MasterCraft Boat Holdings, Inc. 10-Q

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 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 34 Item 4. Controls and Procedures 34 PART II OTHER INFORMATION Item 1. Legal Proceedings 36 Item 1A. Risk Factors 36 Item 2. Unregistered Sales of Securities and Use of Proceeds 36 Item 3. Defaults Upon Senior Securities 36 Item 4. Mine Safety Disclosures 37 Item 5. Other Information 37 Item 6. Exhibits, Financial Statement Schedules 38 SIGNATURES 39 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on September 13, 2019 (our “2019 Annual Report”), our Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, filed with the SEC on February 5, 2020 (our “Fiscal Second Quarter Quarterly Report”), and this Quarterly Report on Form 10-Q (this “Quarterly 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 share and per share data) Three Months Ended Nine Months Ended March 29, March 31, March 29, March 31, 2020 2019 2020 2019 NET SALES $ 102,562 $ 128,390 $ 311,979 $ 343,572 COST OF SALES 81,288 97,033 244,030 261,939 GROSS PROFIT 21,274 31,357 67,949 81,633 OPERATING EXPENSES: Selling and marketing 4,933 5,210 13,340 13,757 General and administrative 6,094 6,696 19,356 20,576 Amortization of other intangible assets 987 987 2,961 2,504 Goodwill and other intangible asset impairment 56,437 - 56,437 - Total operating expenses 68,451 12,893 92,094 36,837 OPERATING INCOME (LOSS) (47,177 ) 18,464 (24,145 ) 44,796 OTHER EXPENSE: Interest expense 1,086 1,867 3,667 4,829 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (48,263 ) 16,597 (27,812 ) 39,967 INCOME TAX EXPENSE (BENEFIT) (11,550 ) 3,834 (6,601 ) 8,552 NET INCOME (LOSS) $ (36,713 ) $ 12,763 $ (21,211 ) $ 31,415 NET INCOME (LOSS) PER SHARE: Basic $ (1.96 ) $ 0.68 $ (1.13 ) $ 1.68 Diluted $ (1.96 ) $ 0.68 $ (1.13 ) $ 1.67 WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF: Basic earnings per share 18,739,480 18,657,719 18,731,338 18,652,289 Diluted earnings per share 18,739,480 18,756,605 18,731,338 18,765,897 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 share and per share data) March 29, June 30, 2020 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,991 $ 5,826 Accounts receivable, net of allowances of $340 and $281, respectively 10,148 12,463 Income tax receivable 5,703 951 Inventories, net (Note 4) 37,159 30,660 Prepaid expenses and other current assets 4,979 4,464 Total current assets 98,980 54,364 Property, plant and equipment, net 41,669 33,636 Goodwill (Note 6) 29,593 74,030 Other intangible assets, net (Note 6) 64,836 79,799 Deferred income taxes 13,792 6,240 Deferred debt issuance costs, net 371 451 Operating lease assets (Note 8) 779 — Other long-term assets 248 253 Total assets $ 250,268 $ 248,773 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 14,008 $ 17,974 Income tax payable — 426 Accrued expenses and other current liabilities (Note 5) 42,912 41,421 Current portion of long-term debt, net of unamortized debt issuance costs (Note 7) 9,004 8,725 Total current liabilities 65,924 68,546 Long-term debt, net of unamortized debt issuance costs (Note 7) 129,429 105,016 Operating lease liabilities (Note 8) 445 — Unrecognized tax positions 3,114 2,895 Total liabilities 198,912 176,457 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,872,119 shares at March 29, 2020 and 18,764,037 shares at June 30, 2019 189 188 Additional paid-in capital 115,832 115,582 Accumulated deficit (64,665 ) (43,454 ) Total stockholders' equity 51,356 72,316 Total liabilities and stockholders' equity $ 250,268 $ 248,773 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, except share data) 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 Share-based compensation activity 33,169 — (78 ) — (78 ) Net income — — — 6,879 6,879 Balance at December 29, 2019 18,872,166 189 115,673 (27,952 ) 87,910 Share-based compensation activity (47 ) — 159 — 159 Net loss — — — (36,713 ) (36,713 ) Balance at March 29, 2020 18,872,119 $ 189 $ 115,832 $ (64,665 ) $ 51,356 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 — — — (3,091 ) (3,091 ) Share-based compensation activity 39,082 — 279 — 279 Net income — — — 8,465 8,465 Balance at September 30, 2018 18,721,420 187 114,331 (56,343 ) 58,175 Share-based compensation activity 4,770 — 363 (1 ) 362 Net income — — — 10,188 10,188 Balance at December 30, 2018 18,726,190 187 114,694 (46,156 ) 68,725 Share-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 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) Nine Months Ended March 29, March 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (21,211 ) $ 31,415 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,686 5,450 Share-based compensation 703 1,159 Deferred income taxes (7,552 ) 62 Unrecognized tax benefits 219 646 Amortization of debt issuance costs 420 410 Goodwill and other intangible asset impairment 56,437 — Changes in certain operating assets and liabilities (13,657 ) (382 ) Other, net 855 792 Net cash provided by operating activities 23,900 39,552 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions, net of cash acquired — (81,729 ) Purchases of property, plant and equipment (13,601 ) (10,387 ) Proceeds from disposal of property, plant and equipment 25 5 Net cash used in investing activities (13,576 ) (92,111 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt — 80,000 Principal payments on long-term debt (10,647 ) (29,015 ) Borrowings on revolving credit facility 35,000 — Proceeds from insurance premium financing 1,130 — Principal payments on insurance premium financing (189 ) — Payments of debt issuance costs — (146 ) Cash paid for withholding taxes on vested stock (453 ) (728 ) Net cash provided by financing activities 24,841 50,111 NET CHANGE IN CASH AND CASH EQUIVALENTS 35,165 (2,448 ) CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD 5,826 7,909 CASH AND CASH EQUIVALENTS — END OF PERIOD $ 40,991 $ 5,461 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ 3,263 $ 3,957 Cash payments for income taxes 6,146 7,765 SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital expenditures in accounts payable and accrued expenses 80 399 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 share and per share data) 1 . ORGANIZAT ION, 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”. The Company is a leading innovator, designer, manufacturer, and marketer of recreational powerboats that operates in three reportable segments: MasterCraft, NauticStar and Crest. See Note 12 for information regarding the Company’s reportable segments. Basis of Presentation — The 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, 2019 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of March 29, 2020, its results of operations for the three and nine months ended March 29, 2020 and March 31, 2019, its cash flows for the nine months ended March 29, 2020 and March 31, 2019, and its statements of stockholders’ equity for the three and nine months ended March 29, 2020 and March 31, 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 U.S. Securities and Exchange Commission (“SEC”) for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2019 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, 2019, filed with the SEC on September 13, 2019 (our “2019 Annual Report”). 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 — The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. 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 is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that many of the Company's customers, dealers, and suppliers could be impacted by these closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver inventory, and our ability to collect accounts receivables as customers face higher liquidity and solvency risk. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our business as retail demand for our products could decline which would in-turn reduce wholesale demand from our dealers. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain. 8 To protect the health of its manufac turing employees and to balance wholesale production with retail demand, the Company suspended operations at its manufacturing facilities for all of its brands in lat e March 2020. As a result of this action, the Company temporarily laid off nearly all of i ts hourly workforce. After further evaluation, the Company intends to resume operations at its Owosso, Michigan facility (Crest Marine boats) on May 11, 2020 , its Amory, Mississippi facility (NauticStar boats) on May 11, 2020 , and its Vonore, Tennessee fac ility (MasterCraft and Aviara boats) on May 12, 2020. As the Company resumes its operations, it will continue to evaluate and monitor the health and safety of its employees and will adhere to federal and local government mandates and guidelines. 