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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


FORM 10-Q


 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                                  

 

Commission File Number 001-37502


 

Picture 2

 

MASTERCRAFT BOAT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


 

Delaware

 

06-1571747

(State or Other Jurisdiction

 

(I.R.S. Employer

of Incorporation or Organization)

 

Identification No.)

 

100 Cherokee Cove Drive, Vonore, TN 37885

(Address of Principal Executive Office) (Zip Code)

 

(423) 884-2221

(Registrant’s telephone number, including area code)

 


 

 

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 filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☐ 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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 Act).

☐     Yes               No

As of November 5, 2018, there were 18,721,420 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 


 

Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Unaudited Condensed Consolidated Statements of Operations

4

 

Unaudited Condensed Consolidated Balance Sheets

5

 

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

6

 

Unaudited Condensed Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4. 

Controls and Procedures

31

 

 

 

PART II 

OTHER INFORMATION

 

Item 1. 

Legal

32

Item 1A. 

Risk Factors

32

Item 2. 

Unregistered Sales of Securities and Use of Proceeds

33

Item 3. 

Defaults Upon Senior Securities

33

Item 4. 

Mine Safety Disclosures

33

Item 5. 

Other Information

33

Item 6. 

Exhibits, Financial Statement Schedules

34

 

 

 

 

 

 

SIGNATURES 

 

36

 

 

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. We use words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify some but not all forward-looking statements and include statements in this quarterly report on Form 10-Q concerning our pipeline of new models; 

our ability to continue our operating momentum, capture additional market share and deliver continued growth; expectations regarding driving margin expansion, sales increases and organic growth; the successful integration of Crest Marine LLC into our business; our fiscal 2019 outlook and key growth initiatives. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements.

 

The forward-looking statements contained in this quarterly report on Form 10-Q are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other important factors we believe are appropriate under the circumstances. As you read and consider this quarterly report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements, including but not limited to the following: general economic conditions, demand for our products, changes in consumer preferences, competition within our industry, our reliance on our network of independent dealers, our ability to manage our manufacturing levels and our large fixed cost base, the successful introduction of our new products, and the other important factors described under the caption “Risk Factors” in this quarterly report on Form 10-Q  and our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, filed with the Securities and Exchange Commission (the “SEC”) on September 7, 2018. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.

 

Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this quarterly report on Form 10-Q to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause our business not to develop as we expect emerge from time to time, and it is not possible for us to predict all of them.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 30, 2018

  

October 1, 2017

  

 

 

 

 

 

 

 

 

NET SALES

 

$

93,641

 

$

65,049

 

COST OF SALES

 

 

70,438

 

 

46,886

 

GROSS PROFIT

 

 

23,203

 

 

18,163

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling and marketing

 

 

4,290

 

 

2,737

 

General and administrative

 

 

6,772

 

 

4,335

 

Amortization of intangible assets

 

 

530

 

 

27

 

Total operating expenses

 

 

11,592

 

 

7,099

 

OPERATING INCOME

 

 

11,611

 

 

11,064

 

OTHER EXPENSE:

 

 

 

 

 

 

 

Interest expense, net

 

 

920

 

 

491

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

10,691

 

 

10,573

 

INCOME TAX EXPENSE

 

 

2,226

 

 

3,527

 

NET INCOME

 

$

8,465

 

$

7,046

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

Basic

 

$

0.45

 

$

0.38

 

Diluted

 

$

0.45

 

$

0.38

 

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

 

 

 

 

 

 

 

Basic earnings per share

 

 

18,646,039

 

 

18,615,100

 

Diluted earnings per share

 

 

18,768,764

 

 

18,686,626

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

 

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

 

    

2018

    

2018

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,093

 

$

7,909

 

Accounts receivable — net of allowances of $117 and $51, respectively

 

 

9,310

 

 

5,515

 

Income tax receivable

 

 

676

 

 

 —

 

Inventories — net

 

 

21,729

 

 

20,467

 

Prepaid expenses and other current assets

 

 

3,587

 

 

3,295

 

Total current assets

 

 

41,395

 

 

37,186

 

Property, plant and equipment — net

 

 

23,929

 

 

22,265

 

Intangible assets — net

 

 

50,516

 

 

51,046

 

Goodwill

 

 

65,792

 

 

65,792

 

Deferred debt issuance costs — net

 

 

361

 

 

383

 

Other

 

 

253

 

 

252

 

Total assets

 

$

182,246

 

$

176,924

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

18,609

 

$

17,266

 

Income tax payable

 

 

 —

 

 

705

 

Accrued expenses and other current liabilities

 

 

29,555

 

 

27,866

 

Current portion of long-term debt, net of unamortized debt issuance costs

 

 

5,521

 

 

5,069

 

Total current liabilities

 

 

53,685

 

 

50,906

 

Long-term debt, net of unamortized debt issuance costs

 

 

68,084

 

 

70,087

 

Deferred income taxes

 

 

205

 

 

1,427

 

Unrecognized tax positions

 

 

2,097

 

 

1,982

 

Total liabilities

 

 

124,071

 

 

124,402

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,721,420 shares at September 30, 2018 and 18,682,338 shares at June 30, 2018

 

 

187

 

 

187

 

Additional paid-in capital

 

 

114,331

 

 

114,052

 

Accumulated deficit

 

 

(56,343)

 

 

(61,717)

 

Total stockholders' equity

 

 

58,175

 

 

52,522

 

Total liabilities and stockholders' equity

 

$

182,246

 

$

176,924

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 

(Dollars in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

Additional

    

    

 

    

    

 

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

 

Balance at June 30, 2018

 

18,682,338

 

$

187

 

$

114,052

 

$

(61,717)

 

$

52,522

 

Adoption of accounting standards (Note 2)

 

 

 

 

 

 

 

 

 

 

(3,091)

 

 

(3,091)

 

Equity-based compensation activity

 

39,082

 

 

 —

 

 

279

 

 

 —

 

 

279

 

Net income

 

 —

 

 

 

 

 

 

8,465

 

 

8,465

 

Balance at September 30, 2018

 

18,721,420

 

$

187

 

$

114,331

 

$

(56,343)

 

$

58,175

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 30, 2018

    

October 1, 2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

8,465

 

$

7,046

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,435

 

 

732

 

Inventory obsolescence reserve

 

 

13

 

 

130

 

Amortization of deferred issuance costs

 

 

127

 

 

87

 

Stock-based compensation

 

 

384

 

 

264

 

Change in interest rate cap fair value

 

 

(2)

 

 

 —

 

Unrecognized tax benefits

 

 

115

 

 

288

 

Deferred income taxes

 

 

(284)

 

 

(592)

 

Net provision of doubtful accounts

 

 

66

 

 

30

 

Gain on disposal of fixed assets

 

 

(3)

 

 

 —

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,861)

 

 

(3,235)

 

Inventories

 

 

(1,275)

 

 

(23)

 

Prepaid expenses and other current assets

 

 

(290)

 

 

(186)

 

Income taxes

 

 

(1,381)

 

 

1,997

 

Other assets

 

 

(1)

 

 

 —

 

Accounts payable

 

 

2,199

 

 

4,670

 

Accrued expenses and other current liabilities

 

 

(2,340)

 

 

(1,042)

 

Net cash provided by operating activities

 

 

3,367

 

 

10,166

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Disposal of equipment

 

 

 3

 

 

 —

 

Purchases of property and equipment

 

 

(3,425)

 

 

(505)

 

Net cash used in investing activities

 

 

(3,422)

 

 

(505)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Cash paid for withholding taxes on vested stock

 

 

(105)

 

 

(43)

 

Principal payments on long-term debt

 

 

(1,656)

 

 

(976)

 

Net cash used in financing activities

 

 

(1,761)

 

 

(1,019)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(1,816)

 

 

8,642

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

 

 

7,909

 

 

4,038

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

 

$

6,093

 

$

12,680

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash payments for interest

 

$

1,025

 

$

373

 

Cash payments for income taxes

 

$

3,775

 

$

1,831

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

1.ORGANIZATION AND NATURE OF BUSINESS

 

MasterCraft Boat Holdings, Inc. (the “Company”) was formed on January 28, 2000, as a Delaware holding company and operates primarily through its wholly owned subsidiaries, MasterCraft Boat Company, LLC; Nautic Star, LLC; NS Transport, LLC; MasterCraft Services, Inc.; MasterCraft Parts, Ltd.; and MasterCraft International Sales Administration, Inc. The Company and its subsidiaries collectively are referred to herein as the “Company”.

 

The Company is a leading innovator, designer, manufacturer and marketer of premium recreational powerboats that operates in two reportable segments: MasterCraft and NauticStar. The Company also leases a parts warehouse in the United Kingdom to expedite service, primarily to MasterCraft dealers and customers in Europe.

 

2.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s fiscal year begins July 1 and ends June 30, with the interim quarterly reporting periods consisting of 13 weeks. Therefore, the quarter end will not always coincide with the date of the end of the calendar month.

 

The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2018 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP for complete financial statements. However, management believes that the disclosures in these condensed consolidated financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.  

 

The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2018 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of September 30, 2018 and results of its operations, and its cash flows for the three months ended September 30, 2018 and October 1, 2017 and statement of shareholders’ equity for the three months ended September 30, 2018. All adjustments are of a normal recurring nature. Our interim operating results for the three months ended September 30, 2018 and October 1, 2017 are not necessarily indicative of the results to be expected in future operating quarters.

 

With the exception of Accounting Standards Update (“ASU”) 2014-09 discussed below, there were no significant changes in or changes in the application of the Company’s critical accounting policies or estimation procedures for the three months ended September 30, 2018 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the financial year ended June 30, 2018.

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

Recently Adopted Accounting Standards  In May 2014, the Financial Accounting Standards Board (the “FASB”) and International Accounting Standards Board jointly issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a principle-based accounting guidance for revenue recognition. ASU 2014-09, as amended, became effective for public companies for annual and interim periods beginning after December 15, 2017. Effective July 1, 2018, we adopted the new revenue standard using the modified retrospective transition approach by recognizing a cumulative adjustment to the opening balance of retained earnings.

 

Due to the implementation of ASU 2014-09, the Company has changed the timing of when it records retail promotions and rebates. The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheets as of July 1, 2018 for the adoption of the new revenue standard was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

 

Adjustments

 

Balance as of

 

 

 

June 30, 2018

 

Due to ASC 606

 

July 1, 2018

 

Accrued expenses and other current liabilities

    

$

27,866

    

$

4,029

    

$

31,895

 

Deferred income taxes

 

 

1,427

 

 

(938)

 

 

489

 

Accumulated deficit

 

 

(61,717)

 

 

(3,091)

 

 

(64,808)

 

 

The following table summarizes the impact of ASU 2014-09 on the Company's Condensed Consolidated Statement of Operations for the three months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances without

 

Statement of Operations

 

As Reported

 

Effect of Change

 

adoption of ASC 606

 

Net sales

    

$

93,641

    

$

517

    

$

94,158

 

Income before income tax expense

 

 

10,691

 

 

517

 

 

11,208

 

Income tax expense

 

 

2,226

 

 

116

 

 

2,342

 

Net income

 

 

8,465

 

 

401

 

 

8,866

 

 

The following table summarizes the impact of ASU 2014-09 on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances without

 

Balance Sheet

 

As Reported

 

Effect of Change

 

adoption of ASC 606

 

Accrued expenses and other current liabilities

    

$

29,555

    

$

(4,385)

    

$

25,170

 

Income taxes

 

 

1,626

 

 

1,054

 

 

2,680

 

Accumulated deficit

 

 

(56,343)

 

 

3,492

 

 

(52,851)

 

 

Recently Issued Accounting Standards — In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This guidance modifies the disclosure requirements on fair value measurements in Topic 820 by removing disclosures regarding transfers between Level 1 and Level 2 of the fair value hierarchy, by modifying the measurement uncertainty disclosure, and by requiring additional disclosures for Level 3 fair value measurements, among others. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the effect that the adoption of this new guidance is expected to have on our financial position or results of operations and related disclosures.

