could haveexperience sales declines or a negative impact on a dealer’s ability to purchase manufactured housing, modular housinghigher level of customer defaults and park model products, resulting in lower net sales, operating results and cash flows.

Governmental Regulations

As noted in Item 1, the Corporation is subject to various governmental regulations. Implementation of new regulations or amendments to existing regulations could significantly increase the cost of the Corporation’s products. In addition, failure to comply with present or future regulations could result in fines or potential civil or criminal liability. Both scenarios could negatively impact net sales, operating results and cash flows.

Contingent Repurchase Agreements

As referenced in Note 10 to the Notes to the Consolidated Financial Statements in Item 8, the Corporation is contingently liable under repurchase agreements with certain financial institutions providing inventory financing for retailers of its products. The Corporation could be required to fulfill some or all of the repurchase agreements, resulting in increased expense and reduced cash flows.

Cyclical and Seasonal Nature of Business

The industries in which the Corporation operates are highly cyclical, and are impacted by but not limited to the following conditions:

Sales associated with the manufactured housing, modular housing and park model industries are also seasonal in nature with sales being lowest in the winter months. Seasonal changes, in addition to weakness in demand in one or both of the Corporation’s market segments, could materially impact the Corporation’s net sales, operating results and cash flows.

Item 1A.

Risk Factors. — (Continued).

Dependence on Executive Officers and Other Key Personnel

The Corporation depends on the efforts of its executive officers and certain key employees. An unexpected loss of the service of one or more of these individuals could have an adverse effect on net sales, operating results and cash flows could suffer.

We have contingent repurchase obligations related to wholesale financing provided to industry retailers.

As is customary in the factory-built housing industry, a significant portion of our manufacturing sales to independent retailers are financed under floor plan agreements with financing companies. In connection with 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 Corporation.homes by the financing companies. 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. These repurchase agreements are applicable for various periods of time, generally up to 24 months after the sale of the home to the retailer. However, certain homes are subject to repurchase until the home is sold by the retailer. Our contingent repurchase obligation as of March 28, 2020, was estimated to be approximately $152.7 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.

Covenant ComplianceIf we are unable to establish or maintain relationships with independent distributors that sell our homes, our sales could decline and our results of operations and cash flows could suffer.

Although we maintain our own factory direct retail business in select markets, we conduct a majority of our business through independent distributors. Over 90% of our shipments of homes in fiscal 2020 were made to independent distributors throughout the United States and western Canada. We may not be able to establish relationships with new independent distributors or maintain good relationships with independent distributors that sell our homes. Even if we establish and maintain relationships with independent distributors, these customers are not obligated to sell our homes exclusively and may choose to sell competitors’ homes instead. The independent distributors with whom we have relationships can cancel these relationships on short notice. In addition, these customers may not remain financially solvent, as they are subject to industry, economic, demographic, and seasonal trends similar to those faced by us. If we do not establish and maintain relationships with solvent independent distributors in the markets we serve, sales in those markets could decline, and if we cannot effect offsetting expansion of our factory-direct retail business, our results of operations and cash flows could suffer.

Prices of certain materials can fluctuate and availability of certain materials may be limited at times, adversely affecting our business.

Prices of certain materials used in the construction of homes, such as lumber, insulation, steel, drywall, oil-based products and fuel, can fluctuate significantly due to changes in demand and supply, adversely affecting our business. Additionally, availability of certain materials such as drywall and insulation may be limited at times, resulting in higher prices or the need to find alternative suppliers. 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. Limited availability of materials may also adversely affect our production capabilities and results of operations.

For some of the components used in production, we depend on a small group of suppliers, the loss of any of which could adversely affect our ability to obtain components in a timely manner or at competitive prices, which would in turn decrease our sales and profit margins. Some components are sourced from foreign sources. Delays in obtaining these components or the imposition of new or additional tariffs could result in increased costs and decreased sales and profit margins.

We depend on timely and sufficient delivery of components from our suppliers. Most components are readily available from a variety of sources. However, a few key components are currently produced by only a small group of quality suppliers that have the capacity to supply large quantities. Some of these components are foreign-sourced. Their supply is subject to disruption by government actions and global events, including the COVID-19 pandemic. If we cannot obtain an adequate supply of these key components our sales could decline and our results of operations and cash flows could suffer.