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 customers, dealers and suppliers, and to the extent 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 disruptions and uncertain demand, additional goodwill and intangible impairment charges (see Note 6), and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its customers, dealers, and suppliers. As of the date of issuance of these condensed 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. With the exception of Accounting Standards Codification (“ASC”) 842 discussed below, 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 nine months ended March 29, 2020 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2019. Recently Adopted Accounting Standards Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, (“ASC 842”) which requires lessees to recognize assets and liabilities on the balance sheet for all leases with terms greater than twelve months. On July 1, 2019, the Company adopted ASC 842 and all related amendments. The Company elected the optional transition method provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements , and as a result, has not restated its condensed consolidated financial statements for prior periods presented. The Company has elected the package of practical expedients upon transition which allowed the Company to retain the lease classification for any leases that existed prior to adoption, to not reassess whether any contracts entered into prior to adoption are leases, and to not reassess initial direct costs for any leases that existed prior to adoption. ASC 842 did not have a material impact on the Company's condensed consolidated statements of operations. The cumulative effect of the changes made to the Company's consolidated balance sheet as of July 1, 2019 for the adoption of ASC 842 was as follows: Balance as of Adjustments Balance as of June 30, 2019 Due to ASC 842 July 1, 2019 Assets Operating lease assets $ - $ 3,931 $ 3,931 Current liabilities Accrued expenses and other current liabilities 41,421 547 41,968 Long-term liabilities Operating lease liabilities - 3,384 3,384 The Company determines if an arrangement is a lease at lease inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the Company's lease contracts generally do not include an implicit rate, the Company uses its incremental 9 borrowing rate based on information available at commencement date in determining the present value of future payments. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar t erms and payments, and in economic environments where the leased asset is located. The operating lease ROU asset also includes any initial direct costs and lease payments made prior to lease commencement and excludes lease incentives incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company may enter into lease agreements that contain both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes. See Note 8 for information regarding the Company’s leases. Share-Based Compensation In June 2018, the Financial Accounting Standards Board issued ASU 2018-07 , Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting . This guidance provides clarity and reduces complexity when applying the guidance in Topic 718, Compensation—Stock Compensation to the term or condition of share-based payments to nonemployees. ASU 2018-07 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. The Company adopted this guidance for its fiscal year beginning July 1, 2019. The adoption of this standard did not have a material impact on its financial statements. Recently Issued 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 amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements. 2 . REVENUE RECOGNITION The following tables present the Company’s revenue from contracts with customers by major product category and reportable segment. Three Months Ended March 29, 2020 MasterCraft NauticStar Crest Total Major Product Categories: Boats and trailers $ 68,684 $ 14,053 $ 17,696 $ 100,433 Parts 1,705 103 136 1,944 Other revenue 142 — 43 185 Total $ 70,531 $ 14,156 $ 17,875 $ 102,562 Nine Months Ended March 29, 2020 MasterCraft NauticStar Crest (a) Total Major Product Categories: Boats and trailers $ 204,303 $ 47,372 $ 52,417 $ 304,092 Parts 6,411 349 437 7,197 Other revenue 487 6 197 690 Total $ 211,201 $ 47,727 $ 53,051 $ 311,979 10 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 (a) 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 (a) Crest was acquired on October 1, 2018. Contract Liabilities As of June 30, 2019, the Company had $0.8 million of contract liabilities associated with customer deposits. During the nine months ended March 29, 2020, all of this amount was recognized as revenue. As of March 29, 2020, total contract liabilities associated with customer deposits were $0.4 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, 2020. 