MasterCraft Boat Holdings, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read together with the sections entitled “Risk Factors,” “Selected Financial Data,” and the financial statements and the accompanying notes included elsewhere in this Form 10-K. In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” and in “Risk Factors” above. Our actual results may differ materially from those contained in or implied by any forward-looking statements. This section generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 are not included in this Annual Report on Form 10-K and can be found in Item 7 of the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, which was filed with the SEC on September 13, 2019. Key Performance Measures From time to time we use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These key performance measures include: • Unit sales volume — We define unit sales volume as the number of our boats sold to our dealers during a period. • Net sales per unit — We define net sales per unit as net sales divided by unit sales volume. • Gross margin — We define gross margin as gross profit divided by net sales, expressed as a percentage. • Adjusted EBITDA — We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, and amortization (“EBITDA”), as further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our core/ongoing operations. For a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Measures” below. • Adjusted EBITDA margin — We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales, expressed as a percentage. • Adjusted Net Income — We define Adjusted Net Income as net income adjusted to eliminate certain non-cash charges and other items that we do not consider to be indicative of our core/ongoing operations and adjusted for the impact to income tax expense (benefit) related to non-GAAP adjustments. For a reconciliation of Adjusted Net Income, see “Non-GAAP Measures” below. COVID-19 Pandemic The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2020 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 our business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is still evolving in many countries, including the United States and other markets where we operate. Capital markets and economies worldwide have been negatively impacted by the COVID-19 Pandemic, and it has caused economic downturns or recessions in the United States and other markets where we operate. Policymakers around the world continue to respond with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain. Impact to Operations To balance wholesale production with the then anticipated impacts to retail demand caused by the economic impacts of the COVID-19 Pandemic, we reduced production in February 2020 and, in late March 2020, temporarily suspended manufacturing operations at all of our facilities to protect the health of our employees and comply with governmental mandates. As a result of these actions, we temporarily laid off nearly all our hourly workforce. We paid lump sum severance payments to certain of our laid off employees and provided for the temporary continuation of their healthcare benefits, resulting in charges totaling approximately $1.4 million during the fiscal third and fourth quarters (the “COVID-19 Shutdown Costs”). We also initiated cash management strategies to conserve liquidity during the shutdown period. We resumed operations at reduced production levels at our manufacturing facilities by mid-May 2020 and we are continuing to ramp up production. Our facilities resumed operations with new temperature screening, social distancing, personal 31 protective equipment, and cleaning protocols to pr otect our employees and mitigate risk of further business interruption. We continue to evaluate and monitor the health and safety of our employees and will adhere to federal and local government mandates and guidelines. The disruptions caused by the COVID- 19 Pandemic , including the temporary manufacturing suspension and supplier and workforce constraints, resulted in a decline in wholesale unit sales volume of nearly 50% during the February 2020 to June 2020 period as compared to the same prior-year period . An impairment of our goodwill and other intangible assets was triggered as of March 29, 2020, due to the economic outlook at that time, the significant declines in our share price, market volatility and the disruption in our operations. As a result of the analysis, we recorded impairment charges totaling $56.4 million related to the NauticStar and Crest segments (the “Impairment Charges”). The Impairment Charges were principally a result of a decline, in the fiscal third quarter, in market conditions, including our share price, and the outlook for retail and wholesale sales and operating performance, as of March 29, 2020, relative to our acquisition plans and annual impairment test performed as of June 30, 2019. See Note 6 in Notes to Consolidated Financial Statements for more information regarding the Impairment Charges. As governmental restrictions were lifted, demand in the U.S. retail marine market accelerated in May and through June 2020 resulting in strong retail demand for our boats which we are seeing continue through the key summer selling season. This increase in demand, coupled with our production shutdowns, pushed retail inventory levels for all our brands to record lows as of June 30, 2020. We ended fiscal 2020 with retail inventory levels for our brands between 40 percent to 50 percent lower than at the end of fiscal 2019. Impact to Liquidity and Capital Resources On March 19, 2020, we drew $35.0 million on our revolving credit agreement as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. Additionally, on May 7, 2020, we entered into Amendment No. 3 (the “Amendment”) to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Credit Facility”) to strengthen our financial flexibility. Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants. See Note 8 in Notes to Consolidated Financial Statements for more information regarding these changes. The performance of the business and our cash management activities provided the flexibility to repay $25.0 million of the revolving credit facility as of June 30, 2020 and we ended fiscal 2020 with what we believe to be a strong liquidity position. As of June 30, 2020, we were in compliance with our financial covenants under the Amendment to the Credit Facility. Outlook We believe strong marine retail demand, coupled with record low retail inventory levels for all our brands have created a growth opportunity for fiscal 2021 and potentially into future years. We are continuing to ramp up production at our facilities and we expect this ramp up phase to continue through fiscal 2021 in order to meet strong wholesale demand as our dealers seek to satisfy current retail order flow and replenish their stock inventory. As we navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 Pandemic, our production during this ramp up period will depend, in large part, on our suppliers’ capacity and our ability to grow and maintain a high-performing workforce. Although the consumer responses to the COVID-19 Pandemic have thus far resulted in strong demand for our products, significant uncertainty exists in the economy as a result of the unpredictable outlook for the COVID-19 Pandemic. The ultimate 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 action and stimulus measures adopted by local and federal governments, the effects of the pandemic on our consumers, dealers, suppliers and workforce, and to the extent normal economic and operating conditions can resume and be sustained within the general economy, all of which are uncertain and cannot be predicted. Our 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, additional manufacturing suspensions, additional other intangible asset impairment charges, and the impact of any initiatives that we may undertake to address financial and operational challenges faced by us and our consumers, dealers, and suppliers. Please see Item 1A, “Risk Factors – Risks Related to Our Business – The COVID-19 Pandemic has had, and may continue to have, certain negative impacts on our business and those of our consumers, dealers and suppliers, and such impacts may have a material adverse effect on our operations and business” and “—General economic conditions, particularly in the U.S., affect our industry, demand for our products and our business, and results of operations.” 32 Overview of Results of Operations Net sales were $363.1 million for fiscal 2020, a decrease of 22.2 percent from fiscal 2019, due to lower wholesale unit volumes as a result of the disruptions caused by the COVID-19 Pandemic, including our temporary manufacturing suspension, our pre- COVID-19 Pandemic effort to allow our dealers to right-size pipeline inventory levels, and pre- COVID-19 Pandemic softness in the overall saltwater fishing category. This decline was partially offset by the inclusion of Crest, which was acquired during the second quarter of 2019, higher average wholesale prices for all our reportable segments, fiscal 2020 Aviara sales included in our MasterCraft segment, and lower dealer incentives. Gross profit for fiscal 2020 decreased 33.4 percent from fiscal 2019, primarily due to lower wholesale unit sales volume for each reportable segment, higher depreciation expense, and $1.4 million in COVID-19 Shutdown Costs. This decline was partially offset by price increases for each reportable segment, the inclusion of Crest’s first quarter 2020 results, and lower dealer incentives. Gross margin decreased by 3.5 percentage points to 20.8 percent for fiscal 2020 from 24.3 percent for fiscal 2019, primarily due to lower overhead absorption driven by lower wholesale unit sales volume for each reportable segment, and $1.4 million of COVID-19 Shutdown Costs. Net loss was $24.0 million for fiscal 2020, compared to Net income of $21.4 million for fiscal 2019. Diluted net loss per share was $1.28, compared to Diluted net income per share of $1.14 for fiscal 2019. Net loss for fiscal 2020 included Goodwill and other intangible asset impairment charges of $56.4 million, or $(3.01) per diluted share. Net income for fiscal 2019 included Goodwill and other intangible asset impairment charges of $31.0 million, or $(1.65) per diluted share. CEO Transition On October 30, 2019, our Board of Directors appointed Frederick A. Brightbill, Chairman of the Board of Directors, interim Chief Executive Officer. On December 2, 2019, Mr. Brightbill was named permanent Chief Executive Officer. Mr. Brightbill replaced Terry McNew, who resigned on October 30, 2019. Aviara Brand Launch We began selling boats under the Aviara brand during the first quarter of fiscal 2020. Aviara boats are designed, engineered, and manufactured to meet the exacting specifications of consumers seeking the ultimate luxury recreational day boat experience. The brand’s first model, the AV32, began selling during the first quarter of fiscal 2020 and the AV36 began selling during the second quarter of fiscal 2020. In February 2020, we launched the third Aviara model, the AV40, which we expect to begin selling in the first half of fiscal 2021. Aviara is built in our MasterCraft facility and is part of the MasterCraft reportable segment. 33 Results of Operations The consolidated statements of operations presented below should be read together with “Selected Consolidated Financial Data,” and our consolidated financial statements and related notes included elsewhere in this Form 10-K. We derived the consolidated statements of operations for the fiscal years ended June 30, 2020 and 2019 from our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future. 2020 vs. 2019 2020 2019 Change % Change (Dollars in thousands) Consolidated statements of operations : NET SALES $ 363,073 $ 466,381 $ (103,308 ) (22.2 %) COST OF SALES 287,717 353,254 (65,537 ) (18.6 %) GROSS PROFIT 75,356 113,127 (37,771 ) (33.4 %) OPERATING EXPENSES: Selling and marketing 15,981 17,670 (1,689 ) (9.6 %) General and administrative 25,557 27,706 (2,149 ) (7.8 %) Amortization of other intangible assets 3,948 3,492 456 13.1 % Goodwill and other intangible asset impairment 56,437 31,000 25,437 82.1 % Total operating expenses 101,923 79,868 22,055 27.6 % OPERATING INCOME (LOSS) (26,567 ) 33,259 (59,826 ) (179.9 %) OTHER EXPENSE: Interest expense 5,045 6,513 (1,468 ) (22.5 %) INCOME (LOSS) BEFORE INCOME TAX EXPENSE (31,612 ) 26,746 (58,358 ) (218.2 %) INCOME TAX EXPENSE (BENEFIT) (7,565 ) 5,392 (12,957 ) (240.3 %) NET INCOME (LOSS) $ (24,047 ) $ 21,354 $ (45,401 ) (212.6 %) Additional financial and other data: Unit sales volume: MasterCraft 2,478 3,435 (957 ) (27.9 %) NauticStar 1,191 1,831 (640 ) (35.0 %) Crest (a) 1,623 2,078 (455 ) (21.9 %) Consolidated unit sales volume 5,292 7,344 (2,052 ) (27.9 %) Net sales: MasterCraft $ 246,455 $ 311,830 $ (65,375 ) (21.0 %) NauticStar 54,930 77,995 (23,065 ) (29.6 %) Crest (a) 61,688 76,556 (14,868 ) (19.4 %) Consolidated net sales $ 363,073 $ 466,381 $ (103,308 ) (22.2 %) Net sales per unit: MasterCraft $ 99 $ 91 $ 8 8.8 % NauticStar 46 43 3 7.0 % Crest (a) 38 37 1 2.7 % Consolidated net sales per