Our results of operations can be adversely affected by labor shortages and turnover.

The Corporation’s securedhomebuilding industry has from time to time experienced labor shortages and other labor-related issues. 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, construction market conditions, and government regulation, which include laws and regulations related to workers’ health and safety, wage and hour practices, and immigration. Our direct labor has historically experienced high turnover rates, which can lead to increased spending on training and retention and, as a result, increased costs of production. An overall labor shortage or a lack of skilled labor could cause significant increases in costs or delays in construction of homes, which could have a material adverse effects on our net sales and results of operations.

Industry conditions and future operating results could limit our sources of capital. If we are unable to locate suitable sources of capital when needed, we may be unable to maintain or expand our business.

We depend on our cash balances, cash flows from operations, and our revolving credit facility necessitates compliance(the “Credit Facility”) to finance our operating requirements, capital expenditures, and other needs. If our cash balances, cash flows from operations, and availability

under the Credit Facility are insufficient to finance our operations and alternative capital is not available, then we may not be able to expand our business and make acquisitions, or we may need to curtail or limit our existing operations.

Factory-built housing operates in the highly competitive housing industry, and, if other home builders are more successful or offer better value to our customers, then our business could decline.

We operate in a very competitive environment and faces competition from a number of other home builders in each market in which we operate. We compete with various financial covenants. Duringlarge national and regional home building companies and with smaller local home builders for financing, raw materials, and skilled management and labor resources. Some of our manufacturing competitors have captive retail distribution systems and consumer finance and insurance operations. In addition, there are independent factory-built housing retail locations that sell competitors’ products in most areas where our homes are sold and in most areas where we have retail operations. Because barriers to entry to the secondindustry at both the manufacturing and third quartersretail levels are low, we believe that it is relatively easy for new competitors to enter our markets. In addition, our products compete within the housing industry more broadly with other forms of fiscal 2017,low to moderate-cost housing, including site-built homes, panelized homes, apartments, townhouses, condominiums, and repossessed homes. We also compete with resale homes, also referred to as “previously owned” or “existing” homes, as well as rental housing.

An oversupply of homes available for sale or the Corporation did not meet certain financial covenants. Waiverheavy discounting of home prices by our competitors could adversely affect demand for our homes and the results of our operations. An increase in competitive conditions could have any of the covenant defaults were obtained. Thefollowing 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 meet covenantsincrease selling prices to offset increased costs of the homes delivered. If we are unable to compete effectively in our markets, then our business could decline disproportionately to that of our competitors. As a result, our sales could decline and our results of operations and cash flows could suffer.

Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reducedsales.

We cannot be certain that historical consumer preferences for factory-built homes in general, and for our products in particular, will remain unchanged. Our ability to remain competitive depends heavily on our ability to provide a continuing and timely introduction of innovative product offerings. We believe that the introduction of new features, designs, and models will be critical to the future success of our operations. Managing frequent product introductions poses inherent risks. Delays in the future represents an eventintroduction or market acceptance of default, which if not curednew models, designs, or waivedproduct features could negatively affect the Corporation’s ability to obtain financing under the facility and thereby have an adverse effect on liquidity.

Information Technology

The Corporation utilizes information technology and other computer resources (“computer systems”) to perform various operational tasks, and record and maintain business data. These computer systems are vulnerable to damage or interruption from power outages, telecommunications or internet failures, computer viruses, computer breaches, catastrophic events or human error. If computer systems and corresponding backup systems are damaged or fail to function property, the Corporation could have disruptions in production and operational delays that could have an adverse effect on sales, operating results and cash flows.

None

The Corporation’s eight operating manufacturing facilities and three corporate facilities, all of which are owned, are as follows:

The Corporation also owns undeveloped land in McMinnville, Oregon. During the fourth quarter of fiscal 2017, a manufactured housing plant located in Mansfield, Texas was sold for a gain of $1,502,000.

The total unit productive capacity of the Corporation is not readily ascertainable due to the ever-changing product mix. The Corporation believes that its plant facilities, machinery and equipment are well maintained and are in good operating condition.

Item 3.

Legal Proceedings.

The Corporation is a party to various pending legal proceedings in the normal course of business. Management believes that any losses resulting from such proceedings would not have a material adverse effect on the Corporation’s results of operations or financial position.

