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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-Q

 

 

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

For the quarterly period ended: October 4, 2020

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)

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

 

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 Exchange Act).          Yes               No

As of November 9, 2020, there were 18,952,338 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.

 

 

 


 

 

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 Statements 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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits, Financial Statement Schedules

27

 

 

 

SIGNATURES

 

28

 

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. These forward-looking statements can generally be identified by the use of statements that include words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar words or phrases. 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: the potential effects of the coronavirus (“COVID-19”) pandemic on the Company, 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, 2020, filed with the Securities and Exchange Commission (“SEC”) on September 11, 2020 (our “2020 Annual Report”). 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 may 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 per share amounts)

 

 

 

Three Months Ended

 

 

 

October 4,

 

 

September 29,

 

 

 

2020

 

 

2019

 

NET SALES

 

$

103,745

 

 

$

109,789

 

COST OF SALES

 

 

77,515

 

 

 

84,256

 

GROSS PROFIT

 

 

26,230

 

 

 

25,533

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

2,907

 

 

 

4,064

 

General and administrative

 

 

8,932

 

 

 

7,785

 

Amortization of other intangible assets

 

 

987

 

 

 

987

 

Total operating expenses

 

 

12,826

 

 

 

12,836

 

OPERATING INCOME

 

 

13,404

 

 

 

12,697

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

Interest expense

 

 

1,019

 

 

 

1,344

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

12,385

 

 

 

11,353

 

INCOME TAX EXPENSE

 

 

2,818

 

 

 

2,730

 

NET INCOME

 

$

9,567

 

 

$

8,623

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

Basic

 

$

0.51

 

 

$

0.46

 

Diluted

 

$

0.51

 

 

$

0.46

 

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

18,774,336

 

 

 

18,723,845

 

Diluted earnings per share

 

 

18,866,826

 

 

 

18,770,756

 

 

Notes to Unaudited Condensed Consolidated Financial Statements 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 per share amounts)

 

 

 

October 4,

 

 

June 30,

 

 

 

2020

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,858

 

 

$

16,319

 

Accounts receivable, net of allowances of $330 and $247, respectively

 

 

12,993

 

 

 

6,145

 

Income tax receivable

 

 

2,804

 

 

 

4,924

 

Inventories, net (Note 3)

 

 

32,601

 

 

 

25,636

 

Prepaid expenses and other current assets

 

 

3,644

 

 

 

3,719

 

Total current assets

 

 

60,900

 

 

 

56,743

 

Property, plant and equipment, net

 

 

40,659

 

 

 

40,481

 

Goodwill (Note 4)

 

 

29,593

 

 

 

29,593

 

Other intangible assets, net (Note 4)

 

 

62,861

 

 

 

63,849

 

Deferred income taxes

 

 

16,121

 

 

 

16,080

 

Deferred debt issuance costs, net

 

 

392

 

 

 

425

 

Other long-term assets

 

 

694

 

 

 

752

 

Total assets

 

$

211,220

 

 

$

207,923

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,675

 

 

$

10,510

 

Accrued expenses and other current liabilities (Note 5)

 

 

35,891

 

 

 

35,985

 

Current portion of long-term debt, net of unamortized debt issuance costs (Note 6)

 

 

8,943

 

 

 

8,932

 

Total current liabilities

 

 

60,509

 

 

 

55,427

 

Long-term debt, net of unamortized debt issuance costs (Note 6)

 

 

87,426

 

 

 

99,666

 

Unrecognized tax positions

 

 

4,141

 

 

 

3,683

 

Other long-term liabilities

 

 

221

 

 

 

277

 

Total liabilities

 

 

152,297

 

 

 

159,053

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,952,338 shares at October 4, 2020 and 18,871,637 shares at June 30, 2020

 

 

189

 

 

 

189

 

Additional paid-in capital

 

 

116,668

 

 

 

116,182

 

Accumulated deficit

 

 

(57,934

)

 

 

(67,501

)

Total stockholders' equity

 

 

58,923

 

 

 

48,870

 

