Skyline Champion Corp - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 27, 2020

or

For the transition period from                      to                     

Commission file number: 001-04714

Skyline Champion Corporation

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant (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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐

Indicate by check mark whether the Registrant 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 filers,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange 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 Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Number of shares of common stock outstanding as of July 20, 2020: 56,666,202

SKYLINE CHAMPION CORPORATION

FORM 10-Q

TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

Skyline Champion Corporation

Condensed Consolidated Balance Sheets

(Dollars and shares in thousands, except per share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements.

1

Skyline Champion Corporation

Condensed Consolidated Income Statements

(Unaudited, dollars in thousands, except per share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements.

2

Skyline Champion Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands, except per share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Skyline Champion Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Skyline Champion Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, dollars and shares in thousands)

Components of accumulated other comprehensive loss consisted solely of foreign currency translation adjustments.

See accompanying Notes to Condensed Consolidated Financial Statements.

5

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements

Nature of Operations: Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the United States (“U.S.”) and Canada. The Company’s operations consist of manufacturing, retail, and transportation activities. The Company operates 33 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada. These facilities primarily construct factory-built, timber-framed manufactured, and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 21 sales centers that sell manufactured houses to consumers primarily in the Southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes, recreational vehicles and other products throughout the U.S. and Canada.

COVID-19 Government Financial Assistance: The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. Various government programs have been announced which provide financial relief for affected businesses including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. During the first quarter of fiscal 2021, the Company recognized CARES Act subsidies of $0.6 million. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through June 27, 2020, the Company has deferred $3.6 million of payroll taxes that will be paid beginning in December 2021. In Canada, the Company recognized $3.6 million of payroll subsidies under CEWS during the first quarter of fiscal 2021. The Company’s policy is to account for these subsidies as Other Income in the period in which the related costs are incurred and the Company is reasonably assured to receive payment. As of June 27, 2020, the Company had received $1.7 million of the CEWS subsidies.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations.

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany balances and transactions. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly state the Company’s consolidated results of operations, cash flows, and financial position. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on May 21, 2020 (the “Fiscal 2020 Annual Report”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes thereto. Actual results could differ from those estimates. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, and condensed consolidated statements of cash flows for the interim periods are not necessarily indicative of the results of operations or cash flows for the full year.

Certain prior year amounts have been reclassified to conform with the current year presentation.

The Company’s fiscal year is a 52- or 53-week period that ends on the Saturday nearest to March 31. The Company’s current fiscal year, “fiscal 2021,” will end on April 3, 2021. References to “fiscal 2020” refer to the Company’s fiscal year ended March 28, 2020. The three months ended June 27, 2020 and June 29, 2019 each included 13 weeks.  

Recently Adopted Accounting Pronouncements: On March 29, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model. The cumulative effect of adoption resulted in an increase of $0.2 million in the allowance for credit loss and a corresponding decrease in retained earnings as of March 29, 2020. The Company’s allowance for credit losses on financial assets measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current economic conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. As of June 27, 2020 and March 28, 2020, accounts receivable are reflected net of reserves of $0.3 million and $0.4 million, respectively. As of June 27, 2020 and March 28, 2020, other notes receivable are reflected net of reserves of $0.9 million and $0.5 million, respectively. Changes in expected credit losses were not significant in the first three months of fiscal 2021.  

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment,” which addresses concerns over the cost and complexity of the two-step impairment testing model, and removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted the provisions of ASU 2017-04 effective March 29, 2020, and the adoption did not have an impact on the Company's consolidated financial statements.

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

There were no other accounting standards recently issued that are expected to have a material impact on the Company’s financial position or results of operations.

The components of inventory, net of reserves for obsolete inventory, were as follows:

At June 27, 2020 and March 28, 2020, reserves for obsolete inventory were $4.3 million and $4.2 million, respectively.

Property, plant, and equipment are stated at cost. Depreciation is calculated primarily on a straight-line basis, generally over the following estimated useful lives: land improvements – 3 to 10 years; buildings and improvements – 8 to 25 years; and vehicles and machinery and equipment – 3 to 8 years. Depreciation expense for the three months ended June 27, 2020 and June 29, 2019 was $2.9 million and $3.1 million, respectively. 

The components of property, plant, and equipment were as follows:

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At June 27, 2020 and March 28, 2020, the Company had goodwill of $173.5 million.

Intangible Assets

The components of amortizable intangible assets were as follows:

During both the three months ended June 27, 2020 and June 29, 2019, amortization of intangible assets was $1.4 million.