Not applicable.

Pursuant to General Instruction G.(3) of Form 10-K, the following information is included as an unnumbered item in this Part I in lieu of being included in the Corporation’s Proxy Statementour business. Products may not be accepted for the 2017 Annual Meeting of Shareholders:

The executive officers of the Corporation are as follows:

Richard W. Florea, President and Chief Executive Officer, was appointed as President and Chief Executive Officer of Skyline effective July 27, 2015. Prior to joining Skyline Mr. Florea served as President and Chief Operating Officer for Truck Accessories Group, LLC, a producer of fiberglass caps and tonneaus for light and mid-sized trucks. From 1998 through 2009, he was President and Chief Operating Officer of Dutchmen Manufacturing, Inc., a maker of travel trailers. Mr. Florea was a division sales manager for Skyline from 1994 to 1998.

Jeffrey A. Newport,Chief Operating Officer, joined the Corporation in February 2016. During the previous four years, he served as President of Goldshield Fiberglass, a manufacturer of fiberglass components located in Decatur, Indiana.

Jon S. Pilarski,Vice President, Finance & Treasurer, Chief Financial Officer, joined the Corporation in 1994. He served as Corporate Controller from 1997 to 2007 and was elected Vice President in 2007.

Terrence M. Decio, Vice President, Marketing and Sales, joined the Corporation in 1973. He was elected Vice President in 1985, Senior Vice President in 1991, Senior Executive Vice President in 1993 and Vice President-Marketing and Sales in 2004.

Robert C. Davis,Vice President, Manufacturing, joined the Corporation in 1999. He worked in Corporation Operations from 2009 to 2010, served as Corporate Operations Manager and Senior Operations Manager from 2010 to 2012, and Director of Operations from 2012 to 2013. He was elected Vice President in 2013.

Martin R. Fransted,Corporate Controller and Secretary, joined the Corporation in 1981 and was elected Corporate Controller and Secretary in 2007.

PART II

Skyline Corporation (SKY) is traded on the NYSE American (formerly known as the NYSE MKT LLC). At May 31, 2017, there were 531 shareholders of record of Skyline Corporation common stock. The following table sets forth the high and low sales prices for the Corporation’s common stock for each full quarterly period within the fiscal years ended May 31, 2017 and 2016.

Skyline has not paid any cash dividends on its common stock over the past two fiscal years. Skyline presently intends to retain future earnings, if any, for use in the operation of the business and does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of May 31, 2017, with respect to the Corporation’s Stock Incentive Plan under which our equity securities were authorized for issuance to directors, officers, employees and eligible independent contractors in exchange for consideration in the form of goods or services.

Additional information regarding the Stock Incentive Plan is in Note 12 of Notes to Consolidated Financial Statements.

The name, address and phone number of the Corporation’s stock transfer agent and registrar is:

Computershare Trust Company, N.A.

P. O. Box 5050000

Louisville, KY 40233

(312) 588-4237

Not applicable.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results ofOperations.

Overview

The Corporation designs, produces and markets manufactured housing, modular housing and park models to independent dealers, developers, campgrounds and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers, developers, campgrounds and communities, the Corporation has multiple facilities in several states. Manufactured housing, modular housing and park models are sold to customers either through floor plan financing with various financial institutions, credit terms, or on a cash basis. While the Corporation maintains production of manufactured housing, modular homes and park models throughout the year, seasonal fluctuations in sales do occur.

Manufactured Housing, Modular Housing and Park Model Industry Conditions

Sales and production of manufactured housing, modular housing and park models are affected by winter weather conditions at the Corporation’s northern plants. Manufactured and modular housing are marketed under a number of trademarks,reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences. Further, we cannot be certain that new product introductions will not reduce net sales from existing models and are available in a varietyadversely affect our results of dimensions. Parkoperations. In addition, our net sales may be adversely affected if our new models are marketed under the “Shore Park” trademark.

Manufactured housingand products are built accordingnot introduced to standards established by the U.S. Department of Housing and Urban Development. Modular homesmarket on time or are built accordingnot successful when introduced. Finally, our competitors’ products may obtain better market acceptance despite our efforts to state, provincial or local building codes. Park models are built according to specifications established bylead the American National Standards Institute, and are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.market.