Total liabilities and stockholders' equity

 

$

211,220

 

 

$

207,923

 

 

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

 

5


 

 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at June 30, 2020

 

 

18,871,637

 

 

$

189

 

 

$

116,182

 

 

$

(67,501

)

 

$

48,870

 

Share-based compensation activity

 

 

80,701

 

 

 

 

 

 

486

 

 

 

 

 

 

486

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,567

 

 

 

9,567

 

Balance at October 4, 2020

 

 

18,952,338

 

 

$

189

 

 

$

116,668

 

 

$

(57,934

)

 

$

58,923

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at June 30, 2019

 

 

18,764,037

 

 

$

188

 

 

$

115,582

 

 

$

(43,454

)

 

$

72,316

 

Share-based compensation activity

 

 

74,960

 

 

 

1

 

 

 

169

 

 

 

 

 

 

170

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,623

 

 

 

8,623

 

Balance at September 29, 2019

 

 

18,838,997

 

 

$

189

 

 

$

115,751

 

 

$

(34,831

)

 

$

81,109

 

 

Notes to Unaudited Condensed Consolidated Financial Statements 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)

 

 

 

Three Months Ended

 

 

 

October 4,

 

 

September 29,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

9,567

 

 

$

8,623

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,739

 

 

 

2,371

 

Share-based compensation

 

 

640

 

 

 

512

 

Unrecognized tax benefits

 

 

458

 

 

 

207

 

Amortization of debt issuance costs

 

 

159

 

 

 

142

 

Changes in certain operating assets and liabilities

 

 

(6,737

)

 

 

(6,934

)

Other, net

 

 

546

 

 

 

321

 

Net  cash provided by operating activities

 

 

7,372

 

 

 

5,242

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(2,042

)

 

 

(4,328

)

Proceeds from disposal of property, plant and equipment

 

 

 

 

 

14

 

Net cash used in investing activities

 

 

(2,042

)

 

 

(4,314

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal payments on revolving credit facility

 

 

(10,000

)

 

 

 

Principal payments on long-term debt

 

 

(2,355

)

 

 

 

Principal payments on insurance premium financing

 

 

(282

)

 

 

 

Cash paid for withholding taxes on vested stock

 

 

(154

)

 

 

(343

)

Net cash provided by financing activities

 

 

(12,791

)

 

 

(343

)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(7,461

)

 

 

585

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

 

 

16,319

 

 

 

5,826

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

 

$

8,858

 

 

$

6,411

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

828

 

 

$

835

 

Cash payments for income taxes

 

 

280

 

 

 

3,501

 

SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures in accounts payable and accrued expenses

 

 

242

 

 

 

321

 

 

Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.

 

7


 

MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless stated otherwise dollars in thousands, except per share data)

1.ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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, 2020 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of October 4, 2020, its results of operations for the three months ended October 4, 2020 and September 29, 2019, its cash flows for the three months ended October 4, 2020 and September 29, 2019, and its statements of stockholders’ equity for the three months ended October 4, 2020 and September 29, 2019. All adjustments are of a normal, recurring nature. 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 SEC for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2020 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 2020 Annual Report on Form 10-K.

Due to the seasonality of the Company’s business, the interim results are not necessarily indicative of the results that may be expected for the remainder of the fiscal year.

 

COVID-19 Pandemic — To balance wholesale production with the then anticipated impacts to retail demand caused by the economic impacts of the COVID-19 pandemic, the Company reduced production in February 2020 and, in late March 2020, temporarily suspended manufacturing operations at all of the Company’s facilities to protect the health of employees and to comply with governmental mandates. The Company resumed operations at reduced production levels at our manufacturing facilities by mid-May 2020 and the Company continues to ramp up production.

 

The Company remains subject to risks and uncertainties as a result of the COVID-19 pandemic (including the possibility of a second wave of infections). The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the response to the COVID-19 pandemic continues to evolve in many countries, including the United States and other markets where the Company operates. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it has caused economic downturns or recessions in the U.S. and other markets where the Company operates. Such economic disruption could have a material adverse effect on the Company’s business as retail demand for our products could decline which would in-turn reduce wholesale demand from the Company’s dealers. Policymakers around the world have responded and may continue to respond with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remain uncertain.