3 . RELATED PARTY TRANSACTIONS Crest Facility Lease In connection with the operations of Crest, the Company made rental payments to Crest Marine Real Estate LLC (“Real Estate”) for a manufacturing facility, storage and office building (the “Crest Facility”). One of the minority owners of Real Estate is a member of the Crest management team. The lease was to expire on September 30, 2028, and was subject to four consecutive, five-year renewal periods. The lease terms included an option for the Company to purchase the Crest Facility for an amount equal to its fair market value, as determined by appraisals and negotiation between the Company and Real Estate (the “Purchase Option”). The annual rent under the lease was $0.3 million for the first five years of the lease term, and was to increase to $0.4 million for the remaining five years. Additionally, at the beginning of each of the optional renewal terms the rent was to be adjusted based on the change in the Consumer Price Index. In accordance with the Purchase Option, on October 24, 2019 the Company purchased the Crest Facility for $4.1 million. See Note 8 for additional information regarding the purchase. Crest Supplier Relationship Crest purchases fiberglass component parts from a supplier whose minority owner was the same member of the Crest management team that has a minority ownership interest in Real Estate. On January 31, 2020 this minority ownership interest was divested and this supplier ceased being a related party. During the period beginning July 1, 2019 and ending January 31, 2020, the Company purchased $1.8 million of products from the supplier. 11 4 . INVENTORIES Inventories consisted of the following: March 29, June 30, 2020 2019 Raw materials and supplies $ 24,028 $ 20,034 Work in process 5,898 4,571 Finished goods 8,982 7,207 Obsolescence reserve (1,749 ) (1,152 ) Total inventories $ 37,159 $ 30,660 5 . ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: March 29, June 30, 2020 2019 Warranty $ 19,318 $ 17,205 Dealer incentives 11,172 12,623 Compensation and related accruals 2,757 3,494 Floor plan interest 2,570 2,060 Inventory repurchase contingent obligation 1,779 1,936 Insurance premium financing 941 — Self-insurance 1,027 606 Debt interest 342 405 Current operating lease liabilities 334 — Other 2,672 3,092 Total accrued expenses and other current liabilities $ 42,912 $ 41,421 The following activity related to warranty liabilities was recorded in Accrued expenses and other current liabilities during the nine months ended March 29, 2020 and March 31, 2019: Nine Months Ended March 29, March 31, 2020 2019 Balance at the beginning of the period $ 17,205 $ 13,077 Provisions 5,828 5,735 Additions for Crest acquisition — 727 Payments made (5,921 ) (5,223 ) Aggregate changes for preexisting warranties 2,206 2,417 Balance at the end of the period $ 19,318 $ 16,733 12 6 . GOODWILL AND OTHER INTANGIBLE ASSETS Impairment The current economic environment, including the significant declines in share price, market volatility and the disruption to the Company’s supply chain resulting from the COVID-19 Pandemic, triggered an interim impairment analysis for the Company’s intangible assets including goodwill. Holistically, the Company evaluated the events and changes in circumstances since the most recent quantitative impairment test performed as of June 30, 2019 and determined that is more likely than not that our trade names and goodwill at certain reporting units were impaired. Determining the fair value of trade names and goodwill required the use of significant judgement, including estimation of cash flows, which are dependent on internal forecasts, estimation of long-term growth rate for each reporting unit, and determination of the weighted average cost of capital. A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including market growth and market share, sales volumes and prices, production costs, discount rate, and estimated capital needs. Management considers historical experience and all available information at the time that the fair values of the Company’s reporting units are estimated. Inputs used to estimate these fair values included significant unobservable inputs that reflect the Company’s assumptions about the inputs that market participants would use and, therefore, the fair value assessments are classified within Level 3 of the fair value hierarchy. If the carrying amount of trade names or goodwill exceed their fair value, then they are considered impaired and an impairment loss is recognized in an amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the carrying amount of the trade name or goodwill allocated to that reporting unit. As a result of this analysis, the Company recorded