unit 69 64 5 7.8 % Gross margin 20.8 % 24.3 % -350 bpts (a) Crest was acquired on October 1, 2018. Fiscal 2020 Compared to Fiscal 2019 Net Sales . Net Sales for fiscal 2020 were $363.1 million, a decrease of $103.3 million, or 22.2 percent, compared to $466.4 million for fiscal 2019. The decrease was primarily due to: • A $65.4 million decrease for the MasterCraft segment, primarily due to lower wholesale unit volumes for the MasterCraft brand as a result of our temporary manufacturing suspension and our pre- COVID-19 Pandemic effort to reduce dealer inventory levels, partially offset by a richer mix of higher-priced and higher-contented models and lower dealer incentives. The lower dealer incentives were primarily related to discounts for our Canadian dealers as the Canadian retaliatory import tariffs on boats, first imposed in July 2018, were rescinded in May 2019 and lower rebates and discounts in the fiscal fourth quarter driven by strong retail demand. Within the MasterCraft segment, the decrease for the MasterCraft brand was also partially offset by Aviara sales in fiscal 2020; • a $23.1 million decrease for the NauticStar segment primarily as a result of our temporary manufacturing suspension, our pre- COVID-19 Pandemic effort to allow our dealers to right-size pipeline inventory levels, and softness in the overall saltwater category during the first half of fiscal 2020, partially offset by higher prices; 34 • a net $14.9 million decrease as the Crest acquisition in the second quarter of fiscal 2019 added net sales of $18.9 million for the first quarter of fiscal 2020 which was offset by a total $33.7 million period-over-period decrease attributable to the remaining quarters in fiscal 2020 primarily as a result of our temporary manufacturing suspensi on and our pre- COVID-19 P andemic effort to allow our dealers to right-size pipeline inventory levels, and higher pre-pandemic retail rebate discounts , partially offset by higher prices ; Gross Profit and Gross Margin. Gross profit decreased $37.8 million, or 33.4 percent, to $75.4 million compared to $113.1 million for the prior year. The decrease was primarily due to lower wholesale unit sales volume for each reportable segment, higher depreciation expense, and $1.4 million in COVID-19 Shutdown Costs. The higher depreciation expense was largely a result of investment in tooling for Aviara and NauticStar to support recent product launches and lineup expansion. These decreases were partially offset by price increases for each reportable segment, $2.6 million of gross profit attributable to Crest’s first quarter of fiscal 2020 results, and lower dealer incentives. Gross margin decreased primarily due to lower overhead absorption driven by lower wholesale unit sales volume for each reportable segment, higher warranty costs as a percentage of sales, and $1.4 million of COVID-19 Shutdown Costs. Operating Expenses . Operating expenses increased $22.1 million, or 27.6 percent, to $101.9 million for fiscal 2020 compared to $79.9 million for fiscal 2019. The increase was primarily driven by additional goodwill and other intangible asset impairment charges related to our NauticStar and Crest segments recorded in fiscal 2020 as compared to fiscal 2019. See Note 6 in Notes to Consolidated Financial Statements for more information on the impairment charges. In addition, the inclusion of Crest’s results for the first quarter of fiscal 2020 added $2.2 million of operating expenses, as Crest was acquired in the second quarter of fiscal 2019. This increase was partially offset by a $3.9 million decrease at our MasterCraft segment mainly due to lower acquisition-related costs, reduced Selling and marketing and General and administrative expense resulting from cost management initiatives, lower share-based compensation expense as a result of our CEO transition and lowered performance estimates related to our incentive-based compensation plan. Interest Expense . Interest expense decreased $1.5 million, or 22.5 percent, primarily driven by lower effective interest rates during the year compared to fiscal 2019. Income Tax Expense (Benefit) . Our consolidated effective income tax rate increased to 23.9 percent for fiscal 2020 from 20.2 percent for fiscal 2019, primarily due to favorable adjustments occurring in fiscal 2019, such as permanent benefits and changes in valuation allowances, which reduced the effective tax rate for fiscal 2019. 35 Non-GAAP Measures EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations. For the periods presented herein, these adjustments include Goodwill and other intangible asset impairment charges, Aviara (new brand) startup costs, COVID-19 Shutdown Costs, transaction expenses associated with acquisitions and certain non-cash items including share-based compensation, an out-of-period adjustment to correct an immaterial error related to our warranty reserve, and acquisition-related inventory step-up adjustments. We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of Net sales. Adjusted Net Income and Adjusted Net Income Per Share We define Adjusted Net Income and Adjusted Net Income per share as net income adjusted to eliminate certain non-cash charges or other items that we do not consider to be indicative of our core and/or ongoing operations and adjusted for the impact to income tax expense (benefit) related to non-GAAP adjustments. For the periods presented herein, these adjustments include Goodwill and other intangible asset impairment charges, Aviara (new brand) startup costs, COVID-19 Shutdown Costs, transaction expenses associated with acquisitions, and certain non-cash items including other intangible asset amortization, share-based compensation, out-of-period adjustment to correct an immaterial error related to our warranty reserve, and acquisition-related inventory step-up adjustments. EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income per share, which we refer to collectively as the Non-GAAP Measures, are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, or U.S. GAAP. The Non-GAAP Measures are not measures of performance in accordance with U.S. GAAP and should not be considered as an alternative to net income, net income per share, or operating cash flows determined in accordance with U.S. GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow. We believe that the inclusion of the Non-GAAP Measures is appropriate to provide additional information to investors because securities analysts and investors use the Non-GAAP Measures to assess our operating performance across periods on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted Net Income and Adjusted Net Income per share to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with U.S. GAAP, provides a more complete understanding of factors and trends affecting our business than does U.S. GAAP measures alone. We believe Adjusted Net Income and Adjusted Net Income per share assists our board of directors, management, investors, and other users of the financial statements in comparing our net income on a consistent basis from period to period because it removes certain non-cash items and other items that we do not consider to be indicative of our core and/or ongoing operations and adjusts for the impact to income tax expense (benefit) related to non-GAAP adjustments. The Non-GAAP Measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; • Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes; • Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and • Adjusted Net Income, Adjusted Net Income per share, and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our core and/or ongoing operations, but may nonetheless have a material impact on our results of operations. In addition, because not all companies use identical calculations, our presentation of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies, including companies in our industry. 36 The following table presents a reconciliation of net income (loss) as determined in accordance with U.S. GAAP to EBITDA, Adjusted EBITDA and Adjusted EBITDA m argin for the periods indicated: (Dollars in thousands) 2020 2019 2018 Net income (loss) $ (24,047 ) $ 21,354 $ 39,653 Income tax expense (benefit) (7,565 ) 5,392 12,856 Interest expense 5,045 6,513 3,474 Depreciation and amortization 10,527 7,787 5,086 EBITDA (16,040 ) 41,046 61,069 Goodwill and other intangible asset impairment (a) 56,437 31,000 — Aviara start-up costs (b) 1,446 2,840 561 COVID-19 Shutdown Costs (c) 1,394 — — Share-based compensation 1,061 1,678 1,186 Warranty adjustment (d) — — (1,033 ) Transaction expense (e) — 2,377 1,744 Inventory step-up adjustment - acquisition related (f) — 382 501 Adjusted EBITDA $ 44,298 $ 79,323 $ 64,028 Adjusted EBITDA margin 12.2 % 17.0 % 19.2 % (a) Represents non-cash charges recorded in the NauticStar and Crest segments for impairment of goodwill and trade name intangible assets. See Note 6 in Notes to Consolidated Financial Statements for more information on the impairment charges. (b) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in the first half of fiscal 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. (c) Represents lump sum severance payments and costs related to temporary continuation of healthcare benefits for certain laid off employees, in connection with the COVID-19 Pandemic. (d) Represents an out-of-period adjustment to correct an immaterial error related to our warranty accrual calculation identified during the fiscal year ended June 30, 2018. ( e ) Represents acquisition related costs and other integration costs associated with our acquisitions of Crest and NauticStar in fiscal 2019 and 2018, respectively. ( f ) Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during respective fiscal years. 37 The following table sets forth a reconciliation of net income as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated: (Dollars in thousands) 2020 2019 2018 Net income (loss) $ (24,047 ) $ 21,354 $ 39,653 Income tax expense (benefit) (7,565 ) 5,392 12,856 Goodwill and other intangible asset impairment (a) 56,437 31,000 — Amortization of acquisition intangibles 3,842 3,385 1,490 Aviara start-up costs (b) 1,446 2,840 561 COVID-19 Shutdown Costs (c) 1,394 — — Share-based compensation 1,061 1,678 1,186 Warranty adjustment (d) — — (1,033 ) Transaction expense (e) — 2,377 1,744 Inventory step-up adjustment - acquisition related (f) — 382 501 Adjusted Net Income before income taxes 32,568 68,408 56,958 Adjusted income tax expense (g) 7,491 15,392 16,518 Adjusted Net Income $ 25,077 $ 53,016 $ 40,440 Adjusted Net Income per share: Basic $ 1.34 $ 2.84 $ 2.17 Diluted $ 1.34 $ 2.82 $ 2.16 Weighted average shares used for the computation of: Basic Adjusted Net Income per share 18,734,482 18,653,892 18,619,793 Diluted Adjusted Net Income per share (h) 18,734,482 18,768,207 18,714,531 (a) Represents non-cash charges recorded in the NauticStar and Crest segments for impairment of goodwill and trade name intangible assets. See Note 6 in Notes to Consolidated Financial Statements for more information on the impairment charges. (b) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in the first half of fiscal 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. (c) Represents lump sum severance payments and costs related to temporary continuation of healthcare benefits for certain laid off employees, in connection with the COVID-19 Pandemic. (d) Represents an out-of-period adjustment to correct an immaterial error related to our warranty accrual calculation identified during the fiscal year ended June 30, 2018. (e) Represents acquisition related costs and other integration costs associated with our acquisitions of Crest and NauticStar in fiscal 2019 and 2018, respectively. (f) Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during respective fiscal years. ( g ) Reflects income tax expense at a tax rate of 23.0% for fiscal 2020, 22.5% for fiscal 2019 and 29% for 2018. (h) Represents the Weighted Average Shares Used for the Computation of Basic and Diluted earnings (loss) per share as presented on the Consolidated Statements of Operations to calculate Adjusted Net Income per diluted share for all periods presented herein. 