 

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration, spread, severity, and impact of the pandemic, the remedial actions and stimulus measures adopted by local and federal governments, the effects of the pandemic on the Company's consumers, dealers, suppliers and workforce, and to the extent

8


 

 

normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The Company's future results of operations, cash flows, and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain or workforce disruptions and uncertain demand, impairment charges, and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its consumers, dealers, and suppliers. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

There were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the three months ended October 4, 2020 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2020.

New Accounting Pronouncements Issued But Not Yet Adopted

 

Income Taxes — In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combination that result in a step-up in the tax basis of goodwill. The transition requirements are primarily prospective, and the effective date is for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Recently Adopted Accounting Standards

 

Fair Value Measurements — In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This guidance modifies the disclosure requirements on fair value measurements in Topic 820 by removing disclosures regarding transfers between Level 1 and Level 2 of the fair value hierarchy, by modifying the measurement uncertainty disclosure, and by requiring additional disclosures for Level 3 fair value measurements, among others. The Company adopted this guidance for its fiscal year beginning July 1, 2020. The adoption of this standard did not have an impact on the consolidated financial statements.

 

Current Expected Credit Loss — In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which updated the ASC to use an impairment model that is based on expected losses rather than incurred losses. The Company adopted this guidance for its fiscal year beginning July 1, 2020. The adoption of this standard did not have an impact on the consolidated financial statements.

 

2.

REVENUE RECOGNITION

The following table presents the Company’s revenue by major product category for each reportable segment.

 

 

 

Three Months Ended October 4, 2020

 

 

Three Months Ended September 29, 2019

 

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

 

MasterCraft

 

 

NauticStar

 

 

Crest

 

 

Total

 

Major Product Categories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Boats and trailers

 

$

68,582

 

 

$

12,216

 

 

$

17,610

 

 

$

98,408

 

 

$

69,286

 

 

$

17,834

 

 

$

18,624

 

 

$

105,744

 

Parts

 

 

4,545

 

 

 

123

 

 

 

391

 

 

 

5,059

 

 

 

3,432

 

 

 

160

 

 

 

181

 

 

 

3,773

 

Other revenue

 

 

237

 

 

 

3

 

 

 

38

 

 

 

278

 

 

 

195

 

 

 

1

 

 

 

76

 

 

 

272

 

Total

 

$

73,364

 

 

$

12,342

 

 

$

18,039

 

 

$

103,745

 

 

$

72,913

 

 

$

17,995

 

 

$

18,881

 

 

$

109,789

 

 

9


 

 

Contract Liabilities

 

As of June 30, 2020, the Company had $0.6 million of contract liabilities associated with customer deposits. During the three months ended October 4, 2020, all of this amount was recognized as revenue. As of October 4, 2020, total contract liabilities associated with customer deposits were $1.1 million, were reported in Accrued expenses and other current liabilities on the condensed consolidated balance sheet, and are expected to be recognized as revenue during the remainder of the year ended June 30, 2021.  

 

3.

INVENTORIES

Inventories consisted of the following:

 

 

 

October 4,

 

 

June 30,

 

 

 

2020

 

 

2020

 

Raw materials and supplies

 

$

23,781

 

 

$

18,318

 

Work in process

 

 

5,230

 

 

 

3,866

 

Finished goods

 

 

5,971

 

 

 

4,876

 

Obsolescence reserve

 

 

(2,381

)

 

 

(1,424

)

Total inventories

 

$

32,601

 

 

$

25,636

 

 

4.GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amounts of goodwill as of October 4, 2020 and June 30, 2019, attributable to each of the Company’s reportable segments, were as follows:

 

 

 

Gross Amount

 

 

Accumulated Impairment Losses

 

 

Total

 

MasterCraft

 

$

29,593

 

 

$

-

 

 

$

29,593

 