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This guidance provides clarity and reduces complexity when applying the guidance in Topic 718, Compensation—Stock Compensation to the term or condition of share-based payments to nonemployees. ASU 2018-07 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. The Company is currently evaluating the effect that the adoption of this new guidance is expected to have on our financial position or results of operations and related disclosures. This guidance will be adopted for the fiscal year beginning July 1, 2019.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test. Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019. The Company is currently evaluating the effect that the adoption of this new guidance is expected to have on its financial position or results of operations and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-11 providing for an additional transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact this new guidance is expected to have on its financial position or results of operations and related disclosures.

 

3.REVENUE RECOGNITION

 

The following table presents the Company’s revenue by major product categories for the three months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

MasterCraft

    

NauticStar

    

Total

 

Major Product Categories

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

72,376

 

$

17,123

 

$

89,499

 

Parts

 

 

3,581

 

 

280

 

 

3,861

 

Other revenue

 

 

277

 

 

 4

 

 

281

 

Total

 

$

76,234

 

$

17,407

 

$

93,641

 

 

 

The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to a customer. For the majority of sales, this occurs when the product is released to the carrier responsible for transporting it to a customer. The Company typically receives payment within 5 days of shipment. Revenue

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

is measured as the amount of consideration it expects to receive in exchange for a product. The consideration recognized represents the amount specified in a contract with a customer, net of estimated dealer and retail sales incentives we reasonably expect to pay. The estimated liability and reduction in revenue for sales incentives is recorded at the time of sale. We estimate the amount of sales incentives based on historical data for specific boat models adjusted for forecasted sales volume, product mix, customer behavior and assumptions concerning market conditions. Subsequent adjustments to incentive estimates are possible as facts and circumstances change over time.

 

A contract liability is created when customers prepay for goods prior to the Company transferring those goods to the customer. The contract liability is reduced once control of the goods is transferred to the customer. The difference between the opening and closing balances of the Company's contract liabilities primarily results from the timing difference between the Company's performance and the point at which we receive pre-payment from the customer. The Company’s contract liabilities were $1,214 and $2,194 as of September 30, 2018 and June 30, 2018, respectively and are classified as “Accrued expenses and other current liabilities” in its Condensed Consolidated Balance Sheets. 

 

The Company has excluded sales and other taxes assessed by a governmental authority in connection with revenue-producing activities from the determination of the transaction price for all contracts. The Company has elected to account for shipping and handling costs associated with outbound freight after control over a product has transferred to a customer as a fulfillment cost that are included in cost of sales. As contracts are fulfilled within one year from the date of the contract, revenue adjustments for a potential financing component or the costs to obtain the contract are not made. The Company applied the practical expedient in ASU 2014-09 and has not disclosed information about remaining performance obligations that have original expected durations of 12 months or less.

 

 

 

4. ACQUISITION

 

On October 2, 2017, the Company completed its acquisition of NauticStar which unites two leading and complementary boat brands and adds to its product diversity. The purchase price was $80,511, including customary adjustments for the amount of working capital in the acquired business at the closing date. A portion of the purchase price was deposited into an escrow account in order to secure certain post-closing obligations of the former members of NauticStar. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations.

 

The total consideration has been allocated to the assets acquired and liabilities assumed based on estimates of their fair values as of the date of acquisition. The Company has recorded the tangible and intangible assets acquired and liabilities assumed based on their fair values as of October 2, 2017. The measurements of fair value were based upon estimates utilizing the assistance of third party valuation specialists.

 

The following table summarizes the purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed of NauticStar at the acquisition date:

 

 

 

 

 

Purchase Price:

    

 

 

Cash paid, net of cash acquired

$

80,511

 

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

 

 

 

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:

    

 

 

Accounts receivable

$

1,773

 

Inventories

 

6,358

 

Other current assets

 

94

 

Indemnification asset

 

166

 

Deferred income taxes

 

83

 

Property, plant and equipment

 

4,945

 

Identifiable intangible assets

 

36,000

 

Current liabilities

 

(4,858)

 

Unrecognized tax positions

 

(249)

 

Fair value of assets acquired and liabilities assumed

 

44,312

 

Goodwill

 

36,199

 

 

$

80,511

 

 

Pro Forma Financial Information:

 

The following unaudited pro forma consolidated results of operations for the three months ended October 1, 2017 assumes that the acquisition of NauticStar occurred as of July 1, 2017. The unaudited pro forma financial information combines historical results of MasterCraft and NauticStar, with adjustments for depreciation and amortization attributable to acquired tangible and intangible assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2018 or the results that may occur in the future:

 

 

 

 

 

 

 

Three Months Ended

 

 

    

October 1, 2017

    

Net sales

 

$

83,118

 

Net income

 

$

6,495

 

Basic earnings per share

 

$

0.35

 

Diluted earnings per share

 

$

0.35

 

 

5.INVENTORIES

 

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

September 30, 2018

    

    June 30, 2018    

 

Raw materials and supplies

 

$

11,311

 

$

9,587

 

Work in process

 

 

3,138

 

 

2,822

 

Finished goods

 

 

8,261

 

 

9,026

 

Obsolescence reserve

 

 

(981)

 

 

(968)

 

Total inventories

 

$

21,729

 

$

20,467

 

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

September 30, 2018

    

    June 30, 2018    

 

Prepaid photo shoot

 

$

747

 

$

273

 

Insurance

 

 

637

 

 

974

 

Trade show deposits

 

 

204

 

 

111

 

Interest rate cap

 

 

527

 

 

525

 

Other

 

 

1,472

 

 

1,412

 

Total prepaid expenses and other current assets

 

$

3,587

 

$

3,295

 

 

 

 

 

7.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

September 30, 2018

    

    June 30, 2018    

 

Warranty

 

$

13,454

 

$

13,077

 

Self-insurance

 

 

749

 

 

703

 

Compensation and related accruals

 

 

2,076

 

 

2,995

 

Inventory repurchase contingent obligation

 

 

1,202

 

 

1,274

 

Interest

 

 

2,000

 

 

1,472

 

Dealer incentives

 

 

7,408

 

 

4,628

 

Other

 

 

2,666

 

 

3,717

 

Total accrued expenses and other current liabilities

 

$

29,555

 

$

27,866

 

 

The following table provides a roll forward of the accrued warranty liability:

 

 

 

 

 

 

 

 

Beginning balance - June 30, 2018

 

$

13,077

Provisions

 

 

1,769

Payments made

 

 

(2,249)

Adjustments to preexisting warranties

 

 

857

Ending balance - September 30, 2018

 

$

13,454

 

 

 

8. GOODWILL AND OTHER INTANGIBLE ASSETS

 

The carrying amounts of goodwill as of September 30, 2018 and June 30, 2018, by the Company’s reportable segments, were as follows:

 

 

 

 

 

 

 

 

 

  

September 30, 2018

    

    June 30, 2018    

Goodwill attributable to MasterCraft

 

$

29,593

 

$

29,593

Goodwill attributable to NauticStar

 

 

36,199

 

 

36,199

Total goodwill

 

$

65,792

 

$

65,792

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

As of September 30, 2018, and June 30, 2018, details of the Company’s intangible assets other than goodwill were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

 

Gross

 

 

 

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

Dealer network

    

$

21,590

    

$

(3,074)

    

$

18,516

 

Total amortizable intangible assets

 

 

21,590

 

 

(3,074)

 

 

18,516

 

Trade names

 

 

32,000

 

 

 —

 

 

32,000

 

Total intangible assets

 

$

53,590

 

$

(3,074)

 

$

50,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

Gross

 

 

 

Net

 

 

 

Carrying

Accumulated

 

Carrying

 

 

 

Amount

Amortization

 

Amount

 

Dealer network

    

$

21,590

    

$

(2,544)

    

$

19,046

 

Total amortizable intangible assets

 

 

21,590

 

 

(2,544)

 

 

19,046

 

Trade names

 

 

32,000

 

 

 —

 

 

32,000

 

Total intangible assets

 

$

53,590

 

$

(2,544)

 

$

51,046

 

Amortization expense recognized on all amortizable intangibles was $530 and $27 for the three months ended September 30, 2018 and October 1, 2017, respectively.

The estimated future amortization of definite-lived intangible assets is as follows:

 

 

 

 

 

Fiscal years ending June 30,

 

 

 

 

Remainder of 2019

 

$

1,577

 

2020

 

 

2,107

 

2021

 

 

2,107

 

2022

 

 

2,107

 

2023

 

 

2,107

 

and thereafter

 

 

8,511

 

Total

 

$

18,516

 

 

9. FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

 

The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

 

 Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Asset — interest rate cap

 

$

 —

 

$

527

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

 

 Fair Value Measurements Using

 

 

 

Level 1

 

Level 2

 

Level 3

 

Asset — interest rate cap

    

$

    

$

525

    

$

 —

 

 

The interest rate cap is valued utilizing pricing models taking into account inputs such as interest rates and notional amounts. In November 2017, the Company entered into an interest rate cap agreement with its existing lender to cap its London Interbank Offered Rate (“LIBOR”) at 2% for $34,594 of outstanding principal on its long-term debt. Fair value measurements for the Company’s interest rate cap are classified under Level 2 because such measurements are based on significant other observable inputs. There were no transfers of assets or liabilities between Level 1 and Level 2 during the three months ended September 30, 2018.

 

 

10. LONG-TERM DEBT

 

Long-term debt outstanding is as follows:

 

 

 

 

 

 

 

 

 

 

  

September 30, 2018

  

    June 30, 2018    

 

Revolving credit facility

 

$

 —

 

$

 —

 

Senior secured term loan

 

 

75,000

 

 

76,656

 

Debt issuance costs on term loan

 

 

(1,395)

 

 

(1,500)

 

Total debt

 

 

73,605

 

 

75,156

 

Less current portion of long-term debt

 

 

5,921

 

 

5,475

 

Less current portion of debt issuance costs on term loan

 

 

(400)

 

 

(406)

 

Long-term debt — less current portion

 

$

68,084

 

$

70,087

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

On October 2, 2017, the Company entered into a Third Amended and Restated Credit and Guaranty Agreement with Fifth Third Bank, as the agent and letter of credit issuer, and the lenders party thereto (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement replaced and paid off the Company’s Second Amended and Restated Credit Agreement, dated May 27, 2016. The Third Amended Credit Agreement provides the Company with a $145,000 senior secured credit facility, consisting of a $115,000 term loan (the “Third Term Loan”) and a $30,000 revolving credit facility (the “Revolving Credit Facility”).