Sales of manufactured housing, modular housing and park models are affected byWhen we introduce new products into the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. Recent trends regarding calendar year unit shipments of the Corporation’s products and their respective industries are as follows:

Fiscal 2017 Resultsmarketplace, we may incur expenses that we did not anticipate, which, in turn, can result in reduced earnings.

The Corporation experienced the following results during fiscal 2017:

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Fiscal 2017 Results — (Continued)

Discontinued Operations

During September 2014, the Corporation made a strategic decision to exit the recreational vehicle industry in order to focus on its core housing business. As a result, on October 7, 2014, the Corporation completed the sale of certain assets associated with its recreational vehicle segment to Evergreen Recreational Vehicles, LLC.

The following table summarizes the results of discontinued operations:

Elkhart, Indiana and Mansfield, Texas Facilities

In the third and fourth quarters of fiscal 2017, the Corporation entered into a restructuring plan involving the suspension of operations at facilities in Elkhart, Indiana and Mansfield, Texas. Production ceased at both facilities in the fourth quarter. There were neither one-time termination agreements nor material costs related to the termination of contracts such as leases related to the restructuring. Inventory and fixed asset sale and disposal losses related to the restructuring totaled $170,000 and $222,000, respectively. No liability related to the restructuring was recorded as of May 31, 2017. The Corporation anticipatesdesign flaws that a portion of customers previously served by these plants will be serviced by its facilities in Arkansas City, Kansas and Sugarcreek, Ohio. Mansfield’s real property and equipment was sold in the fourth quarter as noted in “Net Gain on Sale of Property, Plant and Equipment.”

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Elkhart, Indiana and Mansfield, Texas Facilities — (Continued)

Net sales and net losses incurred by these facilities, excluding corporate overhead allocations and the net gain on the sale of property, plant and equipment were as follows:

Although the Corporation expects cost reductions as a result of these closings, the amounts of the reported losses are not necessarily predictive of the amounts of the cost savings because sales and production of at least a portion of these homes will potentially occur at other existing facilities as discussed above.

Secured Revolving Credit Facility

On March 20, 2015, the Corporation (“Borrower(s)”) entered into a Loan and Security Agreement (the “Loan Agreement”) with First Business Capital Corp. Under the Loan Agreement, First Business Capital will provide a secured revolving credit facility to the Borrowers for a term of three years, renewable on an annual basis thereafter with each renewal for a successive one-year term. The Corporation may obtain loan advances up to a maximum of $10,000,000 subject to certain collateral-obligation ratios. In addition, loan advances bear interest at 3.75% in excess ofThe Wall Street Journal’s published one-year LIBOR rate, and are secured by substantially all of the Borrowers’ assets, now owned or hereafter acquired. Interest is payable monthly, in arrears, and all principal and accrued but unpaid interest is due and payable upon termination of the Loan Agreement. First Business Capital also agreed under the Loan Agreement to issue, or cause to be issued by a bank affiliate or other bank, letters of credit for the account of the Corporation. However, no advances have yet been made in connection with such letters of credit.

During the first quarter of fiscal 2016, the Corporation on two occasions did not meet a covenant requiring a monthly loss not exceeding $500,000. Consequently, the Corporation received in the second quarter a waiver of the defaults that occurred. In addition, the following modifications were made to the Loan Agreement.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Secured Revolving Credit Facility — (Continued)

In June 2016, additional amendments were made to the Loan Agreement:

In November 2016 the Corporation did not meet a covenant requiring a monthly loss not to exceed $250,000. Subsequent to November 30, 2016, the Corporation received a waiver for the default that occurred in the second quarter. In addition, the Loan Agreement was modified to eliminate the monthly maximum Net Loss covenant effective with the fiscal month ended December 31, 2016.

In the third quarter of fiscal 2017, the Corporation did not meet a covenant requiring the year to date net loss not to exceed $1,750,000, and a covenant requiring net worth as of February 28, 2017 to not be below $23,383,000. Subsequent to February 28, 2017, the Corporation received a waiver for the default that occurred in the third quarter and paid to First Business Capital an accommodation fee of $50,000. The Corporation was in compliance with loan agreement covenants as of May 31, 2017.

