mcft-10q_20190331.htm

 

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: March 31, 2019

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

 

 

 

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 May 8, 2019, there were 18,724,325 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

MCFT

 

NASDAQ

 

 

 

 


 

 

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits, Financial Statement Schedules

34

 

 

 

SIGNATURES

 

36

 

2


 

 

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 Nautic Star, LLC and 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 considering 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 fixed cost base, the successful introduction of our new products, and the other important factors described under the caption “Risk Factors” in 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, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, filed with the SEC on November 9, 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.

3


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

NET SALES

 

$

128,390

 

 

$

93,811

 

 

$

343,572

 

 

$

237,295

 

COST OF SALES

 

 

97,033

 

 

 

69,429

 

 

 

261,939

 

 

 

174,816

 

GROSS PROFIT

 

 

31,357

 

 

 

24,382

 

 

 

81,633

 

 

 

62,479

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

5,210

 

 

 

3,560

 

 

 

13,757

 

 

 

9,969

 

General and administrative

 

 

6,696

 

 

 

5,099

 

 

 

20,576

 

 

 

14,388

 

Amortization of intangible assets

 

 

987

 

 

 

524

 

 

 

2,504

 

 

 

1,077

 

Total operating expenses

 

 

12,893

 

 

 

9,183

 

 

 

36,837

 

 

 

25,434

 

OPERATING INCOME

 

 

18,464

 

 

 

15,199

 

 

 

44,796

 

 

 

37,045

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,867

 

 

 

897

 

 

 

4,829

 

 

 

2,527

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

16,597

 

 

 

14,302

 

 

 

39,967

 

 

 

34,518

 

INCOME TAX EXPENSE

 

 

3,834

 

 

 

2,848

 

 

 

8,552

 

 

 

8,009

 

NET INCOME

 

$

12,763

 

 

$

11,454

 

 

$

31,415

 

 

$

26,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

 

$

0.62

 

 

$

1.68

 

 

$

1.42

 

Diluted

 

$

0.68

 

 

$

0.61

 

 

$

1.67

 

 

$

1.42

 

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

18,657,719

 

 

 

18,622,083

 

 

 

18,652,289

 

 

 

18,619,006

 

Diluted earnings per share

 

 

18,756,605

 

 

 

18,728,424

 

 

 

18,765,897

 

 

 

18,705,801

 

 

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

 

 

4


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

March 31,

 

 

June 30,

 

 

 

 

2019

 

 

2018

 

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,461

 

 

$

7,909

 

 

Accounts receivable — net of allowances of $272 and $51, respectively

 

 

17,669

 

 

 

5,515

 

 

Income tax receivable

 

 

429

 

 

 

 

 

Inventories — net

 

 

30,000

 

 

 

20,467

 

 

Prepaid expenses and other current assets

 

 

4,547

 

 

 

3,295

 

 

Total current assets

 

 

58,106

 

 

 

37,186

 

 

Property, plant and equipment — net

 

 

30,804

 

 

 

22,265

 

 

Intangible assets — net

 

 

83,786

 

 

 

51,046

 

 

Goodwill

 

 

101,760

 

 

 

65,792

 

 

Deferred debt issuance costs — net

 

 

477

 

 

 

383

 

 

Other

 

 

256

 

 

 

252

 

 

Total assets

 

$

275,189

 

 

$

176,924

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

20,684

 

 

$

17,266

 

 

Income tax payable

 

 

1,213

 

 

 

705

 

 

Accrued expenses and other current liabilities

 

 

42,337

 

 

 

27,866

 

 

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

 

 

9,495

 

 

 

5,069

 

 

Total current liabilities

 

 

73,729

 

 

 

50,906

 

 

Long-term debt, net of unamortized debt issuance costs

 

 

116,422

 

 

 

70,087

 

 

Deferred income taxes

 

 

551

 

 

 

1,427

 

 

Unrecognized tax positions

 

 

2,628

 

 

 

1,982

 

 

Total liabilities

 

 

193,330

 

 

 

124,402

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,723,994 shares at March 31, 2019 and 18,682,338 shares at June 30, 2018

 

 

187

 

 

 

187

 

 

Additional paid-in capital

 

 

115,065

 

 

 

114,052

 

 

Accumulated deficit

 

 

(33,393

)

 

 

(61,717

)

 

Total stockholders' equity

 

 

81,859

 

 

 

52,522

 

 

Total liabilities and stockholders' equity

 

$

275,189

 

 

$

176,924

 

 

 

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

 

5


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share data)

 

 

 

Nine Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

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

 

 

41,656

 

 

 

 

 

 

1,013

 

 

 

 

 

 

1,013

 

Net income

 

 

 

 

 

 

 

 

 

31,415

 

 

 

31,415

 

Balance at March 31, 2019

 

 

18,723,994

 

 

$

187

 

 

$

115,065

 

 

$

(33,393

)

 

$

81,859

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at December 30, 2018

 

 

18,726,190

 

 

$

187

 

 

$

114,694

 

 

$

(46,156

)

 

$

68,725

 

Equity-based compensation activity

 

 

(2,196

)

 

 

 

 

 

371

 

 

 

 

 

 

371

 

Net income

 

 

 

 

 

 

 

 

 

12,763

 

 

 

12,763

 

Balance at March 31, 2019

 

 

18,723,994

 

 

$

187

 

 

$

115,065

 

 

$

(33,393

)

 

$

81,859

 

 

 

 

 

 

Nine Months Ended April 1, 2018

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at June 30, 2017

 

 

18,637,445

 

 

$

186

 

 

$

112,945

 

 

$

(101,370

)

 

$

11,761

 

Equity-based compensation activity

 

 

46,233

 

 

 

1

 

 

 

803

 

 

 

 

 

 

804

 

Net income

 

 

 

 

 

 

 

 

 

 

 

26,509

 

 

 

26,509

 

Balance at April 1, 2018

 

 

18,683,678

 

 

$

187

 

 

$

113,748

 

 

$

(74,861

)

 

$

39,074

 

 

 

 

Three Months Ended April 1, 2018

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at December 31, 2017

 

 

18,679,131

 

 

$

187

 

 

$

113,429

 

 

$

(86,315

)

 

$

27,301

 

Equity-based compensation activity

 

 

4,547

 

 

 

 

 

 

319

 

 

 

 

 

 

319

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11,454

 

 

 

11,454

 

Balance at April 1, 2018

 

 

18,683,678

 

 

$

187

 

 

$

113,748

 

 

$

(74,861

)

 

$

39,074

 

 

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

6


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands)

 

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

31,415

 

 

$

26,509

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,450

 

 

 

3,665

 

Inventory obsolescence reserve

 

 

222

 

 

 

(484

)

Amortization of debt issuance costs

 

 

410

 

 

 

369

 

Stock-based compensation

 

 

1,159

 

 

 

882

 

Change in interest rate cap fair value

 

 

341

 

 

 

 

Unrecognized tax benefits

 

 

646

 

 

 

(1,047

)

Deferred income taxes

 

 

62

 

 

 

(698

)

Net provision of doubtful accounts

 

 

221

 

 

 

(11

)

Loss on disposal of fixed assets

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,103

)

 

 

(691

)

Inventories

 

 

98

 

 

 

(1,744

)

Prepaid expenses and other current assets

 

 