7

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

The components of other current liabilities were as follows:

Changes in the accrued warranty obligations were as follows:

Long-term debt consisted of the following:

The Company has an agreement with a syndicate of banks that provides for a revolving credit facility of up to $100.0 million, including a letter of credit sub-facility of not less than $45.0 million (“Credit Agreement”). The revolving credit facility allows the Company to draw down, repay and re-draw loans on the available funds during the term of the Credit Agreement.

The Credit Agreement matures on June 5, 2023 and has no scheduled amortization. The interest rate on borrowings under the Credit Agreement adjusts based on the first lien net leverage of the Company from a high of LIBOR plus 2.25% and ABR plus 1.25% when the first lien net leverage is equal to or greater than 2.00:1.00, to a low of LIBOR plus 1.50% and ABR plus 0.50% when the first lien net leverage is below 0.50:1.00. In addition, the Company is obligated to pay an unused line fee ranging between 0.25% and 0.40% (depending on the first lien net leverage) in respect of unused commitments under the Credit Agreement. At June 27, 2020 the interest rate on borrowings under the Credit Agreement was 1.75%. At June 27, 2020, letters of credit issued under the Credit Agreement totaled $28.7 million. Total available borrowings under the Credit Agreement as of June 27, 2020 were $6.4 million. On July 15, 2020, additional letters of credit were issued for $5.3 million. Total available borrowings under the Credit Agreement as of the date the financial statements were issued was $1.1 million.

Obligations under industrial revenue bonds are supported by letters of credit and bear interest based on a municipal bond index rate. The weighted-average interest rate at June 27, 2020, including related costs and fees, was 2.24%. The industrial revenue bonds require lump-sum payments of principal upon maturity in 2029.

8

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

The Credit Agreement contains covenants that restrict the amount of additional debt, liens and certain payments, including equity buybacks, investments, dispositions, mergers and consolidations, among other restrictions as defined. The Company was in compliance with all covenants of the Credit Agreement as of June 27, 2020.

Floor Plan Payable

The Company’s retail operations utilize floor plan financing to fund the purchase of manufactured homes for display or resale. At June 27, 2020 and March 28, 2020, the Company had outstanding borrowings on floor plan financing agreements of $29.4 million and $33.9 million, respectively. Total credit line capacity provided under the agreements was $48.0 million as of June 27, 2020. Borrowings are secured by the homes and are required to be repaid when the Company sells the home to a customer.

The following tables disaggregate the Company’s revenue by sales category for the three months ended June 27, 2020 and June 29, 2019:

The Company has operating leases for land, manufacturing and office facilities, and equipment. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. Lease expense included in the accompanying condensed consolidated income statements is shown below:

9

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Operating lease assets and obligations included in the accompanying condensed consolidated balance sheets are below:

Maturities of lease obligations as of June 27, 2020, are shown below:

The weighted-average lease term and discount rate for operating leases are shown below:

The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate, which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

Cash flow information related to operating leases is shown below:

For the three months ended June 27, 2020 and June 29, 2019, the Company recorded $4.6 million and $6.6 million of income tax expense and had an effective tax rate of 27.7% and 27.6%, respectively.

The Company’s effective tax rate for both of the three months ended June 27, 2020 and June 29, 2019 differs from the federal statutory income tax rate of 21.0% due primarily to the effect of non-deductible expenses, state and local income taxes, and results in foreign jurisdictions.

At June 27, 2020, the Company had no unrecognized tax benefits. The Company does not anticipate any material changes to uncertain tax benefits in the next twelve months. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.

10

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Basic net income per share (“EPS”) attributable to the Company was computed by dividing net income attributable to the Company by the average number of common shares outstanding during the period. Certain of the Company’s time-vesting restricted share awards are considered participating securities. Diluted earnings per common share is computed based on the more dilutive of: (i) the two-class method, assuming the participating securities are not exercised or converted; or (ii) the summation of average common shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

During the three months ended June 27, 2020 and the three months ended June 29, 2019, the two-class method was more dilutive. Securities that could potentially dilute basic EPS in the future that were considered antidilutive in the three months ended June 27, 2020 totaled 0.4 million. There were no antidilutive securities in the three months ended June 29, 2019.

The following table sets forth the computation of basic and diluted earnings per common share:

Financial results for the Company's reportable segments have been prepared using a management approach, which is consistent with the basis and manner in which financial information is evaluated by the Company's chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company’s segments primarily based on net sales, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and operating assets.