impairment charges totaling $56.4 million during the three months ended March 29, 2020 related to the NauticStar and Crest segments. The charges recorded to each segment are detailed below, and are included in Goodwill and other intangible asset impairment on the condensed consolidated statements of operations. The impairment was principally a result of a decline, in the fiscal third quarter, in market conditions, including our share price, and the outlook for sales and operating performance relative to the Company’s acquisition plans and impairment test performed as of June 30, 2019. Goodwill and other intangible asset impairment for the three and nine months ended March 29, 2020 was as follows: NauticStar Crest Consolidated Goodwill $ 8,199 $ 36,238 $ 44,437 Trade name 5,000 7,000 12,000 Total $ 13,199 $ 43,238 $ 56,437 While the extent and duration of the economic impact from the COVID-19 pandemic remain unclear, changes in assumptions and estimates may affect the fair value of goodwill and other intangibles and could result in additional impairment charges in future periods. The carrying amounts of goodwill as of March 29, 2020 and June 30, 2019, attributable to each of the Company’s reportable segments, were as follows: Balance as of March 29, 2020 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 13 Balance as of June 30, 2019 Gross Amount Accumulated Impairment Losses Total MasterCraft $ 29,593 $ - $ 29,593 NauticStar 36,199 (28,000 ) 8,199 Crest 36,238 - 36,238 Total $ 102,030 $ (28,000 ) $ 74,030 The following table presents the carrying amount of Other intangible assets, net as of March 29, 2020 and June 30, 2019. March 29, June 30, 2020 2019 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 $ (8,835 ) $ 30,665 $ 39,500 $ (5,909 ) $ 33,591 Software 245 (74 ) 171 245 (37 ) 208 39,745 (8,909 ) 30,836 39,745 (5,946 ) 33,799 Unamortized intangible assets Trade names 49,000 (15,000 ) 34,000 49,000 (3,000 ) 46,000 Total other intangible assets $ 88,745 $ (23,909 ) $ 64,836 $ 88,745 $ (8,946 ) $ 79,799 Amortization expense related to Other intangible assets, net for the three and nine months ended March 29, 2020 was $1.0 and $3.0 million, respectively. Amortization expense related to Other intangible assets, net for the three and nine months ended March 31, 2019 was $1.0 and $2.5, respectively. Estimated amortization expense for the fiscal year ended June 30, 2020 is $4.0 million. 7. LONG-TERM DEBT Long-term debt is as follows: March 29, June 30, 2020 2019 Revolver $ 35,000 $ - Senior secured term loans 104,703 115,349 Debt issuance costs on term loans (1,270 ) (1,608 ) Total debt 138,433 113,741 Less current portion of long-term debt 9,420 9,167 Less current portion of debt issuance costs on term loans (416 ) (442 ) Long-term debt, net of current portion $ 129,429 $ 105,016 On October 1, 2018, the Company entered into the 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 replaced the Company’s Third Amended and Restated Credit Agreement, dated October 2, 2017. The Fourth Amended Credit Agreement provides the Company with a $190.0 million senior secured credit facility, consisting of a $75.0 million term loan, and an $80.0 million term loan (together, the “Term Loans”), and a $35.0 million revolving credit facility (the “Revolving Credit Facility”). The Fourth Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.5% to 1.5% or at an adjusted LIBOR rate plus an applicable margin ranging from 1.5% to 2.5%, in each case based on 14 the Company’s Total Net Leverage Ratio, as defined under the Fourth Amended Credit Agreement . Based on the Company’s Total Net Leverage Ratio as of March 29, 2020 , the applicable margin for loans accruing interest at the prime rate is 0.75% and the appl icable margin for loans accruing interest at LIBOR is 1.75% . As of March 19, 2020, the Company drew $35.0 million on its revolving credit agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. As of March 29, 2020, the Company had $35.0 million of borrowings outstanding on its Revolving Credit Facility. The Company’s unamortized debt issuance costs related to the Revolving Credit Facility were $0.4 million and $0.5 million as of March 29, 2020 and June 30, 2019, respectively. All amounts outstanding under the Fourth Amended Credit Agreement mature in October 2023. As of March 29, 2020, the Company was in compliance with its financial covenants under the Fourth Amended Credit Agreement. 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, at 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. 