(1,408

)

 

 

(1,064

)

Income taxes receivable and payable, net

 

 

79

 

 

 

439

 

Other assets

 

 

(4

)

 

 

(6

)

Accounts payable

 

 

224

 

 

 

4,433

 

Accrued expenses and other current liabilities

 

 

7,732

 

 

 

5,736

 

Net cash provided by operating activities

 

 

39,552

 

 

 

36,288

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from disposal of equipment

 

 

5

 

 

 

96

 

Payments for acquisitions, net of cash acquired

 

 

(81,729

)

 

 

(80,511

)

Purchases of property and equipment

 

 

(10,387

)

 

 

(2,600

)

Net cash used in investing activities

 

 

(92,111

)

 

 

(83,015

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

80,000

 

 

 

80,832

 

Cash paid for withholding taxes on vested stock

 

 

(146

)

 

 

(78

)

Principal payments on long-term debt

 

 

(29,015

)

 

 

(28,325

)

Payments of debt issuance costs

 

 

(728

)

 

 

(1,240

)

Net cash provided from financing activities

 

 

50,111

 

 

 

51,189

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(2,448

)

 

 

4,462

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

 

 

7,909

 

 

 

4,038

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

 

$

5,461

 

 

$

8,500

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

3,957

 

 

$

2,078

 

Cash payments for income taxes

 

$

7,765

 

 

$

9,304

 

 

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

 

7


 

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 (“MasterCraft”); Nautic Star, LLC (“NauticStar”); NS Transport, LLC; Crest Marine LLC (“Crest”); MasterCraft Services, LLC; MasterCraft Parts, Ltd.; and MasterCraft International Sales Administration, Inc. The Company and its subsidiaries collectively are referred to herein as the “Company”.

On October 2, 2017, the Company acquired all of the outstanding membership interests and other equity securities of Nautic Star, LLC, a Mississippi limited liability company and its subsidiaries. On October 1, 2018, the Company acquired all of the outstanding membership interest of Crest Marine LLC, a Michigan limited liability company. As a result of the acquisitions, the Company consolidated the financial results of NauticStar and Crest. See Note 4.

The Company is a leading innovator, designer, manufacturer and marketer of recreational powerboats that operates in three reportable segments: MasterCraft, NauticStar and Crest.

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, which was filed with the SEC on September 7, 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 March 31, 2019, its results of its operations for the three and nine months ended March 31, 2019 and April 1, 2018, its cash flows for the nine months ended March 31, 2019 and April 1, 2018, and its statement of shareholders’ equity for the three and nine months ended March 31, 2019 and April 1, 2018. All adjustments are of a normal recurring nature. The Company’s interim operating results for the three and nine months ended March 31, 2019 and April 1, 2018 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 and nine months ended March 31, 2019 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2018.

Recently Adopted Accounting Standards  In May 2014, the Financial Accounting Standards Board (the “FASB”) and International Accounting Standards Board jointly issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which

8


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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, the Company 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 and nine months ended March 31, 2019, respectively:

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Balances without

 

Statement of Operations

 

As Reported

 

 

Effect of Change

 

 

adoption of ASC 606

 

Net sales

 

$

128,390

 

 

$

(611

)

 

$

127,779

 

Income before income tax expense

 

 

16,597

 

 

 

(611

)

 

 

15,986

 

Income tax expense

 

 

3,834

 

 

 

(123

)

 

 

3,711

 

Net income

 

 

12,763

 

 

 

(488

)

 

 

12,275

 

 

 

 

Nine Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Balances without

 

Statement of Operations

 

As Reported

 

 

Effect of Change

 

 

adoption of ASC 606

 

Net sales

 

$

343,572

 

 

$

570

 

 

$

344,142

 

Income before income tax expense

 

 

39,967

 

 

 

570

 

 

 

40,537

 

Income tax expense

 

 

8,552

 

 

 

115

 

 

 

8,667

 

Net income

 

 

31,415

 

 

 

455

 

 

 

31,870

 

 

The following table summarizes the impact of ASU 2014-09 on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2019:

 

 

 

 

 

 

 

 

 

Balances without

 

Balance Sheet

 

As Reported

 

 

Effect of Change

 

 

adoption of ASC 606

 

Accrued expenses and other current liabilities

 

$

42,337

 

 

$

(4,599

)

 

$

37,738

 

Income taxes

 

 

3,963

 

 

 

1,053

 

 

 

5,016

 

Accumulated deficit

 

 

(33,393

)

 

 

3,546

 

 

 

(29,847

)

 

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

9


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

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. This guidance will be adopted for the fiscal year beginning July 1, 2019.  We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operation, or cash flows.

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). The new standard 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 statement of operations. 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, Targeted Improvements, 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 expects to adopt the new standard on July 1, 2019 and use the effective date as the date of initial application. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits it not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. The Company expects that this standard will have a material effect on our financial statements. However, the Company is still in the process of assessing the impact of the new standard, and, therefore, the full quantitative impact cannot be reasonably estimated at this time. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to the recognition of the new ROU assets and lease liabilities on the Company’s balance sheet for its building and equipment operating leases and providing significant new disclosures about its leasing activities.

10


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

3.

REVENUE RECOGNITION

 

The following table presents the Company’s revenue by major product categories for the three and nine months ended March 31, 2019:

 

 

 

Three Months Ended March 31, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

Major Product Categories

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

77,329

 

 

$

21,624

 

 

$

27,065

 

 

$

126,018

 

Parts

 

 

1,798

 

 

 

22

 

 

 

166

 

 

 

1,986

 

Other revenue

 

 

304

 

 

 

6

 

 

 

76

 

 

 

386

 

Total

 

$

79,431

 

 

$

21,652

 

 

$

27,307

 

 

$

128,390

 

 

 

 

Nine Months Ended March 31, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

Major Product Categories

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

224,604

 

 

$

58,187

 

 

$

52,819

 

 

$

335,610

 

Parts

 

 

6,464

 

 

 

57

 

 

 

252

 

 

 

6,773

 

Other revenue

 

 

994

 

 

 

11

 

 

 

184

 

 

 

1,189

 

Total

 

$

232,062

 

 

$

58,255

 

 

$

53,255

 

 

$

343,572

 

 

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 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 the Company reasonably expects to pay. The estimated liability and reduction in revenue for sales incentives is recorded at the time of sale. The Company estimates 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 it receives pre-payment from the customer. The Company’s contract liabilities were $529 and $2,194 as of March 31, 2019 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. Because our 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.

11


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

4.

ACQUISITION

Crest Acquisition:

On October 1, 2018, the Company completed its acquisition of Crest, a manufacturer of premium pontoon boats, providing the Company with additional product diversification. With the acquisition of Crest, the Company expanded its product portfolio and now operates in three segments of the powerboat industry – performance sport boats, outboard saltwater fishing boats and pontoon boats. The purchase price was $81,729, 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 Crest. 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 preliminary estimates of their fair values as of the date of acquisition. Because of the complexities involved with performing the valuation, the Company has recorded the tangible and intangible assets acquired and liabilities assumed based on their preliminary fair values as of October 1, 2018. The preliminary measurements of fair value were based upon estimates utilizing the assistance of third-party valuation specialists and are subject to change. Any adjustments are recognized in the period in which they are identified.  The Company expects the valuation of tangible and intangible assets and working capital adjustments to be finalized during fiscal year 2019.