   

The Third Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.75% to 1.75% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.75% to 2.75%, in each case based on the Company’s senior leverage ratio. Based on the Company’s current senior leverage ratio, the applicable margin for loans accruing interest at the prime rate is 1.00% and the applicable margin for loans accruing interest at LIBOR is 2.00%. The Third Term Loan will mature and all remaining amounts outstanding thereunder will be due and payable on October 2, 2022. During the three months ended September 30, 2018, the Company made voluntary payments on the Third Term Loan of $660 out of excess cash. As of September 30, 2018 and June 30, 2018, the Company’s unamortized deferred financing costs related to the Third Term Loan were $1,395 and $1,499, respectively. These costs are being amortized over the term of the Third Amended Credit Agreement. The Company was in compliance with all of its debt covenants under its Third Amended Credit Agreement.

 

As of September 30, 2018, the Company had no borrowings outstanding on its Revolving Credit Facility. As of September 30, 2018 and June 30, 2018, the Company had net availability of $30,000. The Company’s unamortized deferred financing costs on its Revolving Credit Facility were $361 and $383 as of September 30, 2018 and June 30, 2018, respectively.

 

On October 1, 2018, the Company entered into the Fourth Amended Credit Agreement (as defined herein). See Note 15.

 

11. INCOME TAXES

 

The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items.  During the three months ended September 30, 2018, the Company’s effective tax rate was 20.8%.  The differences in the Company’s effective tax rate in comparable historical periods presented and the statutory federal tax rate of 21% primarily relate to a permanent benefit associated with the foreign derived intangible income deduction and the inclusion of the state tax rate in the overall effective rate. The Company’s consolidated interim effective tax rate for the three months ended September 30, 2018 is lower compared the 33.4% effective tax rate for the three months ended October 1, 2017, primarily due to the enactment of the Tax Cuts and Jobs Act.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

12. EARNINGS PER SHARE

 

The following table sets forth the computation of the Company’s earnings per share:

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

 

 

    

September 30, 2018

    

October 1, 2017

    

 

Net income

 

$

8,465

 

$

7,046

 

 

Weighted average common shares — basic

 

 

18,646,039

 

 

18,615,100

 

 

Dilutive effect of assumed exercises of stock options

 

 

52,353

 

 

30,943

 

 

Dilutive effect of assumed restricted share awards\units

 

 

70,372

 

 

40,583

 

 

Weighted average outstanding shares — diluted

 

 

18,768,764

 

 

18,686,626

 

 

Basic earnings per share

 

$

0.45

 

$

0.38

 

 

Diluted earnings per share

 

$

0.45

 

$

0.38

 

 

 

For the three months ended September 30, 2018 and October 1, 2017, there were no anti-dilutive weighted average shares to be excluded from the computation of diluted earnings per share.

 

13.STOCK-BASED COMPENSATION

 

During fiscal year ended June 30, 2015 the Company adopted the Amended and Restated MCBC Holdings, Inc. 2015 Incentive Award Plan (“2015 Plan”) in order to facilitate the grant of cash and equity incentives to non-employee directors, employees, and consultants of the Company and certain of its affiliates and to enable the Company and certain of its affiliates to obtain and retain the services of these individuals, which is essential to our long-term success. In July 2015, the Board amended and restated the Company’s 2015 Plan which became effective just prior to the closing of the Company’s initial public offering to increase the shares available for issuance under the 2015 Plan.

 

In July 2018, the Company granted to certain employees 31,207 shares of restricted stock awards (“RSAs”) under the 2015 Plan. The grant date fair value of these awards was $830, which is based on the market value of the Company’s common stock on the grant date. The RSAs will vest in three equal annual installments. In addition, the Company granted 12,414 RSAs under the 2015 Plan to certain non-employee directors for their annual equity award at a per share fair value of $26.59. In August 2018, the Company granted 262 of RSAs to certain employees under the 2015 Plan at a per share fair value of $25.27.

 

In August 2018, the Company granted 33,082 performance stock units (“PSUs”) under its 2015 Plan to certain employees. The grant date fair value of these awards was $1,040, which is based on long-term market performance targets using a Monte Carlo Simulation model, which considers the likelihood of all possible outcomes and determines the number of shares expected to vest under each simulation and the expected stock price at that level. The awards will be earned based upon the Company’s attainment of certain performance criteria over a three-year period. The performance period for the awards is a three-year period commencing July 1, 2018 and ending June 30, 2021.  Following the determination of the Company’s achievement with respect to the performance criteria, the amount of shares awarded will be subject to adjustment based upon the application of a total shareholder return (“TSR”) modifier.

 

During the three months ended September 30, 2018 and October 1, 2017, the Company recognized $384 and $264, respectively in stock-based compensation expense.

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

14.SEGMENT INFORMATION

 

The Company designs, manufactures, and markets recreational premium performance sport boats and outboard boats and has two operating and reportable segments: MasterCraft and NauticStar. The Company’s segments are defined by management’s reporting structure, product brands, and distribution channels. The MasterCraft product brand consists of recreational performance boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. The Company distributes the MasterCraft product brand through its dealer network. The NauticStar product brand consists of outboard boats primarily used for salt water fishing, and general recreational boating. The Company distributes the NauticStar product brand through its dealer network. The Company’s chief operating decision maker (“CODM”) regularly reviews the operating performance of each product brand including measures of performance based on income from operations. The Company considers each of the product brands to be an operating segment and has further concluded that presenting disaggregated information of these two operating segments provides meaningful information as certain economic characteristics are dissimilar as well as the characteristics of the customer base served.

 

Management evaluates performance based on business segment operating income. The Company files a consolidated income tax return and does not allocate income taxes and other corporate level expenses including interest to operating segments.

 

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

The following tables present financial information for the Company’s reportable segments for the three months ended September 30, 2018, and the Company’s financial position at September 30, 2018 and June 30, 2018, respectively. All amounts for the three months ended October 1, 2017 pertain exclusively to the MasterCraft segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

    

MasterCraft

    

NauticStar

    

Consolidated

 

Net sales

 

$

76,234

 

$

17,407

 

$

93,641

 

Cost of sales

 

 

55,023

 

 

15,415

 

 

70,438

 

Operating income

 

 

11,530

 

 

81

 

 

11,611

 

Depreciation and amortization

 

 

805

 

 

630

 

 

1,435

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

As of June 30, 2018

Assets

 

 

 

 

 

 

MasterCraft

 

$

95,357

 

$

89,058

NauticStar

 

 

86,889

 

 

87,866

Total Assets(a)

 

$

182,246

 

$

176,924

 


(a)

Total assets as of September 30, 2018 and as of June 30, 2018 include goodwill of $29,593 and $36,199 related to MasterCraft and NauticStar, respectively.

 

15. SUBSEQUENT EVENTS

 

Crest Acquisition

 

On October 1, 2018, the Company completed the acquisition of Crest Marine LLC (“Crest”) for the aggregate purchase price of approximately $80,000 (the “Acquisition”). The aggregate purchase price is subject to certain customary adjustments for the amount of working capital in the business at the closing date. A portion of the purchase price was deposited into escrow accounts in order to secure certain post-closing obligations of the existing members. Due to the timing of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed.

 

Fourth Amended and Restated Credit Agreement

 

On October 1, 2018, the Company and its wholly-owned subsidiaries (the “Borrowers”) entered into a Fourth Amended and Restated Credit and Guaranty Agreement by and among the Borrowers, the Company, as a guarantor, Fifth Third Bank, as the agent and letter of credit issuer, and the lenders party thereto (the “Fourth Amended Credit Agreement”). The Fourth Amended Credit Agreement provides the Company with a $190,000 senior secured credit facility, consisting of a $75,000 term loan, a $80,000 term loan (the “Fourth Term Loans”) and a $35,000 revolving credit facility.

 

The Fourth Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.5% to 1.50% or at an adjusted LIBOR plus an applicable margin ranging from 1.5% to 2.50%, in each case based on the Company’s senior leverage ratio. Based on the Company’s current net leverage ratio, the applicable margin for loans accruing interest at the prime rate is 1.00% and the applicable margin for loans accruing interest at LIBOR

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MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

is 2.00%. In connection with the Fourth Amended Credit Agreement, the Company paid $808 of related fees. The Fourth Term Loans will mature and all remaining amounts outstanding thereunder will be due and payable on October 1, 2023.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the successful integration of Crest Marine LLC into our business and the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” above and in “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

Overview

 

We are a world-renowned innovator, designer, manufacturer, and marketer of premium performance sport boats and outboard boats, with a leading market position in the U.S., a strong international presence, and dealers in 46 countries around the world. Our boats are used for water skiing, wakeboarding, wake surfing, and fishing, as well as general recreational boating. We operate in two reportable segments: MasterCraft and NauticStar. We believe that MasterCraft is the most recognizable brand name in the performance sport boat category. NauticStar is a leading manufacturer and distributor of high-quality outboard bay boats, deck boats and offshore center console boats. NauticStar’s product portfolio provides diversification into the outboard category, the largest powerboat industry category in terms of retail units.

 

We sell our boats through an extensive network of independent dealers in North America and internationally. Through our MasterCraft segment, we partner with 102 North American dealers with 172 locations and 45 international dealers with 76 locations throughout the rest of the world. Through our NauticStar segment, we partner with 81 North American dealers with 99 locations and one international dealer with a single location. For the three months ended September 30, 2018, 91.7% of our net sales were generated from North America and 8.3% of our net sales were generated from outside of North America.

 

Outlook

 

Our sales are impacted by general economic conditions, which affect the demand for our products, the demand for optional features, the availability of credit for our dealers and retail consumers, and overall consumer confidence. While the performance sport boat and outboard categories have grown in recent years, new unit sales remain significantly below historical peaks. While there is no guarantee that our market will continue to grow, we believe that increased consumer demand, limited used boat inventory and the superior quality, performance, styling, and value proposition of our recently released boats present a long runway for future growth. Our revamped manufacturing and product development processes have led to operational efficiencies which we expect will continue to drive margin expansion.

 

Recent Transactions

 

Crest Acquisition

 

On October 1, 2018, we completed the acquisition of Crest, a leading vertically integrated manufacturer of high-quality pontoon boats in the United States. Crest is one of the top producers of innovative, high-quality pontoon boats ranging from 20 to 29 feet. The aggregate purchase price was $80 million and is subject to customary adjustments for the amount

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of working capital in the business at the closing date. Due to the timing of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed.

 

Fourth Amended and Restated Credit Agreement

 

On October 1, 2018, we entered into the Fourth Amended Credit Agreement which provides the Company with a $190 million senior secured credit facility, consisting of a $75 million term loan, a $80 million term loan and a $35 million revolving credit facility.

 

Seasonality and Other Factors That Affect Our Business

 

Our operating results are subject to annual and seasonal fluctuations resulting from a variety of factors, including:

 

·

seasonal variations in retail demand for boats, with a significant majority of sales occurring during peak boating season, which we attempt to manage by providing incentive programs and floor plan subsidies to encourage dealer purchases throughout the year, which may include offering off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to encourage retail demand;

 

·

product mix, which is driven by boat model mix and higher option order rates; while product mix does not significantly affect margins, sales of larger boats and boats with optional content produce higher absolute profits;

 

·

inclement weather, which can affect production at our manufacturing facilities as well as consumer demand;

 

·

competition from recreational boat manufacturers;

 

·

general economic conditions; and

 

·

foreign currency exchange rates.