NauticStar

 

 

36,199

 

 

 

(36,199

)

 

 

-

 

Crest

 

 

36,238

 

 

 

(36,238

)

 

 

-

 

Total

 

$

102,030

 

 

$

(72,437

)

 

$

29,593

 

 

The following table presents the carrying amount of Other intangible assets, net:

 

 

 

October 4,

 

 

June 30,

 

 

 

2020

 

 

2020

 

 

 

Gross Amount

 

 

Accumulated Amortization / Impairment

 

 

Other intangible assets, net

 

 

Gross Amount

 

 

Accumulated Amortization / Impairment

 

 

Other intangible assets, net

 

Amortized intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dealer networks

 

$

39,500

 

 

$

(10,786

)

 

$

28,714

 

 

$

39,500

 

 

$

(9,810

)

 

$

29,690

 

Software

 

 

245

 

 

 

(98

)

 

 

147

 

 

 

245

 

 

 

(86

)

 

 

159

 

 

 

 

39,745

 

 

 

(10,884

)

 

 

28,861

 

 

 

39,745

 

 

 

(9,896

)

 

 

29,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

 

49,000

 

 

 

(15,000

)

 

 

34,000

 

 

 

49,000

 

 

 

(15,000

)

 

 

34,000

 

Total other intangible assets

 

$

88,745

 

 

$

(25,884

)

 

$

62,861

 

 

$

88,745

 

 

$

(24,896

)

 

$

63,849

 

 

Amortization expense related to Other intangible assets, net for each of the three months ended October 4, 2020 and September 29, 2019 was $1.0 million. Estimated amortization expense for the fiscal year ended June 30, 2021 is $4.0 million.

 

10


 

 

5.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

 

 

 

October 4,

 

 

June 30,

 

 

 

2020

 

 

2020

 

Warranty

 

$

20,533

 

 

$

20,004

 

Dealer incentives

 

 

4,890

 

 

 

8,448

 

Compensation and related accruals

 

 

3,284

 

 

 

1,488

 

Floor plan interest

 

 

1,153

 

 

 

732

 

Inventory repurchase contingent obligation

 

 

640

 

 

 

1,132

 

Insurance premium financing

 

 

380

 

 

 

662

 

Self-insurance

 

 

491

 

 

 

704

 

Debt interest

 

 

31

 

 

 

 

Other

 

 

4,489

 

 

 

2,815

 

Total accrued expenses and other current liabilities

 

$

35,891

 

 

$

35,985

 

 

Accrued warranty liability activity was as follows for the three months ending:

 

 

 

October 4,

 

 

September 29,

 

 

 

2020

 

 

2019

 

Balance at the beginning of the period

 

$

20,004

 

 

$

17,205

 

Provisions

 

 

1,833

 

 

 

1,999

 

Payments made

 

 

(2,103

)

 

 

(2,302

)

Aggregate changes for preexisting warranties

 

 

799

 

 

 

788

 

Balance at the end of the period

 

$

20,533

 

 

$

17,690

 

      

Insurance Premium Financing

 

On March 27, 2020, the Company executed an insurance premium financing agreement of $1.1 million with a premium finance company in order to finance certain of its annual insurance premiums. Beginning on April 1, 2020, the financing agreement is payable in eleven monthly installments of principal and interest of approximately $0.1 million. The agreement bears interest at 3.6%. The balance of the insurance premium financing as of October 4, 2020 was $0.4 million and is recorded in Accrued expenses and other current liabilities.