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

 

Purchase Price:

As Reported on

 

 

Subsequent Adjustments

 

 

As Reported on

 

 

December 30, 2018

 

 

to Fair Value

 

 

March 31, 2019

 

Cash paid, net of cash acquired

$

81,729

 

 

$

-

 

 

$

81,729

 

 

Recognized preliminary amounts of identifiable assets acquired and

(liabilities assumed), at fair value:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

$

5,272

 

 

$

-

 

 

$

5,272

 

Inventories

 

9,928

 

 

 

(75

)

 

 

9,853

 

Other current assets

 

185

 

 

 

 

 

 

185

 

Property, plant and equipment

 

1,840

 

 

 

 

 

 

1,840

 

Identifiable intangible assets

 

35,245

 

 

 

 

 

 

35,245

 

Current liabilities

 

(6,338

)

 

 

(296

)

 

 

(6,634

)

Fair value of assets acquired and liabilities assumed

 

46,132

 

 

 

(371

)

 

 

45,761

 

Goodwill

 

35,597

 

 

 

371

 

 

 

35,968

 

 

$

81,729

 

 

$

-

 

 

$

81,729

 

 

12


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

The preliminary fair value estimates for the Company’s identifiable intangible assets acquired as part of the acquisition are as follows:

 

 

 

 

 

 

Estimates of Fair

Value

 

 

Estimated Useful

Life (in years)

Definite-lived intangible:

 

 

 

 

 

 

 

 

 

Dealer network

 

 

 

 

$

18,000

 

 

10

Software

 

 

 

 

 

245

 

 

5

Indefinite-lived intangible:

 

 

 

 

 

 

 

 

 

Trade name

 

 

 

 

 

17,000

 

 

 

Total identifiable intangible assets

 

 

 

 

$

35,245

 

 

 

 

The value allocated to inventories reflect the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less an estimated cost to complete and a reasonable profit margin. The value allocated to accounts receivable represents the estimated fair value of the acquired receivables based on the expected collection of those receivables, less an estimated allowance for bad debts. The fair value of the identifiable intangible assets were determined based on the following approaches:

 

Dealer Network – The value associated with Crest’s dealer network is attributed to its long-standing dealer relationships. The estimate of fair value assigned to this asset was determined using the income approach, which requires an estimate or forecast of the expected future cash flows from the dealer network through the application of the multi-period excess earnings approach. The estimated remaining useful life of dealer network is approximately ten years.

 

Software – The value attributed to Crest’s software was determined using the replacement cost method, a variation of cost approach, which requires an estimate of the replacement cost and incorporates an obsolescence factor and a developer’s profit margin. The estimated remaining useful life of software is approximately five years.

 

Trade Name – The value attributed to Crest’s trade name was determined using the relief from royalty method, a variation of the income approach, which requires an estimate or forecast of the expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible asset is being amortized using the straight-line method to amortization of intangible assets expense over the estimated useful life. Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provision of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable definite-lived intangible assets acquired was 9.9 years. Goodwill of $35,968 arising from the acquisition consists of future growth prospects including dealer expansion into new geographic markets and capacity expansion as well as intangible assets that do not qualify for separate recognition. The indefinite-lived intangible assets and goodwill acquired are expected to be deductible for income tax purposes.

Acquisition related costs of $2,044, which were incurred by the Company during the nine months ended March 31, 2019, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income for the three and nine months ended March 31, 2019.

NauticStar Acquisition:

On October 2, 2017, the Company completed its acquisition of NauticStar which unites 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

13


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 was allocated to the assets acquired and liabilities assumed based on estimates of their fair values as of the date of acquisition. The Company 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

 

 

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

 

 

14


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Pro Forma Financial Information:

The following unaudited pro forma consolidated results of operations for the three and nine months ended March 31, 2019 and April 1, 2018, assumes that the acquisitions of NauticStar and Crest occurred as of July 1, 2017, the beginning of the comparable prior annual reporting period presented. The unaudited pro forma financial information combines historical results of MasterCraft, NauticStar and Crest, with adjustments for depreciation and amortization expense based upon the fair value step-up and estimated useful lives of depreciable fixed assets and definite-life amortizable assets acquired. Adjustments also include an increase of interest expense as if the Company’s debt obtained in connection with the acquisitions had been outstanding since July 1, 2017. The unaudited pro forma financial results include non-recurring adjustments for transaction costs directly attributable to the acquisitions and costs associated with the fair value step-up of inventory. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results. 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

 

 

Nine Months Ended

 

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

 

Net sales

 

$

128,390

 

 

$

114,276

 

 

$

364,565

 

 

$

303,783

 

 

Net income

 

$

12,784

 

 

$

11,922

 

 

$

33,628

 

 

$

25,320

 

 

Basic earnings per share

 

$

0.69

 

 

$

0.64

 

 

$

1.80

 

 

$

1.36

 

 

Diluted earnings per share

 

$

0.68

 

 

$

0.64

 

 

$

1.79

 

 

$

1.35

 

 

 

Effective October 1, 2018, in connection with the purchase of Crest, the Company entered into a lease agreement with Crest Marine Real Estate LLC (“Real Estate”) for a manufacturing facility, storage and office building.  The ten-year lease expires September 30, 2028, subject to four consecutive five year extension periods. The annual rent is $330 for the first five years of the lease term and will increase to $425 for the remaining five years. Additionally, during the option terms the rent will be adjusted every five years based upon the increase in the Consumer Price Index. One of the minority owners of Real Estate is a member of the Crest management team.

Crest purchases fiberglass component parts from a supplier whose minority owner is the same member of the Crest management team that has a minority ownership in Real Estate. During the three and nine months ended March 31, 2019, the Company purchased $1,056 and $2,005 of products from the supplier. As of March 31, 2019, the outstanding balance due to the supplier is $272.

5.

INVENTORIES

Inventories consisted of the following:

 

 

 

March 31, 2019

 

 

June 30, 2018

 

Raw materials and supplies

 

$

19,745

 

 

$

9,587

 

Work in process

 

 

5,642

 

 

 

2,822

 

Finished goods

 

 

5,802

 

 

 

9,026

 

Obsolescence reserve

 

 

(1,189

)

 

 

(968

)

Total inventories

 

$

30,000

 

 

$

20,467

 

 

15


 

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:

 

 

 

March 31, 2019

 

 

June 30, 2018

 

Prepaid photo shoot

 

$

1,051

 

 

$

273

 

Insurance

 

 

2,136

 

 

 

974

 

Trade show deposits

 

 

13

 

 

 

111

 

Interest rate cap

 

 

184

 

 

 

525

 

Other

 

 

1,163

 

 

 

1,412

 

Total prepaid expenses and other current assets

 

$

4,547

 

 

$

3,295

 

 

7.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31, 2019

 

 

June 30, 2018

 

Warranty

 

$

16,733

 

 

$

13,077

 

Self-insurance

 

 

633

 

 

 

703

 

Compensation and related accruals

 

 

4,009

 

 

 

2,995

 

Inventory repurchase contingent obligation

 

 

2,574

 

 

 

1,274

 

Floor plan interest

 

 

3,017

 

 

 

1,228

 

Debt interest

 

 

509

 

 

 

244

 