 

Key Performance Measures

 

From time to time we use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These key performance measures include:

 

·

Unit volume — We define unit volume as the number of our boats sold to our dealers during a period.

 

·

Net sales per unit — We define net sales per unit as net sales divided by unit volume.

 

·

Gross margin — We define gross margin as gross profit divided by net sales, expressed as a percentage.

 

·

Adjusted EBITDA — We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, and amortization, as further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations. For a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Measures” below.

 

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·

Adjusted net income — We define Adjusted net income as net income excluding income taxes adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations and an adjustment for income tax expense at a normalized annual effective tax rate. For a reconciliation of Adjusted net income to net income, see “Non-GAAP Measures” below.

 

Components of Results of Operations

 

Net Sales

 

We generate sales from the sale of boats, trailers, and accessories to our dealers. The substantial majority of our net sales are derived from the sale of boats, including optional features included at the time of the initial wholesale purchase of the boat. Net sales consist of the following:

 

·

Gross sales, which are derived from:

 

·

Boat and trailers sales — sales of boats and boat trailers to our dealer network, transportation charges to our dealer network. In addition, nearly all of our boat sales include optional feature upgrades, which increase the average selling price of our boats;

 

·

Part and accessories sales —  sales of replacement and aftermarket boat parts and accessories, shipping fees to customers; and

 

·

Other revenues — royalties and garment sales.

 

·

Net of:

 

·

Dealer programs and flooring subsidies — incentives, including rebates and subsidized flooring, we provide to our dealers to drive volume and level dealer purchases throughout the year. If a dealer meets certain volume levels over the course of the year during certain defined periods, the dealer will be entitled to a specified rebate. These rebates change annually and may include volume and exclusivity incentives. Dealers who participate in our floor plan financing program may be entitled to have their flooring costs subsidized by us to promote dealer orders in the offseason.

 

Effective July 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), a principle-based accounting guidance for revenue recognition. The implementation of ASU 2014-09 impacted the timing of when we record retail promotions and rebates associated with boats in the dealer’s inventory.  While previously such retail promotions and rebates were recorded when the rebate is communicated to the dealer, starting in the first quarter of fiscal 2019 we record estimated discounts as a reduction in net sales at the time of sale to the dealer.

 

Cost of Sales

 

Our cost of sales includes all of the costs to manufacture our products, including raw materials, components, supplies, direct labor, and factory overhead. For components and accessories manufactured by third-party vendors, our costs are the amounts invoiced to us by the vendors. Cost of sales includes shipping and handling costs, depreciation expense related to manufacturing equipment and facilities, and warranty costs associated with the repair or replacement of our boats under warranty.

 

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Operating Expenses

 

Our operating expenses include selling and marketing costs, general and administrative costs, and amortization costs. These items include personnel and related expenses, non-manufacturing overhead, and various other operating expenses. Further, selling and marketing expenditures include the cost of advertising and marketing materials. General and administrative expenses include, among other things, salaries, benefits, and other personnel related expenses for employees engaged in product development, engineering, finance, information technology, human resources, and executive management. Other costs include outside legal and accounting fees, acquisition or integration related expenses, investor relations, risk management (insurance), and other administrative costs.

 

Other Expense

 

Other expense includes interest expense. Interest expense consists of interest charged under our credit facilities, including deferred financing fees.

 

Income Tax Expense

 

Our accounting for income tax expense reflects management’s assessment of future tax assets and liabilities based on assumptions and estimates for timing, likelihood of realization, and tax laws existing at the time of evaluation. We record a valuation allowance, when appropriate, to reduce deferred tax assets to an amount that is more likely than not to be realized.

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Results of Operations

 

The table below sets forth our results of operations for the periods presented. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 30, 2018

    

October 1, 2017

    

 

 

(Unaudited)

 

 

 

(Dollars in thousands)

 

Consolidated statement of operations:

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

93,641

 

$

65,049

 

Cost of sales

 

 

70,438

 

 

46,886

 

Gross profit

 

 

23,203

 

 

18,163

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

 

 

4,290

 

 

2,737

 

General and administrative

 

 

6,772

 

 

4,335

 

Amortization of intangible assets

 

 

530

 

 

27

 

Total operating expenses

 

 

11,592

 

 

7,099

 

Operating income

 

 

11,611

 

 

11,064

 

Other expense:

 

 

 

 

 

 

 

Interest expense, net

 

 

920

 

 

491

 

Income before income tax expense

 

 

10,691

 

 

10,573

 

Income tax expense

 

 

2,226

 

 

3,527

 

Net income

 

$

8,465

 

$

7,046

 

Additional financial and other data:

 

 

 

 

 

 

 

Unit volume:

 

 

 

 

 

 

 

MasterCraft

 

 

848

 

 

775

 

NauticStar

 

 

426

 

 

 —

 

MasterCraft sales

 

$

76,234

 

$

65,049

 

NauticStar sales

 

 

17,407

 

 

 —

 

Consolidated sales

 

$

93,641

 

$

65,049

 

Per Unit:

 

 

 

 

 

 

 

MasterCraft sales

 

$

90

 

$

84

 

NauticStar sales

 

 

41

 

 

 —

 

Consolidated sales

 

$

74

 

$

84

 

Gross margin

 

 

24.8

%  

 

27.9

%  

 

Three Months Ended September 30, 2018 Compared to Three Months Ended October 1, 2017

 

Net Sales.  Total net sales for the three months ended September 30, 2018 were $93.6 million, reflecting an increase of $28.6 million, or 44.0%, compared to $65.0 million for the three months ended October 1, 2017. The inclusion of NauticStar accounts for an increase of 26.8%, or $17.4 million. The remaining increase of 17.2%, or $11.2 million, is attributable to MasterCraft and is driven by an increase in sales volume, favorable product mix and price increases. This increase in gross sales was partially offset by increased retail rebate expense due to the timing impact from new revenue recognition guidance, as well as by higher sales discounts given to mitigate an increase in import tariffs impacting our Canadian and European dealers.

 

Gross Profit.  For the three months ended September 30, 2018, our gross profit increased $5.0 million, or 27.7%, to $23.2 million compared to $18.2 million for the three months ended October 1, 2017. MasterCraft contributed $3.0 million to the increase in gross profit and the inclusion of NauticStar accounted for $2.0 million of the increase. On a consolidated basis, gross margin decreased to 24.8% for the three months ended September 30, 2018 compared to 27.9% for the three months ended October 1, 2017. The decrease was primarily due to the dilutive effect from the inclusion of NauticStar,

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higher warranty costs, and higher retail sales incentives due to the timing impact from the new revenue recognition guidance, partially offset by growth in MasterCraft unit sales volume, favorable product mix, and price increases.

 

Operating Expenses.  Operating expenses increased overall and as a percentage of net sales during the three months ended September 30, 2018, compared to the three months ended October 1, 2017. Selling and marketing expense increased $1.6 million, or 56.7%, to $4.3 million for the three months ended September 30, 2018 compared to $2.7 million for the three months ended October 1, 2017. This increase was mainly due to the timing of MasterCraft’s annual dealer meeting and the inclusion of NauticStar. General and administrative expense increased by $2.5 million, or 56.2%, to $6.8 million for the three months ended September 30, 2018 compared to $4.3 million for the three months ended October 1, 2017. The increase was mainly due to an increase in compensation costs from an investment in headcount to support growth initiatives, new brand start-up costs, and higher legal and advisory fees related to our acquisition of Crest Marine LLC incurred during the three months ended September 30, 2018, compared to NauticStar acquisition-related costs incurred during the three months ended October 1, 2017. Additionally, the inclusion of NauticStar accounts for $0.9 million increase in general and administrative expenses.

 

Other Expense.  Interest expense increased $0.4 million for the three months ended September 30, 2018 compared to the three months ended October 1, 2017. The increase is due to an increase in our term loan balance when compared to the principal balance owed on our term loan during the three months ended October 1, 2017.

 

Income Tax Expense.    Our income tax expense was $2.2 million for the three months ended September 30, 2018. Our consolidated interim effective tax rate for the three months ended September 30, 2018 was 20.8%. The differences in our effective tax rate in comparable historical periods presented and the statutory federal tax rate of 21% primarily related to a permanent benefit associated with the foreign derived intangible income deduction and the inclusion of the state tax rate in the overall effective rate. Our consolidated interim effective tax rate for the three months ended September 30, 2018 decreased 12.6% compared to the 33.4% effective tax rate for the three months ended October 1, 2017, primarily due to the enactment of the Tax Reform Act.

 

 

Non-GAAP Measures

 

We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations, including acquisition related expenses associated with the acquisitions of NauticStar and Crest, our stock-based compensation expense, and new brand startup costs. We define Adjusted net income as net income adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations, such as acquisition expenses associated with the acquisitions of NauticStar and Crest (including intangible amortization associated with the acquisitions, including prior year acquisitions), our stock-based compensation expense, new brand startup costs and an adjustment for income tax expense at a normalized annual effective tax rate.  We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of sales. Adjusted EBITDA, Adjusted net income and Adjusted EBITDA margin are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, which we refer to as GAAP. Adjusted EBITDA and Adjusted net income are not measures of performance in accordance with GAAP and should not be considered as an alternative to net income or operating cash flows determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow for management’s discretionary use. We believe that the inclusion of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted net income is appropriate to provide additional information to investors because securities analysts, noteholders and other investors use these non GAAP financial measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted net income

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to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP alone measures.  We believe Adjusted net income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash and non-recurring items.  Adjusted EBITDA and Adjusted net income have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

·

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;

·

Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

·

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

·

Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes;

·

Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and

·

Adjusted net income and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our ongoing operations, but may nonetheless have a material impact on our results of operations.

 

In addition, because not all companies use identical calculations, our presentation of Adjusted EBITDA and Adjusted net income may not be comparable to similarly titled measures of other companies, including companies in our industry. Furthermore, certain non-GAAP financial measures presented have been provided for comparison purposes only and these non-GAAP financial measures may change in the future based on our calculations and forecasts regarding the interpretation of certain recent changes to U.S. federal income tax law and anticipated impacts on our financial results.

 

The following table sets forth a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

    

September 30, 2018

    

October 1, 2017

 

 

(Unaudited)

 

 

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

Net income

    

$

8,465

 

$

7,046

Income tax expense

 

 

2,226

 

 

3,527

Interest expense, net

 

 

920

 

 

491

Depreciation and amortization

 

 

1,435

 

 

732

EBITDA

 

 

13,046

 

 

11,796

Transaction expense(a)

 

 

1,318

 

 

881

New brand startup costs(b)

 

 

280

 

 

19

Stock-based compensation

 

 

384

 

 

264

Adjusted EBITDA

 

$

15,028

 

$

12,960

Adjusted EBITDA Margin(c)

 

 

16.0%

 

 

19.9%

 


 

(a)

Represents fees, expenses and integration costs associated with our acquisition of Crest and NauticStar.

 

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(b)

Represents startup costs associated with a completely new boat brand in a segment of the market neither MasterCraft nor NauticStar serves.

 

(c)

We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of net sales.  