38 The following table presents the reconciliation of net income (loss) per diluted share to Adjusted net income per diluted share for the periods presented: 2020 2019 2018 Net income (loss) per diluted share $ (1.28 ) $ 1.14 $ 2.12 Impact of adjustments: Income tax expense (benefit) (0.40 ) 0.29 0.69 Goodwill and other intangible asset impairment (a) 3.01 1.65 — Amortization of acquisition intangibles 0.20 0.18 0.08 Aviara start-up costs (b) 0.08 0.15 0.03 COVID-19 Shutdown Costs (c) 0.07 — — Share-based compensation 0.06 0.09 0.06 Warranty adjustment (d) — — (0.06 ) Transaction expense (e) — 0.12 0.09 Inventory step-up adjustment - acquisition related (f) — 0.02 0.03 Adjusted Net Income per diluted share before income taxes 1.74 3.64 3.04 Impact of adjusted income tax expense on net income per diluted share before income taxes (g) (0.40 ) (0.82 ) (0.88 ) Adjusted Net Income per diluted share $ 1.34 $ 2.82 $ 2.16 (a) Represents non-cash charges recorded in the NauticStar and Crest segments for impairment of goodwill and trade name intangible assets. See Note 6 in Notes to Consolidated Financial Statements for more information on the impairment charges. (b) Represents start-up costs associated with Aviara, a completely new boat brand in an industry category previously not served by the Company. We began selling the brand’s first two models, the AV32 and the AV36, during the first and second quarters of fiscal 2020, respectively. We expect to begin selling one additional model, the AV40, in the first half of fiscal 2021. Start-up costs presented for fiscal 2020 are related to the AV36 and AV40 models. Start-up costs presented for fiscal 2019 are related to the launch of the Aviara brand and the three initial Aviara models which had not yet begun selling. (c) Represents lump sum severance payments and costs related to temporary continuation of healthcare benefits for certain laid off employees, in connection with the COVID-19 Pandemic. (d) Represents an out-of-period adjustment to correct an immaterial error related to our warranty accrual calculation identified during the fiscal year ended June 30, 2018. (e) Represents acquisition related costs and other integration costs associated with our acquisitions of Crest and NauticStar in fiscal 2019 and 2018, respectively. (f) Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during respective fiscal years. (g) Reflects income tax expense at a tax rate of 23.0% for fiscal 2020, 22.5% for fiscal 2019 and 29% for 2018. ( h ) Reflects the impact of rounding in the other adjustments presented. Change in Non-GAAP Financial Measure Prior to fiscal year 2020, the Company’s calculation of a diluted per share amount of Adjusted Net Income included an adjustment to fully dilute this non-GAAP measure for all outstanding share-based compensation grants. This additional dilution was incorporated by adjusting the GAAP measure, Weighted Average Shares Used for the Computation of Basic earnings (loss) per share, as presented on the Consolidated Statements of Operations, to include a dilutive effect for all outstanding RSAs, PSUs, and stock options. Beginning with the fiscal year 2020 presentation in this Annual Report on Form 10-K for all periods presented, the Company will no longer include this additional dilution impact in its calculation of Adjusted Net Income per diluted share. The Company has instead utilized the Weighted Average Shares Used for the Computation of Basic and Diluted earnings (loss) per share as presented on the Consolidated Statements of Operations to calculate Adjusted Net Income per diluted share for all periods presented herein. The Company believes that, because its outstanding share-based compensation grants no longer result in a material amount of dilution of its earnings as was the case nearer to the date of our IPO, the adjustment methodology previously used no longer provides meaningful information to management or other users of its financial statements. This change resulted in an increase of $0.02 in the year ended June 30, 2020 in the amount of Adjusted Net Income per diluted share from what would have been reported using the previous methodology. The change also resulted in an increase of $0.01 in each of the years ended June 30, 2019 and 2018 in the amount of Adjusted Net Income per diluted share from what was previously reported. In addition, the fiscal 2019 amount for Transaction expense, in the reconciliation of net income (loss) per diluted share to Adjusted net income per diluted share, decreased by $0.01 from what was previously reported as a result of a change in the presentation of the impact of rounding. 39 Liquidity and Capital Resources Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, and service our debt. Our principal sources of liquidity are our cash balance, cash generated from operating activities, our revolving credit agreement and the refinancing and/or new issuance of long-term debt. On March 19, 2020, we drew $35.0 million on our revolving credit agreement as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 Pandemic. The performance of the business and our cash management activities provided the flexibility to repay $25.0 million of the revolving credit facility on June 30, 2020. As of June 30, 2020, we had a cash balance of $16.3 million in addition to $25.0 million of available borrowing capacity under the revolving credit facility. Additionally, on May 7, 2020, we entered into Amendment No. 3 to the Fourth Amended & Restated Credit and Guarantee Agreement (the “Amendment”) to strengthen our financial flexibility. Among other things, the changes effected by the Amendment provide temporary relief under our financial covenants. See Note 8 in Notes to Consolidated Financial Statements for more information regarding these changes. On August 13, 2020, the Company entered into an agreement to purchase certain real and personal property located in Merritt Island, Florida, for $14.0 million (the “Purchase Agreement”). The Purchase Agreement is subject to customary closing conditions and closing is expected to occur in October 2020. The Company expects to use liquidity sources existing as of June 30, 2020 to fund this purchase. See Note 7 in Notes to Consolidated Financial Statements for more information regarding the Purchase Agreement. We believe our cash balance, cash from operations, and our ability to borrow, will be sufficient to provide for our liquidity and capital resource needs. However, we are continuing to monitor the COVID-19 Pandemic and its impact on our business, dealers, consumers and industry as a whole. Please see Item 1A, “Risk Factors – Risks Related to Our Business – The COVID-19 Pandemic has had, and may continue to have, certain negative impacts on our business and those of our consumers, dealers and suppliers, and such impacts may have a material adverse effect on our operations and business.” The following table summarizes the cash flows from operating, investing, and financing activities: (Dollars in thousands) 2020 2019 2018 Total cash provided by (used in): Operating activities $ 30,198 $ 55,886 $ 49,397 Investing activities (14,218 ) (95,786 ) (85,720 ) Financing activities (5,487 ) 37,817 40,194 Net change in cash $ 10,493 $ (2,083 ) $ 3,871 Cash Flow Our net cash provided by operating activities decreased by $25.7 million, or 46.0%, to $30.2 million for fiscal 2020 from $55.9 million in fiscal 2019. This decrease was primarily due to a decrease in operating income, net of non-cash expense items, and unfavorable working capital usage. Working capital is defined as