Dealer incentives

 

 

11,931

 

 

 

4,628

 

Other

 

 

2,931

 

 

 

3,717

 

Total accrued expenses and other current liabilities

 

$

42,337

 

 

$

27,866

 

 

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

 

Beginning balance - June 30, 2018

 

$

13,077

 

Provisions

 

 

5,735

 

Additions for Crest acquisition

 

 

727

 

Payments made

 

 

(5,223

)

Adjustments to preexisting warranties

 

 

2,417

 

Ending balance - March 31, 2019

 

$

16,733

 

 

During the second quarter of fiscal 2019, the Company identified errors in how accrued warranty was calculated that resulted in a net out-of-period adjustment that decreased earnings for the three months ended December 30, 2018 and increased accrued expenses and other current liabilities as of December 30, 2018 by $225. The Company determined that inaccurate data on the cost of parts was used to estimate the warranty liability. The impact of this adjustment resulted in a $1,125 increase in earnings for the three months ended December 30, 2018, with a corresponding decrease in accrued expenses and other current liabilities on the consolidated balance sheet as of December 30, 2018. The Company also determined that faulty assumptions were used when estimating costs for warranty periods impacted by the change to a five-year warranty. The adjustment resulted in a $1,350 decrease in earnings for the three months ended December 30, 2018, with a corresponding increase in accrued expenses and other current liabilities on the consolidated balance sheet as of December 30, 2018.

Management evaluated the effect of the adjustments on the Company’s financial statements under the provision of ASC 250: Accounting Changes and Error Corrections and Staff Accounting Bulletin No. 108: Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements and concluded that they were immaterial to the current year and prior year’s annual and quarterly financial statements.

16


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

8.

GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the nine months ended March 31, 2019, were as follows:

 

Goodwill as of June 30, 2018

 

$

65,792

 

Addition related to the acquisition of Crest

 

 

35,968

 

Goodwill as of March 31, 2019

 

$

101,760

 

 

As of March 31, 2019, and June 30, 2018, details of the Company’s intangible assets other than goodwill were as follows:

 

 

 

March 31, 2019

 

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

Dealer network

 

$

39,500

 

 

$

(4,935

)

 

$

34,565

 

Software

 

 

245

 

 

 

(24

)

 

 

221

 

Total amortizable intangible assets

 

 

39,745

 

 

 

(4,959

)

 

 

34,786

 

Trade names

 

 

49,000

 

 

 

 

 

 

49,000

 

Total intangible assets

 

$

88,745

 

 

$

(4,959

)

 

$

83,786

 

 

 

 

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 $987 and $2,504 for the three and nine months ended March 31, 2019, respectively. Amortization expense recognized on all amortizable intangibles was $524 and $1,077 for the three and nine months ended April 1, 2018, respectively.

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

 

Fiscal years ending June 30,

 

 

 

 

Remainder of 2019

 

$

989

 

2020

 

 

3,956

 

2021

 

 

3,956

 

2022

 

 

3,956

 

2023

 

 

3,956

 

and thereafter

 

 

17,973

 

Total

 

$

34,786

 

 

17


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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.

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:

 

 

 

March 31, 2019

 

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Asset — interest rate cap

 

$

 

 

$

184

 

 

$

 

 

 

 

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, subject to amortization.  As of March 31, 2019 the notional amount is $36,016. 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 levels during the nine months ended March 31, 2019.

18


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

10.

LONG-TERM DEBT

Long-term debt outstanding is as follows:

 

 

 

March 31, 2019

 

 

June 30, 2018

 

Revolving credit facility

 

$

 

 

$

 

Senior secured term loan

 

 

127,641

 

 

 

76,656

 

Debt issuance costs on term loan

 

 

(1,724

)

 

 

(1,500

)

Total debt

 

 

125,917

 

 

 

75,156

 

Less current portion of long-term debt

 

 

9,946

 

 

 

5,475

 

Less current portion of debt issuance costs on term loan

 

 

(451

)

 

 

(406

)

Long-term debt — less current portion

 

$

116,422

 

 

$

70,087

 

 

On October 1, 2018, the Company entered into a Fourth 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 “Fourth Amended Credit Agreement”). The Fourth Amended Credit Agreement replaced the Company’s Third Amended and Restated Credit Agreement, dated October 2, 2017. The Fourth Amended Credit Agreement provides the Company with a $190,000 senior secured credit facility, consisting of a $75,000 term loan and an $80,000 term loan (together, the “Term Loans”) and a $35,000 revolving credit facility (the “Revolving Credit Facility”). Proceeds from the $80,000 term loan went to pay for the Crest acquisition.

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 1.5% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.5% to 2.5%, 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 Term Loans will mature and all remaining amounts outstanding thereunder will be due and payable on October 1, 2023. During the three and nine months ended March 31, 2019, the Company made voluntary payments on the Term Loans of $15,000 and $22,660, respectively, out of excess cash. As of March 31, 2019 and June 30, 2018, the Company’s unamortized debt issuance costs related to the Term Loans were $1,724 and $1,500, respectively. These costs are being amortized over the term of the Fourth Amended Credit Agreement. As of March 31, 2019, the Company was in compliance with all of its debt covenants under its Fourth Amended Credit Agreement.

As of March 31, 2019, the Company had no borrowings outstanding on its Revolving Credit Facility. As of March 31, 2019 and June 30, 2018, availability under the Revolving Credit Facility was $35,000 and $30,000, respectively. The Company’s unamortized debt issuance costs on its Revolving Credit Facility were $477 and $383 as of March 31, 2019 and June 30, 2018, respectively.

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 nine months ended March 31, 2019, the Company’s effective tax rate was 21.4%.  The differences in the Company’s effective tax rate in comparable historical periods presented and the statutory federal tax rate of 21.0% 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 nine months ended March 31, 2019 is lower compared to the 23.2% effective tax rate for the nine months ended April 1, 2018, primarily due to the enactment of the Tax Cuts and Jobs Act and discrete adjustments.

19


 

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

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

Net income

 

$

12,763

 

 

$

11,454

 

 

$

31,415

 

 

$

26,509

 

Weighted average common shares — basic

 

 

18,657,719

 

 

 

18,622,083

 

 

 

18,652,289

 

 

 

18,619,006

 

Dilutive effect of assumed exercises of stock options

 

 

39,160

 

 

 

41,372

 

 

 

47,258

 

 

 

35,770

 

Dilutive effect of assumed restricted share awards/units

 

 

59,726

 

 

 

64,969

 

 

 

66,350

 

 

 

51,026

 

Weighted average outstanding shares — diluted

 

 

18,756,605

 

 

 

18,728,424

 

 

 

18,765,897

 

 

 

18,705,801

 

Basic earnings per share

 

$

0.68

 

 

$

0.62

 

 

$

1.68

 

 

$

1.42

 

Diluted earnings per share

 

$

0.68

 

 

$

0.61

 

 

$

1.67

 

 

$

1.42

 

 

For the three and nine months ended March 31, 2019, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share, included 1,757 and 1,561 restricted stock awards (“RSAs”) and 33,365 and 11,641 performance stock units (“PSUs”), respectively.  For the three and nine months ended April 1, 2018, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share, included 0 and 18,663 RSAs and 1,039 and 6,954 PSUs, respectively.

13.