 

The following table sets forth a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted net income for the periods indicated:

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 30, 2018

 

October 1, 2017

 

 

(Unaudited)

 

 

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

 

Net income

$

8,465

    

$

7,046

    

Income tax expense

 

2,226

 

 

3,527

 

Transaction expense(a)

 

1,821

 

 

881

 

New brand startup costs(b)

 

280

 

 

19

 

Stock-based compensation

 

384

 

 

264

 

Adjusted Net Income before income taxes

 

13,176

 

 

11,737

 

Adjusted income tax expense(c)

 

2,965

 

 

3,404

 

Adjusted Net Income

$

10,211

    

$

8,333

 

 

 

 

 

 

 

 

Pro-forma Adjusted Net Income per common share

 

 

 

 

 

 

Basic

 

0.55

 

 

0.45

 

Diluted

 

0.54

 

 

0.44

 

Pro-forma weighted average shares used for the computation of:

 

 

 

 

 

 

Basic Adjusted Net Income per share(d)

 

18,650,729

 

 

18,619,834

 

Diluted Adjusted Net Income per share(d)

 

18,879,153

 

 

18,798,236

 

 


(a)

Represents fees, expenses and integration costs associated with our acquisition of Crest and NauticStar, including $503 of amortization associated with intangibles acquired in connection with the acquisition of NauticStar.

 

(b)

Represents startup costs associated with a completely new boat brand in a segment of the market neither MasterCraft nor NauticStar serves.

 

(c)

Reflects income tax expense at an estimated annual effective income tax rate of 22.5% for the current period and 29% for the prior-year period.

 

(d)

The weighted average shares used for computation of pro-forma diluted earnings per common share gives effect to 70,691 shares of restricted stock awards, 92,379 performance stock units and 65,354 shares for the dilutive effect of stock options.

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The following table shows the reconciliation of net income per diluted share to Adjusted net income per diluted pro-forma weighted average share for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30, 2018

 

October 1, 2017

 

 

 

(Unaudited)

 

Net income per diluted share

 

 

0.45

 

 

0.38

 

Impact of adjustments:

 

 

 

 

 

 

 

Income tax expense

 

 

0.12

 

 

0.19

 

Transaction expense(a)

 

 

0.10

 

 

0.05

 

New brand startup costs(b)

 

 

0.01

 

 

 -

 

Stock-based compensation

 

 

0.02

 

 

0.01

 

Adjusted Net Income per diluted share before income taxes

 

 

0.70

 

 

0.63

 

Impact of adjusted income tax expense on net income per diluted share before income taxes(c)

 

 

(0.16)

 

 

(0.18)

 

Impact of increased share count(d)

 

 

 -

 

 

(0.01)

 

Adjusted Net Income per diluted pro-forma weighted average share

 

 

0.54

 

 

0.44

 

 

 


(a)

Represents fees, expenses and integration costs associated with our acquisition of Crest and NauticStar, including $503 of amortization associated with intangibles acquired in connection with the acquisition of NauticStar.

 

(b)

Represents startup costs associated with a completely new boat brand in a segment of the market neither MasterCraft nor NauticStar serves.

 

(c)

Reflects income tax expense at an estimated annual effective income tax rate of 22.5% for the current period and 29% for the prior-year period.

 

(d)

Reflects impact of increased share counts giving effect to the exchange of all restricted stock awards, the vesting of all performance stock units and for the dilutive effect of stock options included in outstanding shares.

 

 

Liquidity and Capital Resources

 

Our primary liquidity and capital resource needs are to finance working capital and fund capital expenditures. Our principal source of funds is cash generated from operating activities. As of September 30, 2018, we had borrowing availability of $30.0 million under our revolving credit facility. We believe our cash from operations, along with borrowings under our

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revolving credit facility, will be sufficient to provide for our working capital and capital expenditures for at least the next 12 months. The following table summarizes the cash flows from operating, investing, and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 30, 2018

    

October 1, 2017

 

 

 

(Unaudited)

 

 

(Dollars in thousands)

Total cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

3,367

 

$

10,166

 

Investing activities

 

 

(3,422)

 

 

(505)

 

Financing activities

 

 

(1,761)

 

 

(1,019)

 

Net increase (decrease) in cash

 

$

(1,816)

 

$

8,642

 

 

Operating Activities

 

Our net cash provided by operating activities decreased by $6.8 million, or 66.9%, for the three months ended September 30, 2018 compared to the three months ended October 1, 2017, to $3.4 million from $10.2 million. This decrease was primarily due to an increase in cash paid for taxes and interest, a decrease of $9.1 million from changes in operating assets and liabilities, partially offset by higher net income, which was driven primarily by higher sales at MasterCraft and the inclusion of NauticStar.

 

Investing Activities

 

Net cash used in investing activities increased by $2.9 million for the three months ended September 30, 2018 compared to the three months ended October 1, 2017. This increase was due to increased capital expenditures for manufacturing infrastructure and expansion activities, molds, and equipment.

 

Financing Activities

 

Net cash used in financing activities increased by $0.7 million for the three months ended September 30, 2018 compared to the three months ended October 1, 2017. This increase was due to payments on our term loan facility,

 

Fourth Amended and Restated Credit Agreement

 

On October 1, 2018, we entered into the Fourth Amended Credit Agreement providing the Company with a $190 million senior secured credit facility, consisting of a $75 million term loan, a $80 million term loan and a $35 million revolving credit facility.

 

The Fourth Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.50% to 1.50% or at an adjusted LIBOR plus an applicable margin ranging from 1.50% to 2.50%, in each case based on the Company’s senior leverage ratio. Based on the Company’s current net leverage ratio, the applicable margin for loans accruing interest at the prime rate is 1.00% and the applicable margin for loans accruing interest at LIBOR is 2.00%. The Fourth Term Loans will mature and all remaining amounts outstanding thereunder will be due and payable on October 1, 2023.  

 

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Off-Balance Sheet Arrangements

 

As of September 30, 2018, we did not have any off-balance sheet financings.

 

Emerging Growth Company

 

We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.

 

The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have irrevocably chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.”

 

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of fiscal year following the fifth anniversary of the closing of the IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined under the Exchange Act.

 

Critical Accounting Policies

 

As of September 30, 2018, with the exception of adoption of ASU 2014-09 discussed in Note 2, there were no significant changes in or changes in the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Refer to our Annual Report on Form 10-K for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed therein.

ITEM 4.CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

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As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2018.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

PART II – OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

Legal Proceedings

 

None.

 

 

ITEM 1A.RISK FACTORS.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report filed on Form 10-K, which could materially affect our business, financial condition or future results.  The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

 

We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Annual Report filed on Form 10-K. Except for such additional information, we believe there have been no material changes from the risk factors previously disclosed in our Annual Report filed on Form 10-K.

 

Our results after the acquisition of Crest may suffer if we do not effectively manage our expanded operations following the acquisition.

 

The size of our business has increased significantly as a result of our acquisition of Crest in October 2018. Our future success depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of additional operations and associated increased costs and complexity. There can be no assurances we will be successful or that we will realize the expected benefits currently anticipated from the acquisition of Crest.

 

We have and will continue to incur significant acquisition-related integration costs and transaction expenses in connection with the acquisition of Crest.

 

We are currently implementing a plan to integrate the operations of Crest. In connection with that plan, we anticipate that we will incur certain non-recurring charges in connection with the integration of Crest; however, we cannot currently identify the timing, nature and amount of all such charges. Further, we have incurred significant transaction costs relating to negotiating and completing the acquisition of Crest. These integration costs and transaction expenses will be charged as an expense in the period incurred. The significant transaction costs and integration costs could materially affect our results of operations in the period in which such charges are recorded. Although we believe that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the business, will offset incremental transaction and integration costs over time, this net benefit may not be achieved in the near term, or at all.

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The Crest business may underperform relative to our expectations.

 

We may not be able to maintain the levels of revenue, earnings or operating efficiency that we and Crest have achieved or might achieve separately. The business and financial performance of Crest are subject to certain risks and uncertainties, including the risk of the loss of, or changes to, its relationships with its dealers and suppliers, increased product liability and warranty claims, and negative publicity or other events that could diminish the value of the Crest brand. We may be unable to achieve the same growth, revenues and profitability that Crest has achieved in the past.

 

ITEM 2.UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

 

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES.

 

None.

ITEM 5.OTHER INFORMATION.

 

Effective November 7, 2018, the Company changed its legal corporate name to “MasterCraft Boat Holdings, Inc.” The Company effectuated the name change through an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Charter”). The Company also further amended and restated its Amended and Restated Bylaws (the “Second Amended and Restated Bylaws”) to reflect the new name. The amendment to the Charter and the Second Amended and Restated Bylaws were each effective November 7, 2018.

 

A copy of the Certificate of Amendment to the Charter effecting the name change, as filed with the Secretary of State of the State of Delaware, is attached as Exhibit 3.2 hereto and incorporated herein by reference. A copy of the Second Amended and Restated Bylaws is attached as Exhibit 3.3 hereto and incorporated herein by reference.

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ITEM 6.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

 

Exhibit
No.

 

Description

 

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

Filed
Herewith

 

2.1

 

Membership Interest Purchase Agreement, dated October 2, 2017 among MasterCraft Boat Holdings, Inc., Nautic Star, LLC and each of the other parties thereto

 

 

8-K

 

001-37502

 

2.1

 

10/2/17

 

 

 

2.2

 

Membership Interest Purchase Agreement, dated September 10, 2018 among MasterCraft Boat Holdings, Inc., Crest Marine LLC and each of the other parties thereto

 

 

8-K

 

001-37502

 

2.1

 

9/10/18

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc.

 

 

10-K

 

001-37502

 

3.1

 

9/18/15

 

 

 

3.2

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

*

 

3.3

 

Second Amended and Restated By-laws of MasterCraft Boat Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

*

 

4.1

 

Common Stock certificate of MasterCraft Boat Holdings, Inc.

 

 

S-1/A

 

333-203815

 

4.1

 

7/15/15

 

 

 

4.2

 

Warrant to Purchase Common Stock of MasterCraft Boat Holdings, Inc., dated June 30, 2009

 

 

S-1/A

 

333-203815

 

4.2

 

6/25/15

 

 

 

10.1

  

Registration Rights Agreement between MasterCraft Boat Holdings, Inc. and Wayzata Opportunities Fund II, L.P.; Wayzata Opportunities Fund Offshore II, L.P. and Wayzata Recovery Fund, LLC, dated July 22, 2015

  

 

10-K

 

001-37502

 

10.2

 

9/18/15

 

 

 

10.2†

 

MasterCraft Boat Holdings, Inc 2010 Equity Incentive Plan

 

 

S-1/A

 

333-203815

 

10.4

 

6/25/15

 

 

 

10.3†

 

MasterCraft Boat Holdings, Inc. Management Incentive Plan (terminated on February 6, 2015)

 

 

S-1/A

 

333-203815

 

10.3

 

7/7/15

 

 

 

10.4†

 

MasterCraft Boat Holdings, Inc. 2015 Incentive Award Plan

 

 

S-1/A

 

333-203815

 

10.4

 

7/15/15

 

 

 

10.5†

 

Form of Restricted Stock Award Agreement and Grant Notice under 2015 Incentive Award Plan (employee)

 

 

S-1/A

 

333-203815

 

10.10

 

7/1/15

 

 

 

10.6†

 

Form of Stock Option Agreement and Grant Notice under 2015 Incentive Award Plan (employee)

 

 

S-1/A

 

333-203815

 

10.12

 

7/7/15

 

 

 

10.7†

 

Form of Restricted Stock Award Grant Notice under 2015 Incentive Award Plan (director)