Accounts receivable, Income tax receivable, Inventories, and Prepaid expenses and other current assets net of Accounts payable, Income tax payable, and Accrued expenses and other current liabilities as presented in the consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Cash flows from working capital changes decreased primarily due to: • a $12.1 million decrease related to Accrued expenses and other current liabilities as a result of changes in the timing of dealer incentive payments, higher retail sales in June 2020 as compared to June 2019 which lowered certain accrued dealer incentives, and lower accrued payroll as a result of lower incentive compensation accruals; • a $3.0 million decrease related to Income tax receivable is primarily due to the decreased taxable income between the comparable periods; • a $3.9 million decrease attributable to Accounts payable as a result of lower production levels in June 2020 as compared to June 2019 and the timing of vendor payments; • partially offset by a $8.1 million increase related to Accounts receivable primarily due to lower sales volumes in June 2020 as compared to June 2019 and an improved collection cycle for Crest; and • a $5.2 million increase attributable to Inventories as high wholesale demand resulted in low finished goods levels, while lower production rates in June 2020 as compared to June 2019 resulted in lower raw materials and work-in-process inventories. 40 Net cash used in investing activities decreased primarily due to the $81.7 million Crest acquisition being included in our 2019 cash flows. Capital outlays of $14.2 million during the year ended June 30, 2020 included the purchase of the Crest manufacturing facility, expansion activities, molds, and equipment. See Note 1 1 in Notes to Consolidated Financial Statements for additional information regardi ng the Crest facility purchase. Net financing cash flow decreased primarily as the result of lower proceeds from the issuance of long-term debt. The Crest acquisition, completed during the second quarter of 2019, was funded using $80.0 million of proceeds from the issuance of long-term debt. On March 20, 2020, we borrowed all available funds under our Revolving Credit Facility, $35.0 million, as a precautionary measure in response to the COVID-19 Pandemic and we had repaid $25.0 million as of June 30, 2020. During the year ended June 30, 2020, we also made $15.4 million of principal payments on our term loans, including $6.0 million of voluntary prepayments. See Note 8 in Notes to Consolidated Financial Statements for more information regarding our debt and liquidity. Off-Balance Sheet Arrangements The Company did not have any off-balance sheet financing arrangements as of June 30, 2020. Contractual Obligations As of June 30, 2020, the Company’s contractual cash obligations were as follows: Payments Due by Period Less than More than (Dollars in thousands) Total 1 year 1-3 years 3-5 years 5 years Long-Term Debt Obligations (1) $ 109,993 $ 9,420 $ 24,335 $ 76,238 $ — Interest on Long-Term Debt Obligations (2) 11,843 4,105 6,995 743 — Operating Lease Obligations 530 245 284 1 — Purchase Obligations (3) 82,848 16,325 31,365 35,158 — Other 315 183 132 — — Total Contractual Obligations (4) $ 205,529 $ 30,278 $ 63,111 $ 112,140 $ — (1) See Note 8 in Notes to Consolidated Financial Statements for additional information regarding the Company's debt. “Long-Term Debt Obligations” refers to future cash principal payments. (2) Interest payments on variable rate debt instruments were calculated using June 30, 2020 interest rates and holding them constant for the life of the instruments. (3) Purchase obligations represent agreements with suppliers and vendors entered into as part of the normal course of business, including engine purchase commitments. (4) Unrecognized tax benefits of $3.7 million are not reflected in this table because the Company cannot predict when open income tax years will close with completed examinations. See Note 9 in Notes to Consolidated Financial Statements. Repurchase Obligations — The Company has reserves to cover potential losses associated with repurchase obligations based on historical experience and current facts and circumstances. We incurred no material impact from repurchase events during fiscal 2020, 2019, or 2018. An adverse change in retail sales, however, could require us to repurchase boats repossessed by floor plan financing companies upon an event of default by any of our dealers, subject in some cases to an annual limitation. See Note 11 in Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for more information related to our obligations under floor plan financing agreements. Emerging Growth Company We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation. The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have irrevocably chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.” 41 We will continue to be an emerging growth company until June 30, 2021, which is the last day of our fiscal year following the fifth anniversary of the date of completion of our initial public offer ing . Inflation The market prices of certain materials and components used in manufacturing our products, especially resins that are made with hydrocarbon feedstocks, copper, aluminum, and stainless steel, can be volatile. Historically, however, inflation has not had a material effect on our results of operations. Significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, could have an adverse impact on our business, financial condition, and results of operations. New boat buyers often finance their purchases. Inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Should inflation and increased interest rates occur, prospective consumers may choose to forego or delay their purchases or buy a less expensive boat in the event credit is not available to finance their boat purchases. Critical Accounting Policies A “critical accounting policy” is one which is both important to the understanding of our financial condition and results of operations and requires management’s most difficult, subjective, or complex judgments, often of the need to make estimates about the effect of matters that are inherently uncertain. Actual results could differ from those estimates and cause our reported net income (loss) to vary significantly from period to period. We believe that the policies listed below involve the greatest degree of judgment and complexity. Accordingly, we believe these are the most critical to understand in order to evaluate fully our financial condition and results of operations. For additional information regarding these policies, see Note 1 — Significant Accounting Policies in Notes to Consolidated Financial Statements. Goodwill and Other Intangible Assets — The Company does not amortize goodwill and other purchased intangible assets with indefinite lives. All of the Company’s goodwill and other intangible assets relate to our MasterCraft, NauticStar, or Crest reporting units (see Note 13 in Notes to Consolidated Financial Statements). The Company’s intangible assets with finite lives consist primarily of dealer networks and are carried at their estimated fair values at the time of acquisition, less accumulated amortization. Amortization is recognized on a straight-line basis over the estimated useful lives of the respective assets (see Note 6 in Notes to Consolidated Financial Statements). Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets described below. Goodwill Goodwill results from the excess of purchase price over the net assets of businesses acquired. The Company reviews goodwill for impairment annually, at fiscal yearend, and whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. As part of the annual test, the Company may perform a qualitative, rather than quantitative, assessment to determine whether the fair values of its reporting units are “more likely than not” to be greater than their carrying values. In performing this qualitative analysis, the Company considers various factors, including the effect of market or industry changes and the reporting units' actual results compared to projected results. If the fair value of a reporting unit does not meet the "more likely than not" criteria discussed above, the impairment test for goodwill is a quantitative test. This test involves comparing the fair value of the reporting unit with its carrying value. If the fair value exceeds the carrying value, goodwill is not considered impaired. If the carrying amount exceeds the fair value then the goodwill is 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 goodwill allocated to that reporting unit. 42 The Company calculates the fair value of its reporting units considering both the income approach and mar ket approach. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach. Internally forecasted future cash flows, which the Company believes reasonably approximate market participant assumptions, are discount ed using a weighted average cost of capital (“Discount Rate”) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure of risk related to the specific reporti ng unit’s forecasted performance. Fair value under the market approach is determined for each unit by applying market multiples for comparable public companies to the unit’s financial results. The key uncertainties in these calculations are the assumptions used in determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those forecasts in determining the Discount Rate, along with selecting representative mar ket multiples. As of June 30, 2020, only the Mastercraft reporting unit has a goodwill balance. The fair value of this reporting unit substantially exceeds its carrying value. However, it is possible that the Company’s assumptions regarding the key uncertainties in this fair value calculation could change in the near term. If actual results differ from the Company’s assumptions, it is possible that the MasterCraft reporting unit could incur goodwill impairment charges in future periods. Other Intangible Assets The Company's primary intangible assets other than goodwill are dealer networks and trade names acquired in business combinations. These intangible assets are initially valued using a methodology commensurate with the intended use of the asset. The dealer networks were valued using an income approach, which requires an estimate or forecast of the expected future cash flows from the dealer network through the application of the multi-period excess earnings approach. The fair value of trade names is measured using a relief-from-royalty approach, a variation of the income approach, which requires an estimate or forecast of the expected future cash flows. This method assumes the value of the trade name is the discounted cash flows of the amount that would be paid to third parties had the Company not owned the trade name and instead licensed the trade name from another company. The basis for future sales projections for these methods are based on internal revenue forecasts by reporting unit, which the Company believes represent reasonable market participant assumptions. The future cash flows are discounted using an applicable Discount Rate as well as any potential risk premium to reflect the inherent risk of holding a standalone intangible asset. The key uncertainties in these fair value calculations, as applicable, are: assumptions used in developing internal revenue growth and dealer expense forecasts, assumed dealer attrition rates, the selection of an appropriate royalty rate, as well as the perceived risk associated with those forecasts in determining the Discount Rate. The costs of amortizable intangible assets, including dealer networks, are recognized over their expected useful lives, approximately ten years for the dealer networks, using the straight-line method. Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets described below. Intangible assets not subject to amortization are assessed for impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset. During the third quarter of fiscal 2020, impairment charges were incurred for the NauticStar and Crest trade name-related intangible assets. As of our fiscal year end, which is our annual impairment testing date under ASC 360, there have been favorable changes in circumstances as compared to those existing as of the end of the third quarter, such as strong marine retail demand coupled with record low retail inventory levels that have created a growth opportunity in the near term, which we believe indicates that it is not more likely than not that the current carrying values of these assets are higher than the fair values. Changes in assumptions and estimates such as declines in projected results, however, may affect the fair value of our intangible assets and could result in additional impairment charges in future periods. Income Taxes— We are subject to income taxes in the United States of America and the United Kingdom. Our effective tax rates differ from the statutory rates, primarily due to changes in the valuation allowance and non-deductible expenses, as further described in Note 9 in Notes to Consolidated Financial Statements. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, we cannot provide assurance that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest. 43 Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determin ation as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. Realization of our deferred tax assets is dependent on generating sufficient taxable income in future periods. If future events cause us to conclude that it is not more likely than not that we will be able to recover the value of our deferred tax assets, we are required to establish a valuation allowance on deferred tax assets at that time. Revenue Recognition — The Company’s revenue is derived primarily from the sale of boats and trailers, marine parts, and accessories to its independent dealers. The Company recognizes revenue when obligations under the terms of a contract are satisfied and control over promised goods is transferred to a customer. For the majority of sales, this occurs when the product is released to the carrier responsible for transporting it to a customer. The Company typically receives payment within 5 business days of shipment. Revenue is measured as the amount of consideration it expects to receive in exchange for a product. The Company offers dealer incentives that include wholesale rebates, retail rebates and promotions, floor plan reimbursement or cash discounts, and other allowances that are recorded as reductions of revenues in Net sales in the consolidated statements of operations. The consideration recognized represents the amount specified in a contract with a customer, net of estimated incentives the Company reasonably expects to pay. The estimated liability and reduction in revenue for dealer incentives is recorded at the time of sale. Subsequent adjustments to incentive estimates are possible because actual results may differ from these estimates if conditions dictate the need to enhance or reduce sales promotion and incentive programs or if dealer achievement or other items vary from historical trends. Accrued dealer incentives are included in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Rebates and Discounts Dealers earn wholesale rebates based on purchase volume commitments and achievement of certain performance metrics. The Company estimates the amount of wholesale rebates based on historical achievement, forecasted volume, and assumptions regarding dealer behavior. Rebates that apply to boats already in dealer inventory are referred to as retail rebates. The Company estimates the amount of retail rebates based on historical data for specific boat models adjusted for forecasted sales volume, product mix, dealer and consumer behavior, and assumptions concerning market conditions. The Company also utilizes various programs whereby it offers cash discounts or agrees to reimburse its dealers for certain floor plan interest costs incurred by dealers for limited periods of time, generally ranging up to nine months. Other Revenue Recognition Matters Dealers generally have no right to return unsold boats. Occasionally, the Company may accept returns in limited circumstances and at the Company’s discretion under its warranty policy. The Company may be obligated, in the event of default by a dealer, to accept returns of unsold boats under its repurchase commitment to floor financing providers, who are able to obtain such boats through foreclosure. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through the payment date by the dealer, generally not exceeding 30 months. The Company accounts for these arrangements as guarantees and recognizes a liability based on the estimated fair value of the repurchase obligation. The estimated fair value takes into account our estimate of the loss we will incur upon resale of any repurchases. The Company accrues the estimated fair value of this obligation based on the age of inventory currently under floor plan financing and estimated credit quality of dealers holding the inventory. Inputs used to estimate this fair value include significant unobservable inputs that reflect the Company’s assumptions about the inputs that market participants would use and, therefore, this liability is classified within Level 3 of the fair value hierarchy. Product Warranties — The Company offers warranties on the sale of certain products for periods of between one and five years. These warranties require us or our dealers to repair or replace defective products during the warranty period at no cost to the consumer. We estimate the costs that may be incurred under our basic limited warranty and record as a liability the amount of such costs at the time the product revenue is recognized. The key uncertainties that affect our estimate for warranty liability include anticipated rates of warranty claims and cost per claim. We periodically assess the adequacy of the recorded warranty liabilities and adjust the amounts as actual claims are determined or as changes in the obligations become reasonably estimable. Repurchase Agreements — In connection with our dealers’ wholesale floor plan financing of boats, we have entered into repurchase agreements with various lending institutions. The repurchase commitment is on an individual unit basis with a term from the date it is financed by the lending institution through payment date by the dealer, generally not exceeding 30 months. Such agreements are customary in the industry and our exposure to loss under such agreements is limited by the resale value of the inventory which is required to be repurchased. We incurred no material impact from repurchase events during fiscal 2020, 2019, or 2018. 44 ITEM 7A. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK. Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in foreign exchange rates, interest rates, and commodity prices. Changes in these factors could cause fluctuations in the results of our operations and cash flows. In the ordinary course of business, we are primarily exposed to interest rate risks. As of June 30, 2020, we had $108.6 million of long-term debt outstanding, bearing interest at the effective interest rate of 3.75%. See Note 8 in Notes to Consolidated Financial Statements for more information regarding our long-term debt. A hypothetical 1% increase or decrease in interest rates would have resulted in a $1.8 million change to our interest expense for fiscal 2020. ITEM 8. FINANCI AL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary financial information required to be filed under this Item 8 are presented in Part IV, Item 15 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.