STOCK-BASED COMPENSATION

During fiscal year ended June 30, 2015 the Company adopted the Amended and Restated MasterCraft Boat 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 31,207 RSAs to certain employees under the 2015 Plan at a per share fair value of $26.59. The RSAs will vest in three equal annual installments. In July 2018, 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. The RSAs vest on June 30, 2019. In August 2018, the Company granted 262 RSAs to certain employees under the 2015 Plan at a per share fair value of $25.27. The RSAs will vest in three equal installments. In October 2018, the Company granted 1,559 RSAs to a certain employee under the 2015 Plan at a per share fair value of $36.10. The RSAs will vest in three equal annual installments. In October 2018, the Company granted 1,801 RSAs under the 2015 Plan to a newly elected non-employee director at a per share fair value of $33.22. The RSAs vest on June 30, 2019. In November 2018, the Company granted 1,702 RSAs to certain employees under the 2015 Plan at a per share fair value of $27.66. The RSAs will vest on the first anniversary of the grant date. In January 2019, the Company granted 345 RSAs to a certain employee under the 2015 Plan at a per share fair value of $20.40. The RSAs will vest in three equal installments. In February 2019, the Company granted 136 RSAs to a certain employee under the 2015 Plan at a per share fair value of $22.63. The RSAs will vest in three equal installments. The per share value for each of the above RSA grants is equal to the market value of the Company’s common stock on the grant date.

In August 2018, the Company granted to certain employees 33,082 PSUs under the 2015 Plan at a per share fair value of $31.60. In October 2018, the Company granted 1,559 PSUs under its 2015 Plan to a certain employee at a per share fair value of $31.60. In January 2019, the Company granted 345 PSUs under the 2015 Plan to a certain employee at a per share fair value of $21.33. In February 2019, the Company granted 136 PSUs under the 2015 Plan to a certain employee at a per share fair value of $23.66. The fair

20


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

value was estimated 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 number of shares awarded will be subject to adjustment based upon the application of a total shareholder return (“TSR”) modifier.

During the nine months ended March 31, 2019 and April 1, 2018, the Company recognized $1,159 and $881, respectively in stock-based compensation expense.

14.

SEGMENT INFORMATION

The Company designs, manufactures, and markets recreational performance sport boats and outboard boats under three operating and reportable segments: MasterCraft, NauticStar and Crest. The Company’s segments are defined by management’s reporting structure and distribution channels. The MasterCraft segment consists of premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. The NauticStar segment consists of outboard boats primarily used for salt water fishing, and general recreational boating. Crest manufactures outboard pontoon boats. The Company distributes the MasterCraft, NauticStar and Crest products through its dealer network. Company management regularly reviews the operating performance of each segment including measures of performance based on income from operations. The Company files a consolidated income tax return and does not allocate income taxes and certain other corporate level expenses, including interest, to operating segments.

The following tables present financial information for the Company’s reportable segments for the three and nine months ended March 31, 2019 and April 1, 2018, respectively, and the Company’s financial position at March 31, 2019 and June 30, 2018, respectively.

 

 

 

Three Months Ended March 31, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

79,431

 

 

$

21,652

 

 

$

27,307

 

 

$

128,390

 

Cost of sales

 

 

56,216

 

 

 

18,216

 

 

 

22,601

 

 

 

97,033

 

Operating income

 

 

14,620

 

 

 

1,544

 

 

 

2,300

 

 

 

18,464

 

Depreciation and amortization

 

 

868

 

 

 

682

 

 

 

541

 

 

 

2,091

 

 

 

 

Three Months Ended April 1, 2018

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

69,257

 

 

$

24,554

 

 

$

 

 

$

93,811

 

Cost of sales

 

 

49,823

 

 

 

19,606

 

 

 

 

 

 

69,429

 

Operating income

 

 

12,446

 

 

 

2,753

 

 

 

 

 

 

15,199

 

Depreciation and amortization

 

 

840

 

 

 

616

 

 

 

 

 

 

1,456

 

 

 

 

Nine Months Ended March 31, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

232,062

 

 

$

58,255

 

 

$

53,255

 

 

$

343,572

 

Cost of sales

 

 

168,092

 

 

 

49,818

 

 

 

44,029

 

 

 

261,939

 

Operating income

 

 

37,563

 

 

 

2,698

 

 

 

4,535

 

 

 

44,796

 

Depreciation and amortization

 

 

2,405

 

 

 

1,967

 

 

 

1,078

 

 

 

5,450

 

21


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

 

Nine Months Ended April 1, 2018

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Consolidated

 

Net sales

 

$

192,545

 

 

$

44,750

 

 

$

 

 

$

237,295

 

Cost of sales

 

 

138,565

 

 

 

36,251

 

 

 

 

 

 

174,816

 

Operating income

 

 

32,623

 

 

 

4,422

 

 

 

 

 

 

37,045

 

Depreciation and amortization

 

 

2,447

 

 

 

1,218

 

 

 

 

 

 

3,665

 

 

 

 

As of

March 31,

2019

 

 

As of

June 30,

2018

 

Assets

 

 

 

 

 

 

 

 

MasterCraft

 

$

263,673

 

 

$

170,218

 

NauticStar

 

 

85,618

 

 

 

87,866

 

Crest

 

 

88,911

 

 

 

 

Eliminations

 

 

(163,013

)

 

 

(81,160

)

Total Assets

 

$

275,189

 

 

$

176,924

 

 

 

 

As of

March 31,

2019

 

 

As of

June 30,

2018

 

Goodwill

 

 

 

 

 

 

 

 

MasterCraft

 

$

29,593

 

 

$

29,593

 

NauticStar

 

 

36,199

 

 

 

36,199

 

Crest

 

 

35,968

 

 

 

 

Total Goodwill

 

$

101,760

 

 

$

65,792

 

 

 

22


 

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 NauticStar and Crest 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 and our Quarterly Report on Form 10-Q for the quarter ended September 30,2018. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to investors because they permit investors to view the Company’s performance using the same tools that management uses and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to the NauticStar and Crest acquisitions.

 

Overview

 

We are a world-renowned innovator, designer, manufacturer, and marketer of recreational powerboats through our three wholly-owned subsidiaries, MasterCraft, NauticStar and Crest. Through these brands, we have leading U.S. market share positions in three of the fastest growing segments of the powerboat industry - performance sport boats, outboard saltwater fishing boats and pontoon boats. Our brands have a strong international presence, with dealers in 45 countries around the world. Our boats are used for water skiing, wakeboarding, wake surfing, fishing, and general recreational boating. We operate in three reportable segments: MasterCraft, NauticStar and Crest. We believe that MasterCraft is the most recognizable brand name in the performance sport boat category given its 50-plus year history and reputation for innovation, quality and performance. NauticStar is a leading manufacturer and distributor of high-quality outboard bay boats, deck boats and offshore center console boats. Crest is a leading manufacturer and distributor of outboard aluminum pontoon boats. The acquisitions of NauticStar and Crest have provided us with product diversification and access to the outboard propulsion category, the largest powerboat industry category in terms of annual retail units sold.