 

 

S-1/A

 

333-203815

 

10.13

 

7/7/15

 

 

 

10.8†

 

Senior Executive Incentive Bonus Plan

 

 

10-K

 

001-37502

 

10.8

 

9/18/15

 

 

 

10.9†

 

Non-Employee Director Compensation Policy

 

 

S-1/A

 

333-203815

 

10.17

 

7/1/15

 

 

 

10.10†

 

Employment Agreement between MasterCraft Boat Company, LLC and Terry McNew, effective as of July 1, 2018

 

 

8-K

 

001-37502

 

10.1

 

7/2/18

 

 

 

10.11†

 

Employment Agreement between MasterCraft Boat Company, LLC and Timothy M. Oxley, effective as of July 1, 2018

 

 

8-K

 

001-37502

 

10.2

 

7/2/18

 

 

 

10.12†

 

Offer Letter between MasterCraft Boat Holdings, Inc. and Tim Schieck, dated October 9, 2017

 

 

10-K

 

001-37502

 

10.12

 

9/7/18

 

 

 

10.13†

 

Form of Indemnification Agreement for directors and officers

 

 

S-1/A

 

333-203815

 

10.9

 

7/7/15

 

 

 

10.14

 

Form of Performance Stock Unit Award Agreement under 2015 Incentive Award Plan

 

 

8-K

 

001-37502

 

10.1

 

8/26/16

 

 

 

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10.15

 

Third Amended and Restated Credit and Guaranty Agreement, dated October 2, 2017, by and among MasterCraft Boat Company, LLC, MasterCraft Services, Inc., MCBC Hydra Boats, LLC, MasterCraft International Sales Administration, Inc., Nautic Star, LLC, NS Transport, LLC and Navigator Marine, LLC as borrowers and other credit parties, various lenders and Fifth Third Bank as the agent and L/C issuer and lender

 

 

8-K

 

001-37502

 

10.1

 

10/2/17

 

 

 

10.16

 

Fourth Amended and Restated Credit and Guaranty Agreement, dated October 1, 2018, by and among MasterCraft Boat Holdings, Inc. as a guarantor, MasterCraft Boat Company, LLC, MasterCraft Services, LLC, MasterCraft International Sales Administration, Inc., Nautic Star, LLC, NS Transport, LLC, and Crest Marine LLC as borrowers, Fifth Third Bank as the agent and letter of credit issuer, and the lenders party thereto

 

 

8-K

 

001-37502

 

10.1

 

10/1/18

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

*

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

*

 

32.1

 

Section 1350 Certification of Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

**

 

32.2

 

Section 1350 Certification of Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

**

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

 

*

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

 

*

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 


Indicates management contract or compensatory plan.

*Filed herewith.

**Furnished herewith.

35


 

Table of Contents

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ TERRY MCNEW

 

President and Chief Executive Officer (Principal Executive Officer) and Director

 

 

Terry McNew

 

 

 

November 8, 2018

 

 

 

 

 

/s/ TIMOTHY M. OXLEY

 

Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary

 

 

Timothy M. Oxley

 

 

 

November 8, 2018

 

 

 

 

 

 

36


mcft_Ex3.2

Exhibit 3.2

 

CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF
MCBC HOLDINGS, INC.

Pursuant to Section 242 of the General Corporation Law of the State of Delaware, MCBC Holdings, Inc. (the “Corporation”) hereby adopts the following Certificate of Amendment to its Amended and Restated Certificate of Incorporation and certifies as follows:

1.

The name of this corporation is MCBC Holdings, Inc.

2.

The amendment so adopted is:

The Amended and Restated Certificate of Incorporation is hereby amended by deleting the following phrase:

Article 1.

The name of the corporation is MCBC Holdings, Inc. (the “Corporation”).”

and substituting in lieu thereof the following phrase:

Article 1.

The name of the corporation is MasterCraft Boat Holdings, Inc. (the “Corporation”).”

3.Except as hereinabove amended, the Amended and Restated Certificate of Incorporation remains in full force and effect.

4.The foregoing Amendment to the Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the Board of Directors of the Corporation as of November 7, 2018.

 

 

 

 


 

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Amended and Restated Certificate of Incorporation to be signed by Terry McNew, its Chief Executive Officer, on November 7, 2018.

MCBC HOLDINGS, INC.

 

 

 

By:  _/s/ Terry McNew_______________________

 

Name: Terry McNew

 

Title: Chief Executive Officer

 

 

 

 

 


mcft_Ex3.3

Exhibit 3.3

 

 

SECOND AMENDED AND RESTATED BYLAWS

OF

MASTERCRAFT BOAT HOLDINGS, INC.

 

 

Dated as of November 7, 2018

 

 


 

CONTENTS

 

 

 

 

Page

 

 

 

Article I. Meetings of Stockholders

1

 

 

 

Section 1.01

Place of Meetings

1

Section 1.02

Annual Meetings

1

Section 1.03

Special Meetings

1

Section 1.04

Notice of Meetings

1

Section 1.05

Adjournments

1

Section 1.06

Quorum

2

Section 1.07

Organization

2

Section 1.08

Voting; Proxies

2

Section 1.09

Fixing Date for Determination of Stockholders of Record

3

Section 1.10

List of Stockholders Entitled to Vote

4

Section 1.11

Action by Written Consent of Stockholders

4

Section 1.12

Inspectors of Election

4

Section 1.13

Conduct of Meetings

5

Section 1.14

Notice of Stockholder Business and Nominations

5

Section 1.15

Submission of Questionnaire, Representation and Agreement

9

 

 

 

Article II. Board of Directors

10

 

 

 

Section 2.01

Number; Qualifications

10

Section 2.02

Election; Resignation; Vacancies

10

Section 2.03

Regular Meetings

11

Section 2.04

Special Meetings

11

Section 2.05

Telephonic Meetings Permitted

11

Section 2.06

Quorum; Vote Required for Action

11

Section 2.07

Organization

11

Section 2.08

Action by Unanimous Consent of Directors

11

Section 2.09

Compensation of Directors

11

 

 

 

Article III. Committees

12

 

 

 

Section 3.01

Committees

12

Section 3.02

Committee Rules

12

 

 

 

Article IV. Officers

12

 

 

Section 4.01

Officers

12

Section 4.02

Removal, Resignation and Vacancies

13

Section 4.03

Chairperson

13

Section 4.04

Chief Executive Officer

13

Section 4.05

Chief Financial Officer

13

Section 4.06

President

13


 

Section 4.07

Vice Presidents

13

Section 4.08

Treasurer

14

Section 4.09

Controller

14

Section 4.10

Secretary

14

Section 4.11

Appointing Attorneys and Agents; Voting Securities of Other Entities

14

Section 4.12

Additional Matters

15

 

 

 

Article V. Stock

15

 

 

 

Section 5.01

Certificates

15

Section 5.02

Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates

16

 

 

 

Article VI. Indemnification and Advancement of Expenses

16

 

 

 

Section 6.01

Right to Indemnification

16

Section 6.02

Advancement of Expenses

16

Section 6.03

Claims

16

Section 6.04

Non-exclusivity of Rights

17

Section 6.05

Other Sources

17

Section 6.06

Amendment or Repeal

17

Section 6.07

Other Indemnification and Advancement of Expenses

17

 

 

 

Article VII. Miscellaneous

17

 

 

 

Section 7.01

Fiscal Year

17

Section 7.02

Seal

17

Section 7.03

Manner of Notice

17

Section 7.04

Waiver of Notice of Meetings of Stockholders, Directors and Committees

18

Section 7.05

Form of Records

18

Section 7.06

Amendment of Bylaws

18

 

 

 

 


 

 

Article I.
Meetings of Stockholders

Section 1.01 Place of Meetings.  Meetings of Stockholders of MasterCraft Boat Holdings, Inc., a Delaware corporation (the “Corporation”; and such Stockholders, the “Stockholders”), may be held at any place, within or without the State of Delaware, as may be designated by the board of directors of the Corporation (the “Board of Directors”).  In the absence of such designation, meetings of Stockholders shall be held at the principal executive office of the Corporation.  The Board of Directors may, in its sole discretion, determine that a meeting of Stockholders shall not be held at any place, but may instead be held solely by means of remote communication authorized by and in accordance with Section 211(a)(2) of the General Corporation Law of the State of Delaware.

 

Section 1.02 Annual Meetings.  If required by applicable law, an annual meeting of Stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board of Directors from time to time.  Any other proper business may be transacted at the annual meeting.  The Corporation may postpone, reschedule or cancel any annual meeting of Stockholders previously scheduled by the Board of Directors.

 

Section 1.03 Special Meetings.  Special meetings of Stockholders for any purpose or purposes may be called only in the manner provided in the Amended and Restated Certificate of Incorporation of the Corporation dated as of July 22, 2015 (as the same may be further amended, restated, amended and restated or otherwise modified from time to time, the “Certificate of Incorporation”).  Special meetings validly called in accordance with Article 7 of the Certificate of Incorporation may be held at such date and time as specified in the applicable notice.  Business transacted at any special meeting of Stockholders shall be limited to the purposes stated in the notice.  The Corporation may postpone, reschedule or cancel any special meeting of Stockholders previously scheduled by the Board of Directors.

 

Section 1.04 Notice of Meetings.  Whenever Stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which Stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the Stockholders entitled to vote at the meeting (if such date is different from the record date for Stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise provided by law, the Certificate of Incorporation or these Second Amended and Restated Bylaws adopted by the Board of Directors as of November 7, 2018 (as the same may be further amended, restated, amended and restated or otherwise modified from time to time, these “Bylaws”), the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each Stockholder entitled to vote at the meeting as of the record date for determining the Stockholders entitled to notice of the meeting.  If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the Stockholder at such Stockholder’s address as it appears on the records of the Corporation.

 

Section 1.05 Adjournments.  Any meeting of Stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, if any, and notice need

1


 

 

not be given of any such adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting.  If after the adjournment a new record date for determination of Stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix the record date for determining Stockholders entitled to notice of such adjourned meeting as provided in Section 1.09(a) of these Bylaws, and shall give notice of the adjourned meeting to each Stockholder of record as of the record date so fixed for notice of such adjourned meeting.  If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the Stockholder at such Stockholder’s address as it appears on the records of the Corporation.

 

Section 1.06 Quorum.  Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, at each meeting of Stockholders the presence or participation in person or by proxy of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation (“Stock”) entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum.  In the absence of a quorum, the Stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.05 of these Bylaws until a quorum shall attend or participate.  Shares of Stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any subsidiary of the Corporation to vote shares of Stock held by it in a fiduciary capacity.

 

Section 1.07 Organization.  Meetings of Stockholders shall be presided over by the Chairperson, or in his or her absence by any Vice Chairperson, if any, or in his or her absence by the Chief Executive Officer, or in his or her absence by the President or by a chairperson designated by the Board of Directors, or in the absence of such designation by a chairperson chosen at the meeting by vote of a majority of the Stockholders entitled to vote at the meeting.  The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

Section 1.08 Voting; Proxies.  Except as otherwise provided by or pursuant to the provisions of the Certificate of Incorporation, each Stockholder entitled to vote at any meeting of Stockholders shall be entitled to one vote for each share of Stock held by such Stockholder which has voting power upon the matter in question.  Each Stockholder entitled to vote at a meeting of Stockholders or express consent to corporate action in writing without a meeting (if permitted by the Certificate of Incorporation) may authorize another person or persons to act for such Stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.  A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power.  A Stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary a revocation of the proxy or a new proxy bearing a later date.  Voting at meetings of Stockholders need not be by written ballot.  Unless otherwise provided in the Certificate of Incorporation, at all meetings of

2


 

 

Stockholders for the election of directors at which a quorum is present a plurality of the votes cast shall be sufficient to elect directors.  All other elections and questions presented to the Stockholders at a meeting at which a quorum is present shall, unless otherwise provided by the Certificate of Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of Stock which are present in person or by proxy and entitled to vote thereon.