On July 21, 2017, the Corporation terminated the Loan Agreement in connection with its entry into a new Credit Agreement with JPMorgan Chase Bank, N.A. having terms more favorable to the Corporation. As of the date of termination, the Corporation did not have any borrowings outstanding under the Loan Agreement. In addition, the Corporation did not incur any early termination penalties in connection with the termination of the Loan Agreement. Information regarding the Credit Agreement with JPMorgan Chase Bank, N.A. is noted in “Subsequent Events.”

Subsequent Events

On July 21, 2017, the Corporation (the “Loan Parties,” and Skyline Corporation and Skyline Homes, Inc., the “Borrowers” and each a “Borrower”) entered into a Credit Agreement (the “Agreement”) with JPMorgan Chase Bank, N.A. (“Chase”) and other ancillary agreements and documents, including a Security Agreement and Patent and Trademark Security Agreement (collectively referred to along with the Agreement as the “Loan Documents”). Under the Agreement, Chase will provide a three-year revolving credit facility with loan advances to the Borrowers of up to a maximum of $10,000,000, subject to a borrowing base set forth in the Agreement (the “New Facility”). Loan advances bear interest at either 50 basis points above Chase’s floating prime rate (“CBFR”) or 150 basis points in excess of the LIBOR rate for the applicable period (the “Adjusted LIBO Rate”). Loans are secured by the Loan Parties’ assets, now owned or hereafter acquired, except for real property and any life insurance policies owned by any Borrower on the effective date of the Agreement. Interest is payable in arrears on a monthly basis in the case of the CBFR or at the end of the applicable interest rate in the case of the Adjusted LIBO Rate, and all principal and accrued but unpaid interest is due and payable at the maturity of the New Facility. Borrowers may at any time prepay in whole or in part any loan amounts, subject to minimum amounts and breakage costs.

Also under the Agreement, Chase agreed to issue letters of credit for the account of the Borrowers not to exceed $500,000. No advances have yet been made in connection with such letters of credit.

As part of the closing of the financing, the Company paid Chase a closing fee of $25,000 plus legal and due diligencewarranty costs. The Loan Parties also agreed to pay the following fees to Chase during the term of the New

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Subsequent Events — (Continued)

Facility: (i) a commitment fee payable in arrears at a rate of .25% per annum on the average daily amount of the available revolving commitment under the New Facility during the prior calendar month; and (ii) monthly letter of credit fees payable in arrears at the applicable Adjusted LIBO Rate on the outstanding amount of letters of credit issued and outstanding during the prior month.

The Loan Documents contain covenants that limit the ability of the Loan Parties to, among other things: (i) incur other indebtedness; (ii) create or incur liens on their assets; (iii) consummate asset sales, acquisitions, or mergers; (iv) pay dividends; (v) make certain investments; (vi) enter into certain transactions with affiliates; and (vii) amend a Loan Party’s articles of incorporation or bylaws.

The Agreement also requires compliance with a financial covenant involving a fixed charge coverage ratio as set forth in the Agreement.

If the Borrowers default in their obligations under the Agreement, then the unpaid balances will bear interest at 2.0% per annum in excess of the rate that would apply in the absence of a default. Other remedies available to Chase upon an event of default include the right to accelerate the maturity of all obligations, the right to foreclose on and otherwise repossess the collateral securing the obligations, and all other rights set forth in the Loan Documents.

The events of default under the Agreement include, but are not limited to, the following: (i) certain events of bankruptcy and insolvency; (ii) failure to make required payments; (iii) misrepresentations to Chase; (iv) failure to comply with certain covenants and agreements; (v) changes in control; and (vi) a material adverse change occurs.

Results of Operations — Fiscal 2017 Compared to Fiscal 2016

Net Sales and Unit Shipments

Net sales increased approximately 11.7 percent. The increase was comprised of a 12.5 percent increase in manufactured housing net sales, an 8.7 percent decrease in modular housing net sales, and a 39.3 percent increase in park model net sales. Current year net manufactured housing sales includes approximately $10,969,000 attributable to the Elkhart, Indiana facility which commenced operations in June 2016. Modular net sales declined primarily due to decreased demand from Midwest-based dealers as manufactured housing products are able to satisfy demand from retail customers.Park model net sales rose as a result of Management’s initiative to increase this product’s exposure at substantially all of the Corporation’s facilities.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Net Sales and Unit Shipments — (Continued).

For fiscal 2017, the percentage increase or decrease in unit shipments from the comparable period last year are as follows:

Compared to the prior year, the average net sales price for manufactured housing decreased 1.6 percent primarily as a result of homes sold with less square footage and fewer amenities; partially offset by a price increase. The average sales price for modular housing and park models both increased 5.0 percent as a result of a price increase and product sold with greater square footage and additional amenities.

Cost of Sales

Cost of sales, in dollars, increased primarily as a result of increased net sales. Current year cost of sales includes approximately $12,420,000 attributable to the Elkhart, Indiana facility. As a percentage of net sales, cost of sales increased primarily due to higher manufacturing labor costs associated with hiring and training employees at facilities which are increasing production output.

Selling and Administrative Expenses

Selling and administrative expenses increased primarily as a result of $632,000 in costs associated with the Elkhart, Indiana facility and an increase in administrative salaries and wages. In addition, the Corporation benefited in prior year from a $250,000 final payment received in the second quarter on an account that had been previously reserved. As a percentage of net sales, selling and administrative expenses declined due to certain costs remaining relatively constant amid rising sales.

Net Gain on Sale of Property, Plant and Equipment

In the fourth quarter of fiscal 2017, the Corporation sold real property and substantially all of the equipment at its former facility located in Mansfield, Texas. The net sales price was $2,212,000, resulting in a gain of $1,502,000. The assets sold were security under the Corporation’s Secured Revolving Credit Facility with First Business Capital. First Business Capital released its lien on the real property subject to $1,100,000 of the net sales proceeds being held in a cash collateral account at First Business Bank, an affiliate of First Business Capital. The gain was offset by $222,000 in losses associated with the disposal of Mansfield equipment not sold, and the sale or disposal of equipment used by the Corporation’s former facility in Elkhart, Indiana.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Interest Expense

Interest expense primarily increased as the result of debt financing costs incurred in the fourth quarter of fiscal 2016 that are being amortized over the remaining term of the Secured Revolving Credit Facility.

Financial Summary by Quarter

Liquidity and Capital Resources

As noted in the Consolidated Statements of Cash Flows for the year ended May 31, 2017, cash increased due to cash provided by operating activities of $2,868,000 and cash provided by investing activities of $857,000. Current assets, exclusive of cash, decreased primarily due to a $2,402,000 decreased in Accounts receivable and a $923,000 decrease in Workers’ compensation security deposit; offset by an $852,000 increase in Inventories.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Liquidity and Capital Resources — (Continued)

Accounts receivable decreased due to the timing of payments from customers at May 31, 2017 as compared to May 31, 2016. Workers’ compensation security deposit decreased to fund workers’ compensation claims for the current fiscal year. Raw material inventories increased due to anticipated production scheduled to occur in the first quarter of fiscal 2018. Work in process inventories increased due to increased production at May 31, 2017 as compared to May 31, 2016.

Current liabilities increased primarily as a result of a $359,000 increase in Customer deposits as the Corporation received deposits from a greater number of customers at May 31, 2017 as compared to May 31, 2016.

Capital expenditures totaled $1,355,000 for fiscal 2017 as compared to $1,132,000 for fiscal 2016. The increase is the result of building improvements, purchasing equipment for the Elkhart, Indiana facility, and replacing equipment that had reached its full economic useful life.

The Corporation was in compliance as of May 31, 2017 with loan agreement covenants associated with the Secured Revolving Credit Facility with First Business Capital Corp.

If necessary, the Corporation has the ability to borrow approximately $2,300,000 under the cash surrender value of certain life insurance policies. Management believes sufficient liquidity exists to meet financial obligation that will occur for at least one year after the date of the filing of this annual report.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires the Corporation to make certain estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates are periodically evaluated using historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The following accounting policies are considered to requiretypes of problems could be substantial and could have a significant estimate:

Deferred Tax Assets

Net deferred tax assets and liabilities are computed basedadverse effect on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rates.

The Corporation has a valuation allowance against substantially all of its deferred tax assets. In addition, net deferred tax assets consist of federal net operating loss and tax credit carryforwards, state net operating loss carryforwards and temporary differences between financial and tax reporting. Additional information regarding the decrease in the valuation allowance is referenced in Note 9 of the Notes to Consolidated Financial Statements.