 

We sell our boats through an extensive network of independent dealers in North America and internationally. Through our MasterCraft segment, we partner with 100 North American dealers with 165 locations and 46 international dealers with 77 locations throughout the rest of the world. Through our NauticStar segment, we partner with 77 North American dealers with 96 locations and one international dealer with a single location. Crest partners with 111 North American dealers with 127 locations. For the nine months ended March 31, 2019, 94.3% of our net sales were generated from North America and 5.7% of our net sales were generated from outside of North America.

 

23


 

Acquisition of Crest

 

On October 1, 2018, we completed the acquisition of Crest, a leading vertically integrated manufacturer and distributor of pontoon boats in the United States. Crest is one of the top producers of innovative, premium pontoon boats ranging from 20 to 29 feet in the powerboat industry. The transaction was structured as an acquisition of 100% of the outstanding membership interests in Crest for aggregate consideration of $81.7 million, subject to customary adjustments based on, among other things, the amount of cash, debt and working capital in the business at the closing date. We funded the purchase price for the acquisition by amending, extending and up-sizing our existing credit agreement, and with cash on hand. On October 1, 2018, we entered into the Fourth Amended Credit Agreement which provides us 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.

 

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 powerboat industry has 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 healthy dealer inventory levels, increased consumer demand, and the superior quality, performance and styling of our boats present a long runway for future growth. Since October of 2017, we have acquired two additional powerboat brands, NauticStar and Crest, that further diversify our product portfolio, and increase our total addressable market. Specifically, we now have two brands that participate in the largest, and one of the fastest growing, categories of the powerboat industry, outboard boats. Combined with our MasterCraft brand, we believe NauticStar and Crest can take market share in their respective segments, while mitigating the risk that any one segment’s performance could materially impact our overall financial performance. Furthermore, our constant focus on manufacturing excellence and product development processes have led to operational efficiencies which we expect will continue to drive margin expansion, especially at NauticStar and Crest, as we continue to integrate these two businesses.  Additionally, MasterCraft recently expanded into the luxury day boat category with the introduction of a new brand, Aviara. The Aviara brand fills a whitespace in our product portolio, while further diversifying our Company into a fast growing market of the broader powerboat industry. Aviara will be focused on the production of vessels 30-feet and over. The first Aviara model, the AV32, was introduced in February 2019 at the Miami Boat Show.  Aviara will be built at the MasterCraft facility, and will be included in the MasterCraft segment for financial reporting purposes.

24


 

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

 

 

Nine Months Ended

 

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

 

Consolidated statement of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

128,390

 

 

$

93,811

 

 

$

343,572

 

 

$

237,295

 

 

Cost of sales

 

 

97,033

 

 

 

69,429

 

 

 

261,939

 

 

 

174,816

 

 

Gross profit

 

 

31,357

 

 

 

24,382

 

 

 

81,633

 

 

 

62,479

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

5,210

 

 

 

3,560

 

 

 

13,757

 

 

 

9,969

 

 

General and administrative

 

 

6,696

 

 

 

5,099

 

 

 

20,576

 

 

 

14,388

 

 

Amortization of intangible assets

 

 

987

 

 

 

524

 

 

 

2,504

 

 

 

1,077

 

 

Total operating expenses

 

 

12,893

 

 

 

9,183

 

 

 

36,837

 

 

 

25,434

 

 

Operating income

 

 

18,464

 

 

 

15,199

 

 

 

44,796

 

 

 

37,045

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

1,867

 

 

 

897

 

 

 

4,829

 

 

 

2,527

 

 

Income before income tax expense

 

 

16,597

 

 

 

14,302

 

 

 

39,967

 

 

 

34,518

 

 

Income tax expense

 

 

3,834

 

 

 

2,848

 

 

 

8,552

 

 

 

8,009

 

 

Net income

 

$

12,763

 

 

$

11,454

 

 

$

31,415

 

 

$

26,509

 

 

Additional financial and other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

 

868

 

 

 

804

 

 

 

2,609

 

 

 

2,254

 

 

NauticStar

 

 

485

 

 

 

628

 

 

 

1,391

 

 

 

1,154

 

 

Crest

 

 

728

 

 

 

 

 

 

1,403

 

 

 

 

 

MasterCraft sales

 

$

79,431

 

 

$

69,257

 

 

$

232,062

 

 

$

192,545

 

 

NauticStar sales

 

$

21,652

 

 

$

24,554

 

 

$

58,255

 

 

$

44,750

 

 

Crest sales

 

$

27,307

 

 

$

-

 

 

$

53,255

 

 

$

-

 

 

Consolidated sales

 

$

128,390

 

 

$

93,811

 

 

$

343,572

 

 

$

237,295

 

 

Per Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft sales

 

$

92

 

 

$

86

 

 

$

89

 

 

$

85

 

 

NauticStar sales

 

$

45

 

 

$

39

 

 

 

42

 

 

 

39

 

 

Crest sales

 

$

38

 

 

$

 

 

 

38

 

 

 

 

 

Consolidated sales

 

$

62

 

 

$

66

 

 

$

64

 

 

$

70

 

 

Gross margin

 

 

24.4

 

%

 

26.0

 

%

 

23.8

 

%

 

26.3

 

%

 

Three Months Ended March 31, 2019 Compared to Three Months Ended April 1, 2018

 

Net Sales.  Total net sales for the three months ended March 31, 2019 were $128.4 million, reflecting an increase of $34.6 million, or 36.9%, compared to total net sales of $93.8 million for the three months ended April 1, 2018. The Crest acquisition added $27.3 million of net sales in the third quarter. MasterCraft’s net sales increased 14.7%, or $10.2 million, to $79.4 million driven by an 8.0% increase in unit volume, favorable product mix, a reduction in retail rebate expense due to strong year-to-date retail performance and the timing impact from the new revenue recognition standard adopted beginning in fiscal year 2019, and price increases.  MasterCraft’s unit volume increased despite one week of production being shifted from the fiscal third quarter into the fiscal second quarter due to the timing of the planned, annual holiday shutdown.  These increases in net sales were partially offset by higher sales discounts given to Canadian and European dealers impacted by the retaliatory import tariffs. We made the strategic decision to partially offset the import tariff for our Canadian and European dealers, which we believe continues to provide us with a competitive advantage. NauticStar’s net sales decreased 11.8%, or $2.9 million, to $21.7 million

25


 

due to lower wholesale units driven by a slowdown in the retail demand for NauticStar’s small boats, partially offset by favorable model mix as the organization introduces larger models at higher price price points.

 

Gross Profit.  For the three months ended March 31, 2019, gross profit increased $7.0 million, or 28.6%, to $31.4 million compared to $24.4 million for the three months ended April 1, 2018. The inclusion of Crest accounted for $4.7 million of the increase, while MasterCraft contributed $3.8 million. NauticStar’s gross profit declined $1.5 million. On a consolidated basis, gross margin decreased to 24.4% for the three months ended March 31, 2019 compared to 26.0% for the three months ended April 1, 2018. The decrease was primarily due to the dilutive effect from the inclusion of Crest. Excluding the incremental impact of Crest, gross margin increased year-over-year to 26.4% from 26.0% driven by growth in higher margin MasterCraft unit sales, lower retail sales incentives due to strong year-to-date retail performance and the timing impact from the new revenue recognition standard, favorable product mix, and price increases at both MasterCraft and NauticStar. The increase was partially offset by the strategic decision to offset a portion of the retaliatory import tariffs impacting our Canadian and European dealers.