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 an adjusted LIBOR rate plus an applicable margin ranging from 1.5% to 3.25%, in each case based on the Company’s Total Net Leverage Ratio. 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 March 29, 2020 was $0.9 million and is recorded in Accrued expenses and other current liabilities. 8. LEASES The Company has lease agreements for certain personal and real property. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not include any significant renewal options. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants . Upon adoption of ASC 842 on July 1, 2019, the Company’s most significant lease was for the Crest Facility, which was classified as an operating lease. This lease included the Purchase Option for the Company to acquire the premises. During the three months ended September 29, 2019, the decision was made to exercise the Purchase Option which resulted in $2.8 million of operating lease assets and liabilities being reclassified to finance lease assets and liabilities on the September 29, 2019 condensed consolidated balance sheet. In addition, the decision to exercise the Purchase Option resulted in the remeasurement of the related lease balances which added $1.3 million of additional finance lease assets and finance lease liabilities to the September 29, 2019 condensed consolidated balance sheet. 15 In accordance with the Purchase Option, on Oct ober 24, 2019 the Company completed the purchase of the Crest Facility for $4.1 million. Upon completion of this purchase, t he Company recognized approximately $4. 1 million in Property, plant and equipment, net and derecognized approximately $4.1 million o f both Finance lease assets and Accrued expenses and other current liabilities on the condensed consolidated balance sheet. The purchase price of the Crest Facility was determined by appraisal and negotiation between the Company and Real Estate. The Company funded the purchase by utilizing cash from operations. A summary of the Company's lease assets and lease liabilities as of March 29, 2020 is as follows: March 29, Classification 2020 Lease Assets Operating lease assets Operating lease assets $ 779 Lease Liabilities Current operating lease liabilities Accrued expenses and other current liabilities 334 Non-current operating lease liabilities Operating lease liabilities 445 Total lease liabilities $ 779 A summary of the Company's total lease cost for the three and nine months ended March 29, 2020 is as follows: Classification Three Months Ended Nine Months Ended Operating lease cost Cost of sales $ 93 $ 382 General and administrative 9 25 Total lease cost (a) $ 102 $ 407 (a) Includes total variable lease cost and total short-term lease cost, both of which were immaterial. The Company's maturity analysis of its operating lease liabilities as of March 29, 2020 is as follows: Remainder of 2020 $ 92 2021 359 2022 298 2023 72 2024 1 Total lease payments 822 Less: Interest (43 ) Present value of lease payments $ 779 The total weighted-average discount rate and remaining lease term for the Company's operating leases were 4.73% and 2.36 years, respectively, as of March 29, 2020. For the nine months ended March 29, 2020, total operating cash flows related to operating leases were $0.4 million. 16 Future minimum rental payments under all non-cancelable operating leases with remaining lease terms in excess of one year at June 30, 2019, were as foll ows: 2020 $ 703 2021 690 2022 628 2023 402 2024 402 Thereafter 1,806 Total $ 4,631 9 . INCOME TAXES On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (the “CARES Act”). Among the changes to the U.S. federal income tax rules, the CARES Act restored net operating loss carryback rules that were eliminated by the Tax Cuts and Jobs Act (the “Tax Reform Act”), modified the limit on the deduction for net interest expense and accelerated the timeframe for refunds of AMT credits. The Company has evaluated the impact of the CARES Act and has not identified any material effect on its results of operations, financial condition, or cash flows. 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 offset by a permanent benefit associated with the foreign derived intangible income deduction. During the three months ended March 29, 2020 and March 31, 2019, the Company’s effective tax rates were 23.9% and 23.1%, respectively. During the nine months ended March 29, 2020 and March 31, 2019, the Company’s effective tax rates were 23.7% and 21.4%, respectively. The Company’s effective tax rates for the three and nine months ended March 29, 2020 are higher compared to the effective tax rates for the three and nine months ended March 31, 2019, primarily due to favorable discrete adjustments which reduced the effective tax rates for the three and nine months ended March 31, 2019. 