Revenue Recognition

Substantially all of the Corporation’s products are made to order. Revenue is recognized upon completion of the following: an order for a unit is received from a dealer or community (customer); written or verbal approval for payment is received from a customer’s financial institution or payment is received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is removed from the Corporation’s premises for delivery to a customer. Freight billed to customers is considered sales revenue, and the related freight costs are cost of sales. Volume based rebates paid to dealers are classified as a reduction of sales revenue. Sales of parts are classified as revenue.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Product Warranties

As referenced in Note 1 of the Notes to Consolidated Financial Statements, homes and park models are sold with a fifteen-month warranty.our earnings. Estimated warranty costs are accrued at the time of product sale basedto 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.  

Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and can harm our reputation.

Our products contain thousands of parts, many of which are supplied by a network of approved vendors. Product defects may occur, including components purchased from material vendors. There is no assurance that all such defects will be detected prior to the distribution of our products. In addition, although we endeavor to compel suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor-supplied part were to occur that the vendor would have the financial ability to rectify the defect. Failure to detect defects in our products, including vendor-supplied parts, could result in lost revenue, increased warranty and related costs, and could harm our reputation.

If the factory-built housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our results of operations and cash flows could suffer.

Limitations on the number of sites available for placement of factory-built homes or on the operation of factory-built housing communities could reduce the demand for factory-built homes and, as a result, our sales. Factory-built housing communities and individual home placements are subject to local zoning ordinances and other local regulations relating to utility service and construction of roadways. In the past, some property owners have resisted the adoption of zoning ordinances permitting the use of factory-built homes in residential areas, which we believe has restricted the growth of the industry. Factory-built homes may not receive widespread acceptance and localities may not adopt zoning ordinances permitting the development of factory-built home communities. If the factory-built housing industry is unable to secure favorable local zoning ordinances, then our sales could decline and our results of operations and cash flows could suffer.

We may not be able to manage our business effectively if we cannot retain current management team members or if we are unable to attract and motivate key personnel.

Our success depends upon sales, historical claimsthe skills, experience, and management’s judgment regarding anticipated ratesactive participation of our senior management and key employees, many of whom have been with us for a significant number of years. Changes in our senior management team or other key employees may result in operational disruptions and changes to the strategy of our business, and our business might be harmed as a result. Our business could be further disrupted and harmed if we were unable to find appropriate replacements on a timely basis following future departures.

We may not be able to attract or motivate qualified management and operations personnel in the future. Inability to do so would result in constraints that would significantly impede the achievement of our objectives. We may also have difficulty attracting experienced personnel and may be required to expend significant financial resources in our employee recruitment efforts.

Product liability claims and litigation and warranty claims. Significant changesclaims that arise in these factorsthe ordinary course of business may be costly, which could have a material impact on futureadversely affect our results of operations.

Recently Issued Accounting PronouncementsAs a home builder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. In addition, the costs of insuring against construction defect and product liability claims are high. There can be no assurance that this coverage will not be restricted and become more costly. If the limits or coverages of our current and former insurance programs prove inadequate, or we are unable to obtain adequate or reasonably-priced insurance against these types of claims in the future, or the amounts currently provided for future warranty or insurance claims are inadequate, then we may experience losses that could negatively impact our results of operations.

In February 2016,We record expenses and liabilities based on the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2016-02,Leases. ASU 2016-02 requires lesseesestimated costs required to recognizecover our self-insured liability under our insurance policies, and estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. These estimated costs are based on an analysis of our historical claims and industry data, and include an estimate of claims incurred but not yet reported. Due to the followingdegree of judgment required and the potential for all leases (withvariability in the exceptionunderlying assumptions when deriving estimated liabilities, our actual future costs could differ from those estimated, and the difference could be material to our results of short-term leases) at the commencement date:operations.

A leaseData security breaches, cybersecurity attacks, and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect, use, and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of our customers and employees. We also have outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and other third-party providers possess certain of our sensitive data. The secure maintenance of this information is a lessee’s obligationcritical to make lease payments arisingour operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to cybersecurity attacks by hackers or breached due to employee error, malfeasance, or other disruptions, particularly with employees and others on data networks working increasingly from a lease, measured on a discounted basis; and