 

Operating Expenses. For the three months ended March 31, 2019, operating expenses increased $3.7 million, or 40.4%, to $12.9 million compared to $9.2 million for the three months ended April 1, 2018. This increase was mainly due to the inclusion of Crest and start-up costs associated with our new Aviara brand. Excluding the Aviara brand start-up costs of $0.9 million and $0.3 million for the three months ended March 31, 2019 and April 1, 2018, respectively, operating expenses as a percentage of net sales decreased for the three months ended March 31, 2019 compared to the three months ended April 1, 2018.

 

Other Expense.  Interest expense increased $1.0 million for the three months ended March 31, 2019 compared to the three months ended April 1, 2018. The increase is due to an increase in our term loan balance related to the Crest acquisition.

 

Income Tax Expense.  Our income tax expense was $3.8 million for the three months ended March 31, 2019. Our consolidated interim effective tax rate for the three months ended March 31, 2019 was 23.1%. 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.

 

Nine Months Ended March 31, 2019 Compared to Nine Months Ended April 1, 2018

 

Net Sales.  Total net sales for the nine months ended March 31, 2019 were $343.6 million, reflecting an increase of $106.3 million, or 44.8%, compared to total net sales of $237.3 million for the nine months ended April 1, 2018. The inclusion of Crest accounts for an increase of $53.3 million. MasterCraft’s net sales increased 20.5%, or $39.5 million, which is driven by an increase in sales volume, a favorable product mix and price increases. These increases in net sales were partially offset by the strategic decision to offset a portion of the retaliatory import tariffs impacting our Canadian and European dealers and increased retail rebate expense due to strong-year-to-date retail performance and the timing impact from the new revenue recognition standard adopted beginning in fiscal year 2019. NauticStar’s net sales increased 30.2%, or $13.5 million, due to the inclusion of NauticStar in our fiscal quarter ended September 30, 2018 and increased average selling price due to favorable model mix and price increases, offset by lower wholesale units driven by a scheduled pullback in production in fiscal first quarter as NauticStar’s facility was retrofitted to handle new, larger boat models being introduced throughout calendar year 2019, and a slowdown in the retail demand for NauticStar’s small boats.

 

Gross Profit.  For the nine months ended March 31, 2019, our gross profit increased $19.1 million, or 30.6%, to $81.6 million compared to $62.5 million for the nine months ended April 1, 2018. MasterCraft contributed $10.0 million to the increase in gross profit and the inclusion of Crest accounted for $9.2 million of the increase. NauticStar’s gross profit was relatively flat. On a consolidated basis, gross margin decreased to 23.8% for the nine months ended March 31, 2019 compared to 26.3% for the nine months ended April 1, 2018. The decrease was primarily due to the dilutive effect from the inclusion of NauticStar and Crest, higher warranty costs, the strategic decision to offset a portion of the retaliatory import tariffs impacting our Canadian and European dealers

26


 

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

 

Operating Expenses.  Operating expenses for the nine months ended March 31, 2019 increased 44.8%, or $11.4 million, from $25.4 million to $36.8 million. The increase was mainly due to the inclusion of NauticStar and Crest, an increase in compensation costs from added headcount to support growth initiatives, and start-up costs for our new Aviara brand. Excluding the Aviara brand start-up costs of $1.7 million and $0.4 million for the nine months ended March 31, 2019 and April 1, 2018, respectively, operating expenses as a percentage of net sales decreased for the nine months ended March 31, 2019 compared to the nine months ended April 1, 2018.

 

Other Expense.  Interest expense increased $2.3 million for the nine months ended March 31, 2019 compared to the nine months ended April 1, 2018. The increase is due to an increase in our term loan balance related to the NauticStar and Crest acquisitions.

 

Income Tax Expense.  Our income tax expense was $8.6 million for the nine months ended March 31, 2019. Our consolidated interim effective tax rate for the nine months ended March 31, 2019 was 21.4%. The differences in our effective tax rate in comparable historical periods presented and the statutory federal tax rate of 21% is 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 nine months ended March 31, 2019 decreased 1.8% compared to the 23.2% effective tax rate for the nine months ended April 1, 2018, primarily due to the enactment of the Tax Cuts and Jobs Act and discrete adjustments.

 

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 start-up costs for our new Aviara brand. 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, start-up costs for our new Aviara brand 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 net sales. Adjusted EBITDA, Adjusted net income and Adjusted EBITDA margin are not measures of net income or operating income as determined under 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 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;

27


 

 

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 and Adjusted EBITDA margin for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Net income

 

$

12,763

 

 

$

11,454

 

 

$

31,415

 

 

$

26,509

 

Income tax expense

 

 

3,834

 

 

 

2,848

 

 

 

8,552

 

 

 

8,009

 

Interest expense, net

 

 

1,867

 

 

 

897

 

 

 

4,829

 

 

 

2,527

 

Depreciation and amortization

 

 

2,091

 

 

 

1,456

 

 

 

5,450

 

 

 

3,665

 

EBITDA

 

 

20,555

 

 

 

16,655

 

 

 

50,246

 

 

 

40,710

 

Transaction expense(a)

 

 

27

 

 

 

247

 

 

 

2,044

 

 

 

1,733

 

Inventory step-up adjustment – acquisition related

 

 

 

 

 

 

 

 

382

 

 

 

501

 

New brand start-up costs(b)

 

 

937

 

 

 

253

 

 

 

1,700

 

 

 

358

 

Stock-based compensation

 

 

371

 

 

 

353

 

 

 

1,159

 

 

 

881

 

Adjusted EBITDA

 

$

21,890

 

 

$

17,508

 

 

$

55,531

 

 

$

44,183

 

Adjusted EBITDA Margin

 

 

17.0

%

 

 

18.7

%

 

 

16.2

%

 

 

18.6

%

 

(a)

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

(b)

Represents start-up costs associated with Aviara - a completely new boat brand in a segment of the market neither MasterCraft, NauticStar nor Crest serves.

 

28


 

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

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

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

 

 

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

 

Net income

 

$

12,763

 

 

$

11,454

 

 

$

31,415

 

 

$

26,509

 

Income tax expense

 

 

3,834

 

 

 

2,848

 

 

 

8,552

 

 

 

8,009

 

Transaction expense(a)

 

 

27

 

 

 

247

 

 

 

2,044

 

 

 

1,733

 

Amortization of acquisition intangibles

 

 

960

 

 

 

499

 

 

 

2,423

 

 

 

997

 

Inventory step-up adjustment – acquisition related

 

 

 

 

 

 

 

 

382

 

 

 

501

 

New brand start-up costs(b)

 

 

937

 

 

 

253

 

 

 

1,700

 

 

 

358

 

Stock-based compensation

 

 

371

 

 

 

353

 

 

 

1,159

 

 

 

881

 

Adjusted Net Income before income taxes

 

 

18,892

 

 

 

15,654

 

 

 

47,675

 

 

 

38,988

 

Adjusted income tax expense(c)

 

 

4,251

 

 

 

4,540

 

 

 

10,727

 

 

 

11,307

 

Adjusted Net Income

 

$

14,641

 

 

$

11,114

 

 

$

36,948

 

 

$

27,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro-forma Adjusted Net Income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.78

 

 

 

0.60

 

 

 

1.98

 

 

 

1.49

 

Diluted

 

 

0.78

 

 

 

0.59

 

 

 

1.96

 

 

 

1.47

 

Pro-forma weighted average shares used for the

   computation of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Adjusted Net Income per share

 

 

18,658,096

 

 

 

18,624,381

 

 

 

18,654,823

 

 

 

18,621,350

 

Diluted Adjusted Net Income per share(d)

 

 

18,849,397

 

 

 

18,803,396

 

 

 

18,860,057

 

 

 

18,797,949

 

 

(a)

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

(b)

Represents start-up costs associated with Aviara - a completely new boat brand in a segment of the market neither MasterCraft, NauticStar nor Crest 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)

For the three months ended March 31, 2019, the weighted average shares used for computation of pro-forma diluted earnings per common share gives effect to 65,898 shares of RSAs, 82,878 PSUs and 42,525 shares for the dilutive effect of stock options.