1 0 . NET INCOME (LOSS) PER SHARE The following table sets forth the computation of the Company’s net income (loss) per share: Three Months Ended Nine Months Ended March 29, March 31, March 29, March 31, 2020 2019 2020 2019 Net income (loss) $ (36,713 ) $ 12,763 $ (21,211 ) $ 31,415 Weighted average shares — basic 18,739,480 18,657,719 18,731,338 18,652,289 Dilutive effect of assumed exercises of stock options — 39,160 — 47,258 Dilutive effect of assumed restricted share awards/units — 59,726 — 66,350 Weighted average outstanding shares — diluted 18,739,480 18,756,605 18,731,338 18,765,897 Basic net income per share $ (1.96 ) $ 0.68 $ (1.13 ) $ 1.68 Diluted net income (loss) per share $ (1.96 ) $ 0.68 $ (1.13 ) $ 1.67 For the three and nine months ended March 29, 2020 and March 31, 2019, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted net income (loss) per share, included: Three Months Ended Nine Months Ended March 29, March 31, March 29, March 31, 2020 2019 2020 2019 Restricted stock awards 61,420 1,757 44,428 1,090 Performance stock units 52,288 33,365 45,258 1,036 17 1 1 . SHARE-BASED COMPENSATION The following table presents the components of share-based compensation expense by award type. Three Months Ended Nine Months Ended March 29, March 31, March 29, March 31, 2020 2019 2020 2019 Restricted stock awards $ 378 $ 50 $ 898 $ 667 Performance stock units (219 ) 116 (204 ) 341 Stock options - 205 9 151 Share-based compensation expense $ 159 $ 371 $ 703 $ 1,159 Adjustment to Share-Based Compensation Based upon current economic trends, the probability of attaining the performance criteria of the Performance Stock Units (PSUs”) has been lowered. As a result, the amount of share-based compensation expense has been lowered by approximately $0.4 million on a cumulative basis from original estimates during the three months ended March 29, 2020. Restricted Stock Awards During the nine months ended March 29, 2020, the Company granted 138,457 RSAs to the Company’s non-executive directors, officers and certain other key employees. Generally, the shares of restricted stock granted during the nine months ended March 29, 2020, vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors. The Company determined the fair value of the shares awarded by using the close price of our common stock as of the date of grant. The weighted average grant date fair value of RSAs granted in the nine months ended March 29, 2020, was $17.41 per share. The following table summarizes the status of nonvested RSAs as of March 29, 2020, and changes during the nine months then ended. Average Nonvested Grant-Date Restricted Fair Value Shares (per share) Nonvested at June 30, 2019 53,804 $ 22.94 Granted 138,457 17.41 Vested (24,854 ) 20.84 Forfeited (34,797 ) 20.24 Nonvested at March 29, 2020 132,610 18.27 As of March 29, 2020, there was $1.6 million of total unrecognized compensation expense related to nonvested RSAs. The Company expects this expense to be recognized over a weighted average period of 1.7 years. Performance Stock Units PSUs are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of the Company’s stockholders, and to create long-term stockholder value. The awards will be earned based on the Company’s achievement of certain performance criteria over a three-year performance period. The performance period for the awards commences on July 1 of the fiscal year in which they were granted and continue for a three-year period, ending on June 30 of the applicable year. The probability of achieving the performance criteria is assessed quarterly. Following the determination of the Company’s achievement with respect to the performance criteria, the number of shares awarded is subject to further adjustment based on the application of a total shareholder return (“TSR”) modifier. The grant date fair value is determined based 18 on both the probability assessment of the Company achieving the performance criteria and an estim ate of the expected TSR modifier. The TSR modifier estimate is determined using a Monte Carlo Simulation model, which considers the likelihood of numerous possible outcomes of long-term market performance. Compensation expense related to nonvested PSUs is recognized ratably over the performance period. The following table summarizes the status of nonvested PSUs as of March 29, 2020, and changes during the nine months then ended. Average Nonvested Grant-Date Performance Fair Value Stock Units (per share) Nonvested at June 30, 2019 50,621 $ 23.34 Granted 72,048 18.14 Vested - - Forfeited (46,882 ) 20.82 Nonvested at March 29, 2020 75,787 19.95 As of March 29, 2020, there was $0.3 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 2.0 years. 