 

Section 1.09 Fixing Date for Determination of Stockholders of Record.

 

(a) In order that the Corporation may determine the Stockholders entitled to notice of any meeting of Stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting.  If the Board of Directors so fixes a date, such date shall also be the record date for determining the Stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.  If no record date is fixed by the Board of Directors, the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.  A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of Stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for Stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of Stockholders entitled to vote in accordance herewith at the adjourned meeting.

(b) In order that the Corporation may determine the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of Stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action.  If no such record date is fixed, the record date for determining Stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

(c) Unless otherwise restricted by the Certificate of Incorporation, in order that the Corporation may determine the Stockholders entitled to express consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors.  If no record date for determining Stockholders entitled to express consent to corporate action in writing without a

3


 

 

meeting is fixed by the Board of Directors, (i) when no prior action of the Board of Directors is required by law or the Certificate of Incorporation, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, and (ii) if prior action by the Board of Directors is required by law or the Certificate of Incorporation, the record date for such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

Section 1.10 List of Stockholders Entitled to Vote.  The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting (provided, however, if the record date for determining the Stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the Stockholders entitled to vote as of a date that is no more than 10 days before the meeting date), arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder as of the record date (or such other date).  Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation.  If the meeting is to be held at a place, then a list of Stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any Stockholder who is present.  If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any Stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.  Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the list of Stockholders required by this Section 1.10 or to vote in person or by proxy at any meeting of Stockholders.

 

Section 1.11 Action by Written Consent of Stockholders.  Except as provided by, and in accordance with, the Certificate of Incorporation, no action that is required or permitted to be taken by the Stockholders at any annual or special meeting of Stockholders may be effected by written consent of Stockholders in lieu of a meeting of Stockholders.

 

Section 1.12 Inspectors of Election.  The Corporation may, and shall if required by law, in advance of any meeting of Stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof.  The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  In the event that no inspector so appointed or designated is able to act at a meeting of Stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.  Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability.  The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of Stock outstanding and the voting power of each such share, (ii) determine the shares of Stock represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots,

4


 

 

(iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of Stock represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law.  In determining the validity and counting of proxies and ballots cast at any meeting of Stockholders, the inspectors may consider such information as is permitted by applicable law.  No person who is a candidate for an office at an election may serve as an inspector at such election.

 

Section 1.13 Conduct of Meetings.  The date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting.  The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of Stockholders as it shall deem appropriate.  Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of Stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting.  Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to Stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants.  The presiding person at any meeting of Stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.  Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of Stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

Section 1.14 Notice of Stockholder Business and Nominations.

 

(a) Annual Meetings of Stockholders.

(i) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the Stockholders may be made at an annual meeting of Stockholders only (A) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors or the nominating and corporate governance committee thereof or (C) by any Stockholder who was a Stockholder of record at the time the notice provided for in this Section 1.14 is delivered to the Secretary, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.14.

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(ii) For any nominations or other business to be properly brought before an annual meeting by a Stockholder pursuant to Section 1.14(a)(i)(C) of these Bylaws, the Stockholder must have given timely notice thereof in writing to the Secretary and any such proposed business (other than the nominations of persons for election to the Board of Directors) must constitute a proper matter for Stockholder action.  To be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day, nor earlier than the close of business on the one hundred twentieth (120th) day, prior to the first anniversary of the preceding year’s annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the Stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation).  In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a Stockholder’s notice as described above.  To be in proper form, such Stockholder’s notice must:

(A)

as to each person whom the Stockholder proposes to nominate for election as a director of the Corporation, set forth (I) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (II) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director of the Corporation if elected;

(B)

with respect to each nominee for election or reelection to the Board of Directors, include the completed and signed questionnaire, representation and agreement required by Section 1.15 of these Bylaws;

(C)

as to any other business that the Stockholder proposes to bring before the meeting, set forth a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such Stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and

(D)

as to the Stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, set forth (I) the name and address of such Stockholder, as they appear on the Corporation’s

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books, and of such beneficial owner, (II) the class or series and number of shares of Stock which are owned beneficially and of record by such Stockholder and such beneficial owner, (III) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such Stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (IV) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the Stockholder’s notice by, or on behalf of, such Stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of Stock, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such Stockholder or such beneficial owner, with respect to securities of the Corporation, (V) a representation that the Stockholder is a holder of record of Stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (VI) a representation whether the Stockholder or the beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of outstanding Stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies or votes from Stockholders in support of such proposal or nomination, and (VII) any other information relating to such Stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder.

The foregoing notice requirements of this Section 1.14(a) shall be deemed satisfied by a Stockholder with respect to business other than a nomination for election as a director of the Corporation if the Stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such Stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting.  The Corporation may require any proposed nominee for election as a director of the Corporation to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.

(i) Notwithstanding anything in the second sentence of Section 1.14(a)(ii) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors at the annual meeting is increased effective after the time period for

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which nominations would otherwise be due under Section 1.14(a)(ii) of these Bylaws and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a Stockholder’s notice required by this Section 1.14 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

(b) Special Meetings of Stockholders.  Except to the extent required by law, special meetings of Stockholders may be called only in accordance with Article 7 of the Certificate of Incorporation.  Only such business shall be conducted at a special meeting of Stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting.  Nominations of persons for election to the Board of Directors may be made at a special meeting of Stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (1) by or at the direction of the Board of Directors or the nominating and corporate governance committee thereof or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any Stockholder who is a Stockholder of record at the time the notice provided for in this Section 1.14 is delivered to the Secretary, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 1.14.  In the event the Corporation calls a special meeting of Stockholders for the purpose of electing one or more directors to the Board of Directors, any such Stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the Stockholder’s notice required by Section 1.14(a)(ii) of these Bylaws (including the completed and signed questionnaire, representation and agreement required by Section 1.15 of these Bylaws and any other information, documents, affidavits, or certifications required by the Corporation) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a Stockholder’s notice as described above.

(c) General.

(i) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 1.14 shall be eligible to be elected at an annual or special meeting of Stockholders to serve as directors and only such business shall be conducted at a meeting of Stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.14.  Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty (A) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the

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procedures set forth in this Section 1.14 (including whether the Stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made or solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such Stockholder’s nominee or proposal in compliance with such Stockholder’s representation as required by Section 1.14(a)(ii)(D)(VI) of these Bylaws) and (B) if any proposed nomination or business was not made or proposed in compliance with this Section 1.14, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted.  Notwithstanding the foregoing provisions of this Section 1.14, unless otherwise required by law, if the Stockholder (or a qualified representative of the Stockholder) does not appear at the annual or special meeting of Stockholders to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.  For purposes of this Section 1.14, to be considered a qualified representative of the Stockholder, a person must be a duly authorized officer, manager or partner of such Stockholder or must be authorized by a writing executed by such Stockholder or an electronic transmission delivered by such Stockholder to act for such Stockholder as proxy at the meeting of Stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of Stockholders.

(ii) For purposes of this Section 1.14, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(iii) Notwithstanding the foregoing provisions of this Section 1.14, a Stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 1.14; provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 1.14 (including clause (a)(i)(C) hereof and clause (b) hereof), and compliance with clauses (a)(i)(C) and (b) of this Section 1.14 shall be the exclusive means for a Stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of clause (a)(ii) hereof, business other than nominations brought properly under and in compliance with Rule 14a-8 promulgated under the Exchange Act, as may be amended from time to time).  Nothing in this Section 1.14 shall be deemed to affect any rights (x) of Stockholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act or (y) of the holders of any series of preferred Stock of the Corporation (“Preferred Stock”) to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

Section 4.15 Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a director of the Corporation, the candidate

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for nomination must have previously delivered (in accordance with the time periods prescribed for delivery of notice under Section 1.14 of these Bylaws), to the Secretary at the principal executive offices of the Corporation, (a) a completed written questionnaire (in a form provided by the Corporation) with respect to the background, qualifications, stock ownership and independence of such proposed nominee and (b) a written representation and agreement (in form provided by the Corporation) that such candidate for nomination (i) is not and, if elected as a director during his or her term of office, will not become a party to (A) any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) or (B) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director and (iii) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to directors and in effect during such person’s term in office as a director of the Corporation (and, if requested by any candidate for nomination, the Secretary shall provide to such candidate for nomination all such policies and guidelines then in effect).

 

Article II.
Board of Directors

Section 2.01 Number; Qualifications.  Subject to the Certificate of Incorporation, the total number of directors constituting the entire Board of Directors shall be fixed from time to time solely by resolution adopted by a majority of the Whole Board.  For purposes of these Bylaws the term “Whole Board” shall mean the total number of authorized directors for the Board of Directors whether or not there exist any vacancies in previously authorized directorships.  Directors need not be Stockholders.

 

Section 2.02 Election; Resignation; Vacancies.  The Board of Directors shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III.  Commencing with the first annual meeting of Stockholders following the original effectiveness of Article 6.E of the Certificate of Incorporation, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term and until the election and qualification of their respective successors in office.  The Class I directors shall have an initial term expiring in December 31, 2016 and the Class II and Class III directors shall have their terms expiring in December 31, 2017 and December 31, 2018, respectively. Any director may resign at any time upon notice to the Corporation.  Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock then outstanding, unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from the death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the directors then in office and entitled to vote thereon, though less than a quorum, or by a sole remaining director entitled to vote thereon, and not by the

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Stockholders. Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified.

 

Section 2.03 Regular Meetings.  Regular meetings of the Board of Directors may be held at such places, if any, within or without the State of Delaware and at such times as the Board of Directors may from time to time determine.

 

Section 2.04 Special Meetings.  Special meetings of the Board of Directors may be held at any time or place, if any, within or without the State of Delaware whenever called by the Chairperson, a Vice Chairperson, the Chief Executive Officer, the Secretary, or by any two members of the Board of Directors.  Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting.

 

Section 2.05 Telephonic Meetings Permitted.  Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.05 shall constitute presence in person at such meeting.

 

Section 2.06 Quorum; Vote Required for Action.  At all meetings of the Board of Directors the directors entitled to cast a majority of the votes of the Whole Board shall constitute a quorum for the transaction of business; provided that, solely for the purposes of filling vacancies pursuant to Section 2.02 of these Bylaws, a meeting of the Board of Directors may be held if a majority of the directors then in office participate in such meeting.  Except in cases in which the Certificate of Incorporation, these Bylaws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

 

Section 2.07 Organization.  Meetings of the Board of Directors shall be presided over by the Chairperson, or in his or her absence by any Vice Chairperson, if any, or in his or her absence by the Chief Executive Officer, or in his or her absence the Chief Executive Officer, or in his or her absence by the President or by a chairperson chosen at the meeting by the affirmative vote of a majority of the directors present at the meeting.  The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

Section 2.08 Action by Unanimous Consent of Directors.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or such committee in accordance with applicable law.