 

29


 

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

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

March 31, 2019

 

 

April 1, 2018

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Net income per diluted share

 

$

0.68

 

 

$

0.61

 

 

$

1.67

 

 

$

1.42

 

Impact of adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

0.20

 

 

 

0.15

 

 

 

0.46

 

 

 

0.43

 

Transaction expense(a)

 

 

 

 

 

0.01

 

 

 

0.11

 

 

 

0.09

 

Amortization of acquisition intangibles

 

 

0.05

 

 

 

0.03

 

 

 

0.13

 

 

 

0.05

 

Inventory step-up adjustment – acquisition related

 

 

 

 

 

 

 

 

0.02

 

 

 

0.03

 

New brand start-up costs(b)

 

 

0.05

 

 

 

0.01

 

 

 

0.09

 

 

 

0.02

 

Stock-based compensation

 

 

0.02

 

 

 

0.02

 

 

 

0.06

 

 

 

0.05

 

Adjusted Net Income per diluted share before income

   taxes

 

 

1.00

 

 

 

0.83

 

 

 

2.54

 

 

 

2.09

 

Impact of adjusted income tax expense on net income

   per diluted share before income taxes(c)

 

 

(0.22

)

 

 

(0.24

)

 

 

(0.58

)

 

 

(0.60

)

Impact of increased share count(d)

 

 

 

 

 

 

 

 

 

 

 

(0.02

)

Adjusted Net Income per diluted pro-forma weighted

   average share

 

$

0.78

 

 

$

0.59

 

 

$

1.96

 

 

$

1.47

 

 

(a)

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

(b)

Represents start-up costs associated with Aviara - a completely new boat brand in a segment of the market neither MasterCraft, NauticStar nor Crest 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 RSAs, the vesting of all PSUs 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 March 31, 2019, we had borrowing availability of $35.0 million under our revolving credit facility. We believe our cash from operations, along with borrowings under our 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:

 

 

 

Nine Months Ended

 

 

 

March 31, 2019

 

 

April 1, 2018

 

 

 

(Unaudited)

 

 

 

(Dollars in thousands)

 

Total cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities

 

$

39,552

 

 

$

36,288

 

Investing activities

 

 

(92,111

)

 

 

(83,015

)

Financing activities

 

 

50,111

 

 

 

51,189

 

Net change in cash

 

$

(2,448

)

 

$

4,462

 

 

Operating Activities

 

Our net cash provided by operating activities increased by $3.3 million, or 9.0%, to $39.6 million for the nine months ended March 31, 2019 compared to $36.3 million for the nine months ended April 1, 2018. This increase was primarily due to higher earnings

30


 

before interest, taxes, depreciation and amortization between periods, partially due to lower cash payments for income taxes, offset by an increase in the growth of accounts receivable primarily due to the Crest acquisition and timing of payments.

 

Investing Activities

 

Net cash used in investing activities increased by $9.1 million to $92.1 million during the nine months ended March 31, 2019, compared to $83.0 million during the nine months ended April 1, 2018. This increase was primarily due to an increase in capital expenditures of $10.4 million for manufacturing infrastructure expansion, molds, and equipment.

 

Financing Activities

 

Net cash provided by financing activities decreased by $1.1 million to $50.1 million for the nine months ended March 31, 2019, compared to $51.2 million for the nine months ended April 1, 2018. The decrease is primarily due to the issuance of less long-term debt and an an increase in principal payments on long-term debt. As discussed in Note 10 to our unaudited condensed consolidated financial statements, on October 1, 2018, we entered into the Fourth Amended Credit Agreement, which provides us 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.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2019, 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.

 

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 March 31, 2019, 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.

31


 

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.

 

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 March 31, 2019.

 

Changes in Internal Control Over Financial Reporting

 

On October 1, 2018, we completed the acquisition of Crest. Prior to the acquisition, Crest was a privately-held company and was not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies. Our management is in the process of reviewing the operations of Crest, and implementing our internal control structure over the operations of the recently acquired entity; however, we will elect to exclude Crest when conducting our annual evaluation of the effectiveness of internal controls over financial reporting, as permitted by applicable regulations.

Other than our integration of Crest, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2019 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.

None.

ITEM 1A.

RISK FACTORS.

During the quarter ended March 31, 2019, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K or the risk factors disclosed in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018.

ITEM 2.

UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

32


 

ITEM 4.

MINE SAFETY DISCLOSURES.

None.

ITEM 5.

OTHER INFORMATION.

None.

33


 

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.

 

10-Q

 

001-37502

 

3.2

 

11/9/18

 

 

 

3.3  

 

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

 

10-Q

 

001-37502

 

3.3

 

11/9/18

 

 

 

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

 

10.1

 

9/18/15

 

 

 

10.2† 

 

MasterCraft Boat Holdings, Inc 2010 Equity Incentive Plan

 

S-1/A

 

333-203815

 

10.2

 

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†

 

Form of Indemnification Agreement for directors and officers

 

S-1/A

 

333-203815

 

10.9

 

7/7/15

 

 

 

10.13

 

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

 

8-K

 

001-37502

 

10.1

 

8/26/16

 

 

 

10.14

 

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

 

 

 

 

 

 

 

 

 

**

 

34


 

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


 

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

 

 

 

May 9, 2019

 

 

 

 

 

/s/ TIMOTHY M. OXLEY

 

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

 

 

Timothy M. Oxley

 

 

 

May 9, 2019

 

36

mcft-ex311_8.htm

Exhibit 31.1

CERTIFICATIONS

I, Terry McNew, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 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: May 9, 2019

 

/s/ Terry McNew

 

 

Terry McNew

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 

mcft-ex312_6.htm

Exhibit 31.2

CERTIFICATIONS

I, Timothy M. Oxley, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019 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: May 9, 2019

 

/s/ Timothy M. Oxley

 

 

Timothy M. Oxley

 

 

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)

 

mcft-ex321_9.htm

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 March 31, 2019 (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.

 

May 9, 2019

 

 

 

/s/ Terry McNew

 

 

 

 

Terry McNew

 

 

 

 

President and Chief Executive Officer (Principal Executive Officer)

 

mcft-ex322_7.htm

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 March 31, 2019 (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.

 

May 9, 2019

 

 

 

/s/ Timothy M. Oxley

 

 

 

 

Timothy M. Oxley

 

 

 

 

Chief Financial Officer, Treasurer and Secretary

(Principal Financial and Accounting Officer)