 

6.LONG-TERM DEBT

Long-term debt is as follows:

 

 

 

October 4,

 

 

June 30,

 

 

 

2020

 

 

2020

 

Revolving credit facility

 

$

-

 

 

$

10,000

 

Term loans

 

 

97,638

 

 

 

99,993

 

Debt issuance costs on term loans

 

 

(1,269

)

 

 

(1,395

)

Total debt

 

 

96,369

 

 

 

108,598

 

Less current portion of long-term debt

 

 

9,420

 

 

 

9,420

 

Less current portion of debt issuance costs on term loans

 

 

(477

)

 

 

(488

)

Long-term debt, net of current portion

 

$

87,426

 

 

$

99,666

 

 

On October 1, 2018, the Company entered into a Fourth Amended and Restated Credit and Guaranty Agreement with a syndicate of certain financial institutions (the “Fourth Amended Credit Agreement”). The Fourth Amended Credit Agreement provides the Company with a $190.0 million senior secured credit facility, consisting of a $75.0 million term loan, and an $80.0 million term loan (together,

11


 

 

the “Term Loans”), and a $35.0 million revolving credit facility (the “Revolving Credit Facility”). The Fourth Amended Credit Agreement is secured by substantially all the assets of the Company. Holdings is a guarantor on the Fourth Amended Credit Agreement and the Fourth Amended Credit Agreement contains covenants that restrict the ability of Holdings’ subsidiaries to make distributions to Holdings. The Term Loans will mature and all remaining amounts outstanding thereunder will be due and payable on October 1, 2023.

 

Amendment to Fourth Amended Credit Agreement

 

On May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended Credit Agreement (the “Amendment”). The changes effected by the Amendment include, among others, the temporary removal and replacement of the Company’s financial covenants, the addition of a 50 basis point floor on LIBOR, modifications to the range of applicable LIBOR and prime interest rate margins, and a revision of the Total Net Leverage Ratio calculation. Under the Amendment, the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant of the Fourth Amended Credit Agreement are temporarily replaced with three separate covenants: (i) an Interest Coverage Ratio, (ii) a Minimum Liquidity threshold, and (iii) a Maximum Unfinanced Capital Expenditures limitation (the “Package of Financial Covenants”). The Package of Financial Covenants are in place through the quarter ended March 31, 2021, after which time the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant will be reinstated and the Package of Financial Covenants will sunset, and with the minimum liquidity covenant being tested on the last day of each fiscal month through May 31, 2021. In addition, the Total Net Leverage Ratio calculation was temporarily revised to include all unrestricted cash balances, without limitation, until June 30, 2021. As of October 4, 2020, the Company was in compliance with its financial covenants under the Amendment to the Fourth Amended Credit Agreement.  

Pursuant to the Amendment, the applicable interest, at the Company’s option, is at either the prime rate plus an applicable margin ranging from 0.5% to 2.25% or at a LIBOR rate, subject to a 50 basis point floor, plus an applicable margin ranging from 1.5% to 3.25%, in each case based on the Company’s Total Net Leverage Ratio. During the quarter, the applicable margin for loans accruing interest at the prime rate was 1.25% and the applicable margin for loans accruing interest at LIBOR was 2.25%.

Revolving Credit Facility

During the three months ended October 4, 2020, the Company repaid $10.0 million on its $35.0 million Revolving Credit Facility and the availability under the Revolving Credit Facility as of October 4, 2020 was $35.0 million.

 

7.

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. The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0% primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations. During the three months ended October 4, 2020 and September 29, 2019, the Company’s effective tax rates were 22.8% and 24.0%, respectively.  The Company’s effective tax rate for the three months ended October 4, 2020 is lower compared to the effective tax rate for the three months ended September 29, 2019, primarily due to an increase in the benefit of federal and state tax credits, partially offset by a decrease in the Company’s net permanent benefits, largely driven by changes in the foreign derived intangible income deduction, and add-back for Section 162(m) limitations.

12


 

 

8.

EARNINGS PER SHARE

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

 

 

 

Three Months Ended

 

 

 

October 4,

 

 

September 29,

 

 

 

2020

 

 

2019

 

Net income

 

$

9,567

 

 

$

8,623

 

Weighted average shares — basic

 

 

18,774,336

 

 

 

18,723,845

 

Dilutive effect of assumed exercises of stock options

 

 

14,099

 

 

 

27,474

 

Dilutive effect of assumed restricted share awards/units

 

 

78,391

 

 

 

19,437

 

Weighted average outstanding shares — diluted

 

 

18,866,826