The Company operates in two reportable segments: (i) U.S. Factory-built Housing, which includes manufacturing and retail housing operations and (ii) Canadian Factory-built Housing. Corporate/Other includes the Company’s transportation operations, corporate costs directly incurred for all segments and intersegment eliminations. Segments are generally determined by geography. Segment data includes intersegment revenues and corporate office costs that are directly and exclusively incurred for each segment. Total assets for Corporate/Other primarily includes cash and certain deferred tax items not specifically allocated to another segment.

11

Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

Selected financial information by reportable segment was as follows:

Repurchase Contingencies and Guarantees

The Company is contingently liable under terms of repurchase agreements with lending institutions that provide wholesale floor plan financing to retailers. These arrangements, which are customary in the manufactured housing industry, provide for the repurchase of products sold to retailers in the event of default by the retailer on their agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous retailers. The repurchase price is generally determined by the original sales price of the product less contractually defined curtailment payments. The Company accounts for the guarantees under its repurchase agreements with the retailers’ financing institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. In addition, the Company has estimated the expected contingent net loss the Company will incur upon resale of any repurchases. These estimates are based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting retailers for which the Company has a contingent repurchase obligation. Based on these repurchase agreements, historical loss experience, as well as current economic

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Skyline Champion Corporation

Notes to Condensed Consolidated Financial Statements - Continued

conditions and forecasts that affect the potential loss exposure, a loss reserve of $1.0 million was recorded as of June 27, 2020 and March 28, 2020. Excluding the resale value of the homes, the contingent repurchase obligation as of June 27, 2020 was estimated to be $145.2 million. Losses incurred on homes repurchased were not significant during each of the three months ended June 27, 2020 and June 29, 2019.

At June 27, 2020, the Company was contingently obligated for $28.7 million under letters of credit, primarily consisting of $12.7 million to support long-term debt, $15.7 million to support the casualty insurance program, and $0.3 million to support bonding agreements. The letters of credit are issued from a sub-facility of the Credit Agreement. The Company was also contingently obligated for $23.5 million under surety bonds, generally to support performance on long-term construction contracts and license and service bonding requirements.

In the normal course of business, the Company’s former subsidiaries that operated in the United Kingdom historically provided certain guarantees to two customers. Those guarantees provide contractual liability for proven construction defects up to 12 years from the date of delivery of certain products. The guarantees remain a contingent liability of the Company which declines over time through October 2027. As of the date of this report, the Company expects few, if any, claims to be reported under the terms of the guarantees.

Legal Proceedings

The Company has agreed to indemnify counterparties in the ordinary course of its business in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. As of the date of this filing, the Company believes the ultimate liability with respect to these contingent obligations will not have, either individually or in the aggregate, a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

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The following should be read in conjunction with Skyline Champion Corporation’s condensed consolidated financial statements and the related notes that appear in Item I of this Report.

Overview

Skyline Champion Corporation (the “Company”) is a leading producer of factory-built housing in the U.S. and Canada. The Company serves as a complete solutions provider across complementary and vertically integrated businesses including manufactured offsite construction, company-owned retail locations, and transportation logistics services. The Company is the largest independent publicly traded factory-built solutions provider in North America (based on revenue) and markets its homes under several nationally recognized brand names including Skyline Homes, Champion Home Builders, Genesis Homes, Athens Park Models, Dutch Housing, Excel Homes, Homes of Merit, New Era, Redman Homes, Shore Park, Silvercrest, Titan Homes in the U.S., and Moduline and SRI Homes in western Canada. The Company operates 33 manufacturing facilities throughout the U.S. and five manufacturing facilities in western Canada that primarily construct factory-built, timber-framed, manufactured and modular houses that are sold primarily to independent retailers, builders/developers, and manufactured home community operators. The Company’s retail operations consist of 21 sales centers that sell manufactured homes to consumers primarily in the southern U.S. The Company’s transportation business engages independent owners/drivers to transport manufactured homes and recreational vehicles and other products throughout the U.S. and Canada.

Industry and Company Outlook

In recent years, manufactured home construction experienced revenue growth due to a number of favorable demographic trends and demand drivers in the United States, including underlying growth trends in key homebuyer groups, such as the population over 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 Alternative Dwelling Units (“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 over the medium-to-long-term. We believe that there is an opportunity for continued manufactured and modular construction market expansion driven by the foregoing trends and demand drivers, as well as construction labor shortages in certain regions (which tend to adversely and disproportionally impact supply and cost of site-built homes when compared to manufactured housing) and increased affordability of factory-built homes relative to site-built homes.

For the three months ended June 27, 2020, approximately 76% of the Company’s U.S. manufacturing sales were generated from the manufacture of homes that comply with the Federal HUD-code construction standard in the U.S. Annual industry shipments have generally increased each year since calendar year 2009 when only 50,000 HUD code manufactured homes were shipped, the lowest level since the industry began recording statistics in 1959. While shipments of HUD code 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.

For the three months ended June 27, 2020, approximately 18% of the Company’s U.S. manufacturing sales were modular. The industry normally reports U.S. modular market shipments quarterly and three months in arrears. However, reporting of industry shipment data has been delayed and unavailable for the calendar year 2020 due to the COVID-19 pandemic. Industry shipments of modular homes were 3,080 units in the U.S. during the first three months of calendar year 2019 and the Company’s modular market share during these periods was 14.6%. Modular home sales across the industry have generally been stable since 2009.

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020. There remains continued uncertainty regarding the extent and duration of the impact that the COVID-19 pandemic will have on the economy, the housing market, and the Company, as well as the Company’s employees, customers, and suppliers.

The Company has prioritized the safety and well-being of its employees and customers and has implemented standards to operate in accordance with social-distancing protocols and public health authority guidelines. Beginning in March 2020, the Company took actions to temporarily idle certain facilities in response to government shutdown orders or reduced demand. By late April 2020, most of the temporarily idled manufacturing facilities had reopened, but at reduced production levels due to employee absenteeism, difficulty hiring new team members and social distancing protocols. At June 27, 2020, two U.S. manufacturing facilities were temporarily idled. Also, during the first quarter, the Company’s retail operations were impacted by various mandates for operating; however, those facilities generally remained open and shifted physical visits to a larger on-line presence.  

14

In response to the pandemic, the Company offered extended benefits to employees, including increased sick pay and premium payments on healthcare benefits for furloughed employees. During the first quarter of fiscal 2021, the Company’s U.S. operations incurred $1.9 million of expense related to the extended benefits. Various government programs have been announced to provide financial relief for affected businesses, including the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada. CEWS provides a cash subsidy of up to 75% of eligible employees’ remuneration, subject to certain criteria. The Company recognized $3.6 million for payroll subsidies under CEWS and $0.6 million for payroll subsidies under the CARES Act during the first quarter of fiscal 2021. In addition, the CARES Act allows for deferring payment of certain payroll taxes. Through June 27, 2020, the Company has deferred $3.6 million of payroll taxes that will be paid beginning in December 2021.

UNAUDITED INCOME STATEMENTS FOR Q1 FISCAL 2021 VS. 2020

15

NET SALES

The following table summarizes net sales for the three months ended June 27, 2020 and June 29, 2019:

*Two of the Company’s manufacturing facilities are temporarily idled as of June 27, 2020, but still considered operational.

Net sales for the three months ended June 27, 2020 were $273.3 million, a decrease of $98.6 million, or 26.5% over the three months ended June 29, 2019. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Net sales for the Company’s U.S. manufacturing and retail operations decreased by $82.7 million, or 25.0%. The decrease was primarily due to a decrease in the number of homes sold during the three months ended June 27, 2020 of 1,420 units, or 26.1%. U.S. housing sales volumes were severely impacted by COVID-19-related factors, including government mandated stay-at-home orders. During the first weeks of the quarter, several of the Company’s U.S. manufacturing operations were temporarily idled. Since reopening most of these facilities, production has operated at reduced levels as compared to the prior year due to employee hiring constraints, social-distancing protocols and in some areas, reduced demand. The volume decrease was partially offset by an increase in average selling price. Average selling price increased due to a change in product mix. Product mix fluctuations result from consumer preferences regarding the sizes and styles of homes selected for purchase, opting for home upgrade packages, as well as regional housing dynamics.  

Canadian Factory-built Housing:

The Canadian Factory-built Housing segment net sales decreased by $8.5 million, or 35.9% for the three months ended June 27, 2020 compared to the same period in the prior year, primarily due to a 32.6% decrease in the number of homes sold, coupled with a 4.9% decrease in average home selling price. The decrease in volume was due to reduced demand and production primarily from oil-related demand drivers and the impacts of COVID-19. Our five Canadian plants were temporarily idled or running at reduced production levels for most of the quarter. The decrease in average selling price is due to a shift in product mix to more single-section homes in fiscal 2021 first quarter versus the same period last year. On a constant currency basis, net sales for the Canadian segment were unfavorably impacted by approximately $0.6 million as the Canadian dollar weakened compared to the U.S. dollar during the first three months of fiscal 2021 as compared to the same period of the prior year.