 

Section 2.09 Compensation of Directors.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the

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compensation of directors.  The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary or other compensation as a director.  No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.  Members of special or standing committees may be allowed like compensation for attending committee meetings.  Any director of the Corporation may decline any or all such compensation payable to such director in his or her discretion.

 

Article III.
Committees

Section 3.01 Committees.  The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee.  In the absence or disqualification of a member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.  Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it.

 

Section 3.02 Committee Rules.  Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business.  In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.

 

Article IV.
Officers

Section 4.01 Officers.  The officers of the Corporation may consist of a chairperson of the Board of Directors (the “Chairperson”), a chief executive officer (the “Chief Executive Officer”), a chief financial officer (the “Chief Financial Officer”), a president (the “President”), one or more vice presidents (each, a “Vice President”), a Secretary (the “Secretary”), a treasurer (the “Treasurer”), a controller (the “Controller”) and such other officers as the Board of Directors may from time to time determine, each of whom shall be appointed by the Board of Directors, each to have such authority, functions or duties as set forth in these Bylaws or as determined by the Board of Directors.  Each officer shall be chosen by the Board of Directors and shall hold office for such term as may be prescribed by the Board of Directors and until such person’s successor shall have been duly chosen and qualified, or until such person’s earlier death, disqualification, resignation or removal.  The Board of Directors, in its discretion, from time to time may determine not to appoint one or more of the officers identified in the first sentence of this Section 4.01 or to leave such officer position vacant.

 

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Section 4.02 Removal, Resignation and Vacancies.  Any officer of the Corporation may be removed, with or without cause, by the Board of Directors, without prejudice to the rights, if any, of such officer under any contract to which it is a party.  Any officer may resign at any time upon written or electronic notice to the Corporation, without prejudice to the rights, if any, of the Corporation under any contract to which such officer is a party.  If any vacancy occurs in any office of the Corporation, the Board of Directors may appoint a successor to fill such vacancy for the remainder of the unexpired term and until a successor shall have been duly chosen and qualified.

 

Section 4.03 Chairperson.  The Chairperson shall be subject to the control of the Board of Directors, and shall report directly to the Board of Directors.  The Board of Directors may, in its sole discretion, from time to time appoint one or more vice chairpersons (each, a “Vice Chairperson”) each of whom shall be subject to the control of the Board of Directors, and shall report directly to the Chairperson.

 

Section 4.04 Chief Executive Officer.  The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, shall be responsible for corporate policy and strategy, and shall report directly to the Board of Directors.  Unless otherwise provided in these Bylaws, all other officers of the Corporation shall report directly to the Chief Executive Officer or as otherwise determined by the Chief Executive Officer.  The Chief Executive Officer shall, if present and in the absence of the Chairperson or any Vice Chairperson, preside at meetings of the Stockholders and of the Board of Directors.

 

Section 4.05 Chief Financial Officer.  The Chief Financial Officer shall exercise all the powers and perform the duties of the office of the chief financial officer and in general have overall supervision of the financial operations of the Corporation.  The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

 

Section 4.06 President.  The President shall be the chief operating officer of the Corporation, with general responsibility for the management and control of the operations of the Corporation.  The President shall have the power to affix the signature of the Corporation to all contracts that have been authorized by the Board of Directors or the Chief Executive Officer.  The President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.

 

Section 4.07 Vice Presidents.  The Vice President shall have such powers and duties as shall be prescribed by his or her superior officer or the Chief Executive Officer.  A Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.  In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more executive vice presidents of the Corporation (each, an “Executive Vice President”) and/or assistant vice presidents of the Corporation (each, an “Assistant Vice President”).

 

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Section 4.08 Treasurer.  The Treasurer shall supervise and be responsible for all the funds and securities of the Corporation, the deposit of all moneys and other valuables to the credit of the Corporation in depositories of the Corporation, borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the Corporation is a party, the disbursement of funds of the Corporation and the investment of its funds, and in general shall perform all of the duties incident to the office of the Treasurer.  The Treasurer shall report to the Chief Financial Officer and, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer, the Chief Financial Officer or as the Board of Directors may from time to time determine. In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more assistant treasurers of the Corporation (each, an “Assistant Treasurer”).

 

Section 4.09 Controller.  The Controller shall be the chief accounting officer of the Corporation.  The Controller shall report to the Chief Financial Officer and, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or the Chief Financial Officer or as the Board of Directors may from time to time determine.

 

Section 4.10 Secretary.  The powers and duties of the Secretary are:  (i) to act as Secretary at all meetings of the Board of Directors, of the committees of the Board of Directors and of the Stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; (ii) to see that all notices required to be given by the Corporation are duly given and served; (iii) to act as custodian of the seal of the Corporation and affix the seal or cause it to be affixed to all certificates of Stock and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; (iv) to have charge of the books, records and papers of the Corporation and see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and (v) to perform all of the duties incident to the office of Secretary.  The Secretary shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as such officer may agree with the Chief Executive Officer or as the Board of Directors may from time to time determine.  In accordance with Sections 4.01 and 4.12 of these Bylaws, the Board of Directors, the Chief Executive Officer and/or the Chief Financial Officer may, in his, her or their discretion, from time to time appoint one or more assistant secretaries of the Corporation (each, an “Assistant Secretary”).

 

Section 4.11 Appointing Attorneys and Agents; Voting Securities of Other Entities.  Unless otherwise provided by resolution adopted by the Board of Directors, the Chairperson, any Vice Chairperson, the Chief Executive Officer, the Chief Financial Officer or the President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to (a) cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes

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or giving such consents, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper and (b) exercise the rights of the Corporation in its capacity as a general partner of a partnership or in its capacity as a managing member of a limited liability company as to which the Corporation, in such capacity, is entitled to exercise pursuant to the applicable partnership agreement or limited liability company operating agreement, including without limitation to take or refrain from taking any action, or to consent in writing, in each case in the name of the Corporation as such general partner or managing member, to any action by such partnership or limited liability company, and may instruct the person or persons so appointed as to the manner of taking such actions or giving such consents, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper.  Unless otherwise provided by resolution adopted by the Board of Directors, any of the rights set forth in this Section 4.11 which may be delegated to an attorney or agent may also be exercised directly by the Chairperson, a Vice Chairperson, the Chief Executive Officer, the Chief Financial Officer or the President.

 

Section 4.12 Additional Matters.  The Chief Executive Officer, the Chief Financial Officer and the President shall have the authority to designate employees of the Corporation to have the title of Executive Vice President, Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary.  Any employee so designated shall have the powers and duties determined by the officer making such designation.  A person designated as an Executive Vice President, Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary shall not be deemed to be an officer of the Corporation unless the Board of Directors has adopted a resolution approving such person in such capacity as an officer of the Corporation (including by means of direct appointment by the Board of Directors pursuant to Section 4.01 of these Bylaws).

 

Article V.
Stock

Section 5.01 Certificates.  The shares of Stock shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of Stock shall be uncertificated shares.  Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.  Every holder of Stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by (a) any one officer of the Corporation who is the Chairperson, a Vice Chairperson, the Chief Executive Officer, the President or a Vice President, and (b) by any one officer of the Corporation who is the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary, with such signatories certifying the number of shares of the applicable class or series of Stock owned by such holder in the Corporation.  Any of or all the signatures on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

 

15


 

 

Section 5.02 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates.  The Corporation may issue a new certificate for shares of Stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

Article VI.
Indemnification and Advancement of Expenses

Section 6.01 Right to Indemnification.  The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law (including as it presently exists or may hereafter be amended), any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (any such action, suit or proceeding, a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person.  Notwithstanding the preceding sentence, except as otherwise provided in Section 6.03 of these Bylaws, the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors.

 

Section 6.02 Advancement of Expenses.  The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.

 

Section 6.03 Claims.  If a claim for indemnification under this Article VI (following the final disposition of such proceeding) is not paid in full within sixty (60) days after the Corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Article VI is not paid in full within thirty (30) days after the Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim.  If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law.  In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

 

16


 

 

Section 6.04 Non-exclusivity of Rights.  The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquires under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of Stockholders or disinterested directors or otherwise.

 

Section 6.05 Other Sources.  The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such other corporation, partnership, limited liability company, joint venture, trust, enterprise or non-profit enterprise.

 

Section 6.06 Amendment or Repeal.  Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of these Bylaws after the occurrence of the act or omission that is the subject of the proceeding for which indemnification or advancement of expenses is sought.

 

Section 6.07 Other Indemnification and Advancement of Expenses.  This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

 

Article VII.
Miscellaneous

Section 7.01 Fiscal Year.  The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

 

Section 7.02 Seal.  The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

 

Section 7.03 Manner of Notice.  Except as otherwise provided herein or permitted by applicable law, notices to directors and Stockholders shall be in writing and delivered personally or mailed to the directors or Stockholders at their addresses appearing on the books of the Corporation.  Without limiting the manner by which notice otherwise may be given effectively to Stockholders, and except as prohibited by applicable law, any notice to Stockholders given by the Corporation under any provision of applicable law, the Certificate of Incorporation, or these Bylaws shall be effective if given by a single written notice to Stockholders who share an address if consented to by the Stockholders at that address to whom such notice is given.  Any such consent shall be revocable by the Stockholder by written notice to the Corporation.  Any Stockholder who fails to object in writing to the Corporation, within sixty (60) days of having been given written notice by the Corporation of its intention to send the single notice permitted under this Section 7.03, shall be deemed to have consented to receiving such single written notice.  Notice to directors may be given in person, by mail or by e-mail, telephone, telecopier or other means of electronic transmission.

 

17


 

 

Section 7.04 Waiver of Notice of Meetings of Stockholders, Directors and Committees.  Any waiver of notice, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, Board of Directors, or members of a committee of the Board of Directors need be specified in a waiver of notice.

 

Section 7.05 Form of Records.  Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.

 

Section 7.06 Amendment of Bylaws.  These Bylaws may be altered, amended or repealed, and new bylaws made, only by the affirmative vote of (a) a majority of the Board of Directors or (b) Stockholders representing at least 66⅔% of the votes eligible to be cast in an election of directors of the Corporation.

 

*  *  *

18


mcft_Ex31_1

Exhibit 31.1

CERTIFICATIONS

I, Terry McNew, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of MasterCraft Boat Holdings, Inc.;

 

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

Date: November 8, 2018

 

 

 

/s/ Terry McNew

 

 

 

 

Terry McNew

 

 

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 


mcft_Ex31_2

Exhibit 31.2

CERTIFICATIONS

I, Timothy M. Oxley, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of MasterCraft Boat Holdings, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

Date: November 8, 2018

 

 

 

/s/ Timothy M. Oxley

 

 

 

 

Timothy M. Oxley

 

 

 

 

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)

 


mcft_Ex32_1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Terry McNew, Chief Executive Officer of MasterCraft Boat Holdings, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

(1)

The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 1, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

 

 

 

 

 

 

 

November 8, 2018

 

 

 

/s/ Terry McNew

 

 

 

 

Terry McNew

 

 

 

 

President and Chief Executive Officer (Principal Executive Officer)

 


mcft_Ex32_2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy M. Oxley, Chief Financial Officer of MasterCraft Boat Holdings, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

(1)

The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 1, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

 

 

 

 

 

 

 

November 8, 2018

 

 

 

/s/ Timothy M. Oxley

 

 

 

 

Timothy M. Oxley

 

 

 

 

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)