MasterCraft Boat Holdings, Inc. 10-Q

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 34 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 29, 2020. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended March 29, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 35 PART I I – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 1A. RISK FACTORS. Except as noted below, there have been no material changes to the risk factors disclosed in our 2019 Annual Report under “Part I, Item 1A. Risk Factors” or our Quarterly Report on Form 10-Q for the quarter ended December 29, 2019, which was filed with the SEC on February 5, 2020 under “Part II, Item 1A. Risk Factors.” The COVID-19 pandemic has had, and may continue to have, certain negative impacts on our business and those of our customers, dealers and suppliers, and such impacts may have a material adverse effect on our operations and business. The COVID-19 Pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business and those of our customers, dealers and suppliers. In response to the COVID-19 Pandemic, governmental authorities, including in many of the jurisdictions in which we operate, have taken measures to limit the spread of the outbreak, including mandatory business closures, travel restrictions, quarantines, declarations of states of emergency, “stay-at-home” or “shelter-in-place” orders and social distancing protocols, in addition to seeking voluntary facility closures and other restrictions. These actions could materially adversely affect our ability, and our customers’, dealers’ and suppliers’ ability, to adequately staff, manage and maintain our and their respective businesses. Furthermore, our future results of operations, cash-flows and liquidity could be adversely impacted by the COVID-19 Pandemic due to delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, uncertain demand and additional goodwill and intangible asset impairment charges. The COVID-19 Pandemic has impacted our supply chain for products we sell, particularly as a result of mandatory shutdowns in locations where our products are manufactured. It also possible that we experience significant disruptions to our supply chain in the U.S. as well as significant deterioration in macroeconomic factors that typically affect us, such as consumer spending and demand for our products. In addition, we have experienced and are likely to continue to experience disruptions in manufacturing and logistics due to the COVID-19 Pandemic, and we may experience disruptions in manufacturing or logistics in the future due to inconsistent and unanticipated order patterns, our inability to develop long-term relationships with key suppliers, other diseases or pandemics or unforeseen natural disasters or public health emergencies. Further, we may face obstacles and delays in re-opening our manufacturing facilities as we may have to hire and train a substantial number of new employees as some of the employees that we have temporarily laid off may seek or have found other employment. The severity of the impact of the COVID-19 Pandemic on our 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 our customers and suppliers, and to the extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, also makes it more challenging for our management to estimate the potential impact and the future performance of our business. Accordingly, the anticipated negative financial impact to our operating results cannot be reasonably estimated at this time, but could be material and last for an extended period of time. ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. 36 ITEM 4. MINE SAFETY DISCLOSURES. None. ITEM 5. OTHER INFORMATION. On May 7, 2020, the Company entered into Amendment No. 3 to the Fourth Amended and Restated Credit and Guaranty Agreement (the “Amendment”). The changes effected by the Amendment include 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. A copy of the Amendment is attached as Exhibit 10.1 hereto and incorporated herein by reference. 37 ITEM 6. EXHIBIT S , FINANCIAL STATEMENT SCHEDU LES. Incorporated by Reference Exhibit No. Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of MCBC 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 Certificate of Amendment to Amended and Restated Certificate of Incorporation of MasterCraft Boat Holdings, Inc. 8-K 001-37502 3.1 10/25/19 3.4 Fourth Amended and Restated By-laws of MasterCraft Boat Holdings, Inc. 8-K 001-37502 3.2 10/25/19 10.1 Amendment No. 3 to the Fourth Amended and Restated Credit and Guaranty Agreement * 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer * 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer * 32.1 Section 1350 Certification of Chief Executive Officer ** 32.2 Section 1350 Certification of Chief Financial Officer ** 101.INS XBRL Instance Document * 101.SCH XBRL Taxonomy Extension Schema Document * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * 101.LAB XBRL Taxonomy Extension Label Linkbase Document * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document * * Filed herewith. ** Furnished herewith. 38 SIGNAT URES 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. MASTERCRAFT BOAT HOLDINGS, INC. (Registrant) Date: May 8, 2020 By: /s/ FREDERICK A. BRIGHTBILL Frederick A. Brightbill Chief Executive Officer (Principal Executive Officer) and Director Date: May 8, 2020 By: /s/ TIMOTHY M. OXLEY Timothy M. Oxley Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary 39