12. SEGMENT INFORMATION The Company designs, manufactures, and markets recreational performance sport boats, luxury day boats, and outboard boats under three operating and reportable segments: MasterCraft, NauticStar, and Crest. The Company’s segments are defined by the Company’s operational and reporting structures. MasterCraft Segment The MasterCraft segment produces boats under two product brands, MasterCraft and Aviara, at its Vonore, Tennessee facility. MasterCraft boats are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. Aviara boats are luxury day boats primarily used for general recreational boating. Production of Aviara boats began during the year ended June 30, 2019 and the Company began selling these boats in July 2019. NauticStar Segment The NauticStar segment produces boats at its Amory, Mississippi facility. NauticStar’s boats are primarily used for saltwater fishing and general recreational boating. Crest Segment The Crest segment produces pontoon boats at its Owosso, Michigan facility. Crest’s boats are primarily used for general recreational boating. The following tables present financial information for the Company’s reportable segments for the three and nine months ended March 29, 2020 and March 31, 2019 and total assets at March 29, 2020 and June 30, 2019. Three Months Ended March 29, 2020 MasterCraft NauticStar Crest Consolidated Net sales $ 70,531 $ 14,156 $ 17,875 $ 102,562 Operating income (loss) 11,062 (15,246 ) (42,993 ) (47,177 ) Depreciation and amortization 1,205 807 620 2,632 Purchases of property, plant and equipment 1,289 799 10 2,098 19 Nine Months Ended March 29, 2020 MasterCraft NauticStar Crest (a) Consolidated Net sales $ 211,201 $ 47,727 $ 53,051 $ 311,979 Operating income (loss) 33,869 (15,892 ) (42,122 ) (24,145 ) Depreciation and amortization 3,383 2,532 1,771 7,686 Purchases of property, plant and equipment 5,655 2,713 5,233 13,601 Three Months Ended March 31, 2019 MasterCraft NauticStar Crest Consolidated Net sales $ 79,431 $ 21,652 27,307 $ 128,390 Operating income 14,620 1,544 2,300 18,464 Depreciation and amortization 868 682 541 2,091 Purchases of property, plant and equipment 4,079 150 136 4,365 Nine Months Ended March 31, 2019 MasterCraft NauticStar Crest (a) Consolidated Net sales $ 232,062 $ 58,255 $ 53,255 $ 343,572 Operating income 37,563 2,698 4,535 44,796 Depreciation and amortization 2,405 1,967 1,078 5,450 Purchases of property, plant and equipment 8,551 1,663 173 10,387 (a) Crest was acquired on October 1, 2018. March 29, 2020 June 30, 2019 Assets: MasterCraft $ 331,796 $ 273,046 NauticStar 40,334 52,761 Crest 41,151 85,979 Eliminations (163,013 ) (163,013 ) Total assets $ 250,268 $ 248,773 13. ACQUISITION On October 1, 2018, we acquired Crest, a manufacturer of pontoon boats. For accounting purposes, Crest meets the definition of a business and has been accounted for as a business combination. We finalized the purchase price allocation and recorded measurement period adjustments to the initial allocation as disclosed in the notes to our consolidated financial statements included in our 2019 Annual Report. Beginning October 1, 2018, our consolidated results of operations include the results of Crest. The unaudited pro forma financial results shown in the table below for the three and nine months ended March 31, 2019, combine the consolidated results of the Company and Crest giving effect to the Crest acquisition as if it had been completed on July 1, 2017. The unaudited pro forma financial results do not give effect to any of our other acquisition activity that occurred after July 1, 2017, and do not include any anticipated synergies or other assumed benefits of the Crest acquisition. This unaudited pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the Crest acquisition been completed as of July 1, 2017. The unaudited pro forma financial results include certain adjustments for acquisition-related costs, debt service costs 20 and additional amortization expense based upon definite-life amortizable assets acquired. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historica l results. Three Months Ended Nine Months Ended March 31, March 31, 2019 2019 Net sales $ 128,390 $ 364,565 Net income $ 12,765 $ 32,944 Basic earnings per share $ 0.68 $ 1.77 Diluted earnings per share $ 0.68 $ 1.76 21