Corporate/Other:

Net sales for Corporate/Other includes the Company’s transportation business and the elimination of intersegment sales. For the three months ended June 27, 2020, net sales decreased $7.4 million, or 44.3%. The decrease was primarily attributable to lower net sales in the Company’s transportation business largely as a result of lower shipments due to COVID-19-related manufacturing shutdowns in both the RV and manufactured housing industries experienced mainly in the U.S. Midwest and Northeast regions.

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GROSS PROFIT

The following table summarizes gross profit for the three months ended June 27, 2020 and June 29, 2019:

Gross profit as a percent of sales during the three months ended June 27, 2020 was 19.8% compared to 20.4% during the three months ended June 29, 2019. The following is a summary of the change by operating segment.

U.S. Factory-built Housing:

Gross profit for the U.S. Factory-built Housing segment decreased by $19.9 million, or 29.1%, during the three months ended June 27, 2020 compared to the same period in the prior year. Gross profit was 19.5% as a percent of segment net sales for the three months ended June 27, 2020 compared to 20.6% in the same period of the prior year. The decrease is due to the supplemental COVID-19-related sick pay and health benefits provided to furloughed employees of $1.9 million, as well as reduced leverage of manufacturing fixed costs caused by reduced sales volumes.

Canadian Factory-built Housing:

Gross profit for the Canadian Factory-built Housing segment decreased by $1.8 million, or 39.9% during the three months ended June 27, 2020 compared to the same period in the prior year. Gross profit as a percent of net sales was 18.3% for the three months ended June 27, 2020, compared to 19.5% in the same period of the prior year. The decrease is due to higher labor costs and reduced leverage of manufacturing fixed expenses due to lower volume, partially offset by improved warranty costs.

Corporate/Other:

Gross profit for the Corporate/Other segment decreased $0.3 million, or 9.1%, during the three months ended June 27, 2020 compared to the same period in the prior year, primarily due to lower sales in the Company’s transportation operations. Although transportation sales were lower, gross profit improved as a percent of segment net sales to 30.5% from 18.7% as a result of changes in revenue mix and expansion of storage offerings. Additionally, increases in intercompany sales elimination activity contributed to the increase in gross margin as the eliminations decreased sales reported in this segment.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses include foreign currency transaction gains and losses, equity compensation, and intangible amortization expense. The following table summarizes selling, general, and administrative expenses for the three months ended June 27, 2020 and June 29, 2019:

Selling, general, and administrative expenses were $40.8 million for the three months ended June 27, 2020, a decrease of $10.9 million compared to the same period in the prior year. The following is a summary of the change by operating segment.

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U.S. Factory-built Housing:

Selling, general, and administrative expenses for the U.S. Factory-built Housing segment decreased $7.8 million, or 21.6%, during the three months ended June 27, 2020 as compared to the same period in the prior year. The decrease in selling, general, and administrative expenses resulted from a combination of factors which include: (i) lower sales commissions and incentive compensation, which is generally based on sales volume or a measure of profitability; (ii) reduction in non-essential costs such as travel and trade shows; and (iii) reduction in wages from headcount reductions and furloughs in response to COVID-19. Selling, general, and administrative expenses, as a percent of segment net sales was 11.4% for the three months ended June 27, 2020 compared to 10.9% during the comparable period in the prior year. Selling, general, and administrative expense as a percentage of net sales increased in the current period due to less leverage of fixed costs due to reduced sales volumes.

Canadian Factory-built Housing:

Selling, general, and administrative expenses for the Canadian Factory-built Housing segment decreased $0.2 million for three months ended June 27, 2020 when compared to the same period of the prior year. As a percent of segment net sales, selling, general, and administrative expenses for the Canadian segment was 11.0% and 7.6% for the three months ended June 27, 2020 and June 29, 2019, respectively. Selling, general, and administrative expense as a percentage of net sales increased in the current period due to less leverage of fixed costs due to reduced sales volumes.

Corporate/Other:

Selling, general, and administrative expenses for Corporate/Other includes the Company’s transportation operations, corporate costs incurred for all segments, and intersegment eliminations. Selling, general, and administrative expenses for Corporate/Other decreased $2.9 million, or 21.2%, during the three months ended June 27, 2020 as compared to the same period of the prior year. The decrease is due to a reduction in incentive compensation costs, and travel expense, as well as the benefit from not incurring costs related to acquisition integration expenses and the fair value adjustment on an asset classified as held for sale that were recorded in the prior year.

INTEREST EXPENSE, NET

The following table summarizes the components of interest expense, net for the three months ended June 27, 2020 and June 29, 2019: