What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-12 compared with 2021-02-10 · 86 added, 78 removed, 306 unchanged (35% of the section changed)

32 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

COST OF SALES

3 unchanged sentences

Amortization of other intangible assets

Goodwill and other intangible asset impairment

Total operating expenses

OPERATING INCOME

OPERATING INCOME (LOSS)

OTHER EXPENSE:

Interest expense

INCOME BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE

EARNINGS PER SHARE:

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE (BENEFIT)

NET INCOME (LOSS)

NET INCOME (LOSS) PER SHARE:

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

32 unchanged sentences

Common stock, $ .01 par value per share — authorized, 100,000,000 shares;

issued and outstanding, 18,949,295 shares at January 3, 2021 and 18,871,637 shares at June 30, 2020

issued and outstanding, 18,952,148 shares at April 4, 2021 and 18,871,637 shares at June 30, 2020

Additional paid-in capital

12 unchanged sentences

Balance at January 3, 2021

Share-based compensation activity

Balance at April 4, 2021

Balance at June 30, 2019

3 unchanged sentences

Balance at December 29, 2019

Share-based compensation activity

Balance at March 29, 2020

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

3 unchanged sentences

(Dollars in thousands)

Six Months Ended

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

2 unchanged sentences

Amortization of debt issuance costs

Deferred income taxes

Goodwill and other intangible asset impairment

Changes in certain operating assets and liabilities

8 unchanged sentences

Principal payments on long-term debt

Net cash provided by financing activities

Net cash provided by (used in) financing activities

NET CHANGE IN CASH AND CASH EQUIVALENTS

23 unchanged sentences

Therefore, the fiscal quarter end will not always coincide with the date of the end of a calendar month.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2020 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of January 3, 2021, its results of operations for the three and six months ended January 3, 2021 and December 29, 2019, its cash flows for the six months ended January 3, 2021 and December 29, 2019, and its statements of stockholders’ equity for the three and six months ended January 3, 2021 and December 29, 2019.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2020 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of April 4, 2021, its results of operations for the three and nine months ended April 4, 2021 and March 29, 2020, its cash flows for the nine months ended April 4, 2021 and March 29, 2020, and its statements of stockholders’ equity for the three and nine months ended April 4, 2021 and March 29, 2020.

All adjustments are of a normal, recurring nature.

6 unchanged sentences

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

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

The Company resumed operations at reduced production levels at our manufacturing facilities by mid-May.

Since that time, our facilities have increased production rates above their pre-COVID levels.

Demand for the Company’s products has been strong and, as a result of our employee’s committed efforts, disruptions to the Company’s production have been minimal since resuming operations in May 2020.

However, the Company remains 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 remains uncertain and difficult to predict, as the response to the COVID-19 pandemic continues to evolve in many countries, including the United States and other markets where the Company and its suppliers operate.

Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it has caused economic downturns or recessions in the U.S.

and other markets where the Company operates.

Such economic disruption could have a material adverse effect on the Company’s business as retail demand for our products could decline which would in-turn reduce wholesale demand from the Company’s dealers.

Policymakers around the world have responded and may continue to respond with fiscal and monetary policy actions to support the economy.

The magnitude and overall effectiveness of these actions remain uncertain.

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

and federal governments, the effects of the pandemic on the Company's consumers, dealers, suppliers and workforce, and to the extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted.

The Company's future results of operations, cash flows, and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain or workforce disruptions and uncertain demand, impairment charge s , and the impact of any initiatives that the Company may undertake to address financial and operational challenges faced by it and its consumers, dealers, and suppliers.

As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 p andemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

There were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the three and six months ended January 3, 2021 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2020.

There were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the three and nine months ended April 4, 2021 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2020.

Reclassifications — Certain historical amounts have been reclassified in these condensed consolidated financial statements and the accompanying notes herewith to conform to the current presentation.

Supply Chain Disruption — As we navigate the unprecedented confluence of demand and disruption precipitated by the COVID-19 pandemic, our production rates going forward will depend, in large part, on our suppliers’ capacity.

Demand for raw materials and components used in the production of our products has surged.

At the same time, severe and unprecedented events, including the February 2021 ice storm which impacted much of the United States, have recently disrupted the global supply chain.

As a result, some of the materials and components that we use, including certain resins, fiberglass, and plywood, are in short supply.

New Accounting Pronouncements Issued But Not Yet Adopted

Income Taxes — In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740).

This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combination that result in a step-up in the tax basis of goodwill.

tax basis of goodwill.

The transition requirements are primarily prospective, and the effective date is for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted.

We are currently evaluating the impact of the new guidance on our consolidated financial statements.

We are currently evaluating the impact of the new guidance on our c onsolidated f inancial s tatements.

Recently Adopted Accounting Standards

10 unchanged sentences

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

Three Months Ended January 3, 2021

Three Months Ended December 29, 2019

Three Months Ended April 4, 2021

Three Months Ended March 29, 2020

Major Product Categories:

1 unchanged sentence

Other revenue

Six Months Ended January 3, 2021

Six Months Ended December 29, 2019

Nine Months Ended April 4, 2021

Nine Months Ended March 29, 2020

Major Product Categories:

3 unchanged sentences

As of June 30, 2020, the Company had $ 0.6 million of contract liabilities associated with customer deposits.

During the six months ended January 3, 2021, all of this amount was recognized as revenue.

As of January 3, 2021, total contract liabilities associated with customer deposits were $ 1.5 million, were reported in Accrued expenses and other current liabilities on the condensed consolidated balance sheet, and are expected to be recognized as revenue during the remainder of the year ended June 30, 2021.

During the nine months ended April 4, 2021, all of this amount was recognized as revenue.

As of April 4, 2021, total contract liabilities associated with customer deposits were $ 1.9 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 ending June 30, 2021.

Inventories consisted of the following:

16 unchanged sentences

During October 2020 we completed the purchase of certain real property located in Merritt Island, Florida, including a boat manufacturing facility, for a purchase price of $ 14.2 million (the “Merritt Island Facility”).

The new Merritt Island Facility provides a dedicated manufacturing center for our Aviara brand.

The new Merritt Island Facility provides a dedicated manufacturing center for our Aviara brand, and allows for increased capacity for our MasterCraft brand.

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amounts of goodwill as of January 3, 2021 and June 30, 2020, attributable to each of the Company’s reportable segments, were as follows:

The carrying amounts of goodwill as of April 4, 2021 and June 30, 2020, attributable to each of the Company’s reportable segments, were as follows:

Accumulated Impairment Losses

8 unchanged sentences

Total other intangible assets

Amortization expense related to Other intangible assets, net for the three and six months ended both January 3, 2021 and December 29, 2019 was $ 1.0 million and $ 2.0 million, respectively.

Amortization expense related to Other intangible assets, net for the three and nine months ended both April 4, 2021 and March 29, 2020 was $ 1.0 million and $ 3.0 million, respectively.

Estimated amortization expense for the fiscal year ended June 30, 2021 is $ 4.0 million.

Prior Year Goodwill and Other Intangible Asset Impairment

The past economic environment, including the significant share price and market volatility, as well as disruptions to supply chains resulting from the COVID-19 pandemic, triggered an interim impairment analysis for the Company’s intangible assets including goodwill.

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 impairment charges recorded for each segment are detailed below and are included in Goodwill and other intangible asset impairment on the condensed consolidated statement of operations.

The impairment recorded in fiscal 2020 was principally a result of a decline, in the fiscal third quarter, in market conditions, including our share price, and the then current 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:

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

2 unchanged sentences

Compensation and related accruals

Contract liabilities

Inventory repurchase contingent obligation

Self-insurance

Debt interest

Total accrued expenses and other current liabilities

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

Accrued warranty liability activity was as follows for the nine months ended:

Balance at the beginning of the period

19 unchanged sentences

The changes effected by Amendment No.

3 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.

3 included, 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 Amendment No.

3, 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:

3, the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant of the Fourth Amended Credit Agreement were temporarily replaced with three separate covenants:

(i) an Interest Coverage Ratio, (ii) a Minimum Liquidity threshold, and (iii) a Maximum Unfinanced Capital Expenditures limitation (the “Package of Financial Covenants”).

The Package of Financial Covenants are in place through the quarter ended March 31, 2021, after which time the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant will be reinstated and the Package of Financial Covenants will sunset, and with the minimum liquidity covenant being tested on the last day of each fiscal month through May 31, 2021.

In addition, the Total Net Leverage Ratio calculation was temporarily revised to include all unrestricted cash balances, without limitation, until June 30, 2021.

As of January 3, 2021, the Company was in compliance with its financial covenants under Amendment No.

3 to the Fourth Amended Credit Agreement.

Pursuant to the Amendment, the applicable interest, at the Company’s option, is at either the prime rate plus an applicable margin ranging from 0.5 % to 2.25 % or at a LIBOR rate, subject to a 50 basis point floor, plus an applicable margin ranging from 1.5 % to 3.25 %,

in each case based on the Company’s Total Net Leverage Ratio.

As of January 3, 2021 the applicable margin for loans accruing interest at the prime rate was 1.00 % and the applicable margin for loans accruing interest at LIBOR was 2.00 %.

The Package of Financial Covenants were in place through March 31, 2021, after which time the Total Net Leverage Ratio covenant and Fixed Charge Coverage Ratio covenant have been reinstated and the Package of Financial Covenants has 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 during this time to include all unrestricted cash balances, without limitation, until June 30, 2021.

As of April 4, 2021, the Company was in compliance with all its financial covenants.

Pursuant to Amendment No.

3, the applicable interest, at the Company’s option, is at either the prime rate plus an applicable margin ranging from 0.5 % to 2.25 % or at a LIBOR rate, subject to a 50 basis point floor, plus an applicable margin ranging from 1.5 % to 3.25 %, in each case based on the Company’s Total Net Leverage Ratio.

As of April 4, 2021 the applicable margin for loans accruing interest at the prime rate was 1.00 % and the applicable margin for loans accruing interest at LIBOR was 2.00 %.

Amendment No.

7 unchanged sentences

During October 2020 the Company borrowed $ 20.0 million under its $ 35.0 million Revolving Credit Facility to fund the purchase of the Merrit Island Facility.

The Company subsequently repaid all outstanding amounts and, as of January 3, 2021, the availability under the Revolving Credit Facility was $ 35.0 million.

The Company subsequently repaid all outstanding amounts and, as of April 4, 2021, the availability under the Revolving Credit Facility was $ 35.0 million.

The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items.

The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0 % primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations.

During the three months ended January 3, 2021 and December 29, 2019, the Company’s effective tax rates were 22.2 % and 24.4 %, respectively.

During the six months ended January 3, 2021 and December 29, 2019, the Company’s effective tax rates were 22.5 % and 24.2 %, respectively.

The Company’s effective tax rate for the three and six months ended January 3, 2021 is lower compared to the effective tax rate for the three and six months ended December 29, 2019, primarily due to an increase in the benefit of federal and state tax credits and a reduction in the effective state tax rate, partially offset by a decrease in the Company’s net permanent benefits, largely driven by changes in the foreign derived intangible income deduction and add-back for Section 162(m) limitations.

EARNINGS PER SHARE

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

During the three months ended April 4, 2021 and March 29, 2020, the Company’s effective tax rates were 19.4 % and 23.9 %, respectively.

During the nine months ended April 4, 2021 and March 29, 2020, the Company’s effective tax rates were 21.2 % and 23.7 %, respectively.

The Company’s effective tax rate for the three and nine months ended April 4, 2021 is lower compared to the effective tax rate for the three and nine months ended March 29, 2020, primarily due to an increase in the benefit of federal and state tax credits, a reduction in the effective state tax rate, and an increase in the Company’s net permanent benefits, largely driven by changes in the foreign derived intangible income due to an increase in foreign sales and gross margin.

NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of the Company’s net income (loss) per share:

Three Months Ended

Six Months Ended

Nine Months Ended

Net income (loss)

Weighted average shares — basic

2 unchanged sentences

Weighted average outstanding shares — diluted

Basic earnings per share

Diluted earnings per share

For the three and six months ended January 3, 2021 and December 29, 2019, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive.

Basic net income (loss) per share

Diluted net income (loss) per share

For the three and nine months ended April 4, 2021, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive.

The dilutive effect of 113,708 and 89,686 weighted average shares were excluded from the calculation of diluted net loss per share for the three and nine months ended March 29, 2020, respectively, as the effect would have been anti-dilutive because of the net loss for the periods.

SHARE-BASED COMPENSATION

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Restricted stock awards

3 unchanged sentences

Restricted Stock Awards

During the six months ended January 3, 2021, the Company granted 87,047 restricted stock awards (“RSAs”) to the Company’s non-executive directors, officers and certain other key employees.

Generally, the shares of restricted stock granted during the six months ended January 3, 2021, vest pro-rata over three years for officers and certain other key employees and over one year for non-executive directors.

During the nine months ended April 4, 2021, the Company granted 88,786 restricted stock awards (“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 April 4, 2021, 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 six months ended January 3, 2021, was $ 19.96 per share.

The following table summarizes the status of nonvested RSAs as of January 3, 2021, and changes during the six months then ended.

The weighted average grant date fair value of RSAs granted in the nine months ended April 4, 2021, was $ 20.06 per share.

The following table summarizes the status of nonvested RSAs as of April 4, 2021, and changes during the nine months then ended.

Nonvested at June 30, 2020

Nonvested at January 3, 2021

As of January 3, 2021, there was $ 1.9 million of total unrecognized compensation expense related to nonvested RSAs.

Nonvested at April 4, 2021

As of April 4, 2021, 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.

16 unchanged sentences

The Supplemental PSUs are capped at 90 % of the Existing PSUs’ original fair value and would be reduced for any shares issuable upon satisfaction of the performance criteria pursuant to the Existing PSUs.

The following table summarizes the status of nonvested PSUs as of January 3, 2021, and changes during the six months then ended.

As of April 4, 2021, the probability of achieving the performance goals for the Existing PSUs has improved, which would in turn reduce the potentially issuable shares under the Supplemental PSU to zero .

The following table summarizes the status of nonvested PSUs as of April 4, 2021, and changes during the nine months then ended.

Nonvested at June 30, 2020

Nonvested at January 3, 2021

As of January 3, 2021, there was $ 1.9 million of total unrecognized compensation expense related to nonvested PSUs.

Nonvested at April 4, 2021

As of April 4, 2021, there was $ 1.4 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.

3 unchanged sentences

The Company’s segments are defined by the Company’s operational and reporting structures.

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.

The MasterCraft segment produces boats under two product brands, MasterCraft and Aviara.

MasterCraft boats are produced at its Vonore, Tennessee facility.

These 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.

During the three months ended January 3, 2021, the Company began transitioning Aviara production to the Merritt Island, Facility.

The Company anticipates all Aviara boats to be produced at the Merritt Island Facility by the end of fiscal 2021.

The Company has transitioned Aviara production from the Vonore facility to the Merritt Island Facility as of the end of March, allowing for increased production capacity for our MasterCraft branded products.

The NauticStar segment produces boats at its Amory, Mississippi facility.

8 unchanged sentences

Selected financial information for the Company’s reportable segments was as follows:

For the Three Months Ended January 3, 2021

Operating income (loss)

For the Three Months Ended April 4, 2021

Operating income

Depreciation and amortization

Purchases of property, plant and equipment

For the Six Months Ended January 3, 2021

For the Nine Months Ended April 4, 2021

Operating income (loss)

1 unchanged sentence

Purchases of property, plant and equipment

For the Three Months Ended December 29, 2019

For the Three Months Ended March 29, 2020

Operating income (loss)

1 unchanged sentence

Purchases of property, plant and equipment

For the Six Months Ended December 29, 2019

For the Nine Months Ended March 29, 2020

Operating income (loss)

2 unchanged sentences

The following table presents total assets for the Company’s reportable segments.

January 3, 2021

April 4, 2021

Eliminations (a)

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements