MasterCraft Boat Holdings, Inc. 10-Q

Item 1. Financial Statements Unaudited Condensed Consolidated Statements of Operations 4 Unaudited Condensed Consolidated Balance Sheets 5 Unaudited Condensed Consolidated Statements of Stockholders’ Equity 6 Unaudited Condensed Consolidated Statements of Cash Flows 7 Notes to Unaudited Condensed Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls and Procedures 28 PART II OTHER INFORMATION Item 1. Legal Proceedings 29 Item 1A. Risk Factors 29 Item 2. Unregistered Sales of Securities and Use of Proceeds 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Mine Safety Disclosures 29 Item 5. Other Information 29 Item 6. Exhibits, Financial Statement Schedules 30 SIGNATURES 31 2 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements can generally be identified by the use of statements that include words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar words or phrases. Forward-looking statements involve estimates and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on assumptions that we have made considering our industry experience and our perceptions of historical trends, current conditions, expected future developments and other important factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many important factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements, including but not limited to the following: the potential effects of supply chain disruptions and production inefficiencies as a result of the coronavirus (“COVID-19”) pandemic on the Company, general economic conditions, demand for our products, inflation, changes in consumer preferences, competition within our industry, our reliance on our network of independent dealers, our ability to manage our manufacturing levels and our fixed cost base, the successful introduction of our new products and the other important factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the Securities and Exchange Commission (“SEC”) on September 2, 2021 (our “2021 Annual Report”). Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New important factors that could cause our business not to develop as we expect may emerge from time to time, and it is not possible for us to predict all of them. 3 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended Six Months Ended January 2, January 3, January 2, January 3, 2022 2021 2022 2021 NET SALES $ 159,465 $ 118,677 $ 303,475 $ 222,422 COST OF SALES 124,267 89,404 238,155 166,919 GROSS PROFIT 35,198 29,273 65,320 55,503 OPERATING EXPENSES: Selling and marketing 3,395 2,989 7,677 5,896 General and administrative 10,263 8,352 19,933 17,284 Amortization of other intangible assets 987 987 2,013 1,974 Goodwill impairment — — 1,100 — Total operating expenses 14,645 12,328 30,723 25,154 OPERATING INCOME 20,553 16,945 34,597 30,349 OTHER EXPENSE: Interest expense 357 870 739 1,889 INCOME BEFORE INCOME TAX EXPENSE 20,196 16,075 33,858 28,460 INCOME TAX EXPENSE 4,794 3,574 8,070 6,392 NET INCOME $ 15,402 $ 12,501 $ 25,788 $ 22,068 NET INCOME PER SHARE: Basic $ 0.82 $ 0.66 $ 1.37 $ 1.17 Diluted $ 0.81 $ 0.66 $ 1.36 $ 1.17 WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF: Basic earnings per share 18,722,386 18,807,316 18,786,343 18,790,826 Diluted earnings per share 18,899,136 18,928,408 18,951,627 18,897,617 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 4 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) January 2, June 30, 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,647 $ 39,252 Accounts receivable, net of allowance of $ 131 and $ 115 , respectively 8,907 12,080 Income tax receivable 545 355 Inventories, net (Note 3) 78,382 53,481 Prepaid expenses and other current assets 3,870 5,059 Total current assets 105,351 110,227 Property, plant and equipment, net 62,737 60,495 Goodwill (Note 4) 28,493 29,593 Other intangible assets, net (Note 4) 57,886 59,899 Deferred income taxes 15,429 15,130 Deferred debt issuance costs, net 456 507 Other long-term assets 538 609 Total assets $ 270,890 $ 276,460 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 18,292 23,861 Income tax payable 177 726 Accrued expenses and other current liabilities (Note 5) 49,677 46,836 Current portion of long-term debt, net of unamortized debt issuance costs (Note 7) 2,870 2,866 Total current liabilities 71,016 74,289 Long-term debt, net of unamortized debt issuance costs (Note 7) 70,841 90,277 Unrecognized tax positions 4,749 3,830 Other long-term liabilities 218 276 Total liabilities 146,824 168,672 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $ .01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,610,822 shares at January 2, 2022 and 18,956,719 shares at June 30, 2021 186 189 Additional paid-in capital 109,423 118,930 Retained earnings / (accumulated deficit) 14,457 ( 11,331 ) Total stockholders' equity 124,066 107,788 Total liabilities and stockholders' equity $ 270,890 $ 276,460 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 5 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in thousands) Additional Retained Earnings/ Common Stock Paid-in (Accumulated Shares Amount Capital Deficit) Total Balance at June 30, 2021 18,956,719 $ 189 $ 118,930 $ ( 11,331 ) $ 107,788 Share-based compensation activity 62,865 1 705 — 706 Repurchase and retirement of common stock ( 58,379 ) ( 1 ) ( 1,486 ) — ( 1,487 ) Net income — — — 10,386 10,386 Balance at October 3, 2021 18,961,205 189 118,149 ( 945 ) 117,393 Share-based compensation activity 5,913 — 1,159 — 1,159 Repurchase and retirement of common stock ( 356,296 ) ( 3 ) ( 9,885 ) — ( 9,888 ) Net income — — — 15,402 15,402 Balance at January 2, 2022 18,610,822 $ 186 $ 109,423 $ 14,457 $ 124,066 Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance at June 30, 2020 18,871,637 $ 189 $ 116,182 $ ( 67,501 ) $ 48,870 Share-based compensation activity 80,701 — 486 — 486 Net income — — — 9,567 9,567 Balance at October 4, 2020 18,952,338 189 116,668 ( 57,934 ) 58,923 Share-based compensation activity ( 3,043 ) — 577 — 577 Net income — — — 12,501 12,501 Balance at January 3, 2021 18,949,295 $ 189 $ 117,245 $ ( 45,433 ) $ 72,001 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 6 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Six Months Ended January 2, January 3, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 25,788 $ 22,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,595 5,599 Share-based compensation 2,104 1,283 Unrecognized tax benefits 919 865 Amortization of debt issuance costs 119 316 Goodwill impairment 1,100 — Changes in certain operating assets and liabilities ( 24,484 ) ( 740 ) Other, net 83 764 Net cash provided by operating activities 12,224 30,155 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 6,715 ) ( 18,903 ) Net cash used in investing activities ( 6,715 ) ( 18,903 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on revolving credit facility ( 30,000 ) ( 30,000 ) Borrowings on revolving credit facility 12,000 20,000 Principal payments on long-term debt ( 1,500 ) ( 4,710 ) Repurchase and retirement of common stock ( 11,375 ) — Other, net ( 239 ) ( 787 ) Net cash used in financing activities ( 31,114 ) ( 15,497 ) NET CHANGE IN CASH AND CASH EQUIVALENTS ( 25,605 ) ( 4,245 ) CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD 39,252 16,319 CASH AND CASH EQUIVALENTS — END OF PERIOD $ 13,647 $ 12,074 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ 600 $ 1,348 Cash payments for income taxes 9,002 5,132 SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital expenditures in accounts payable and accrued expenses 393 594 Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements. 7 MASTERCRAFT BOAT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unless stated otherwise dollars in thousands, except per share data) 1. ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES Organization — MasterCraft Boat Holdings, Inc. (“Holdings”) was formed on January 28, 2000, as a Delaware holding company and operates primarily through its wholly owned subsidiaries, MasterCraft Boat Company, LLC; MasterCraft Services, LLC; MasterCraft Parts, Ltd.; MasterCraft International Sales Administration, Inc.; Aviara Boats, LLC; Nautic Star, LLC; NS Transport, LLC; and Crest Marine, LLC. Holdings and its subsidiaries collectively are referred to herein as the “Company.” Basis of Presentation — The Company’s fiscal year begins July 1 and ends June 30, with the interim quarterly reporting periods consisting of 13 weeks. Therefore, the fiscal quarter end will not always coincide with the date of the end of a calendar month. The unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the year ended June 30, 2021 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of January 2, 2022, its results of operations for the three and six months ended January 2, 2022 and January 3, 2021, its cash flows for the six months ended January 2, 2022 and January 3, 2021, and its statements of stockholders’ equity for the three and six months ended January 2, 2022 and January 3, 2021. All adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the SEC for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2021 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP for complete financial statements. However, management believes that the disclosures in these condensed consolidated financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K. Due to the seasonality of the Company’s business, the interim results are not necessarily indicative of the results that may be expected for the remainder of the fiscal year. There were no significant changes in or changes to the application of the Company’s significant or critical accounting policies or estimation procedures for the three and six months ended January 2, 2022 as compared with those described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2021. Change in Reportable Segments — Beginning with the first quarter of fiscal 2022, our chief operating decision maker (“CODM”) began to manage our business, allocate resources, and evaluate performance based on the changes that have been made in the Company’s management structure in connection with the transition of Aviara production to our Merritt Island facility. As a result, the Company has realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara. The Company has recast segment information for all prior periods presented. Refer to Note 11 – Segment Information for further information on the Company’s reportable segments. Reclassifications — Certain historical amounts have been reclassified in these notes to the condensed consolidated financial statements to conform to the current presentation. 8 Recently Adopted Accounting Standards Income Taxes — In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to general principles in Income Taxes (Topic 740). It also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020 . The adoption of this standard did not have an impact on the Company’s consolidated financial statements. Reference Rate Reform — In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. An entity may apply ASU 2020-04 as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. The adoption of this standard did not have an impact on the Company’s consolidated financial statements. 2 . REVENUE RECOGNITION Consistent with the Company’s change in reportable segments described in Note 11—Segment Information, the Company has changed its presentation of disaggregated revenue to align with the new segment structure. The following tables present the Company’s revenue by major product category for each reportable segment. Three Months Ended January 2, 2022 MasterCraft Crest NauticStar Aviara Total Major Product Categories: Boats and trailers $ 104,464 $ 29,368 $ 15,000 $ 7,909 $ 156,741 Parts 2,055 151 60 — 2,266 Other revenue 254 199 5 — 458 Total $ 106,773 $ 29,718 $ 15,065 $ 7,909 $ 159,465 Six Months Ended January 2, 2022 MasterCraft Crest NauticStar Aviara Total Major Product Categories: Boats and trailers $ 192,392 $ 61,737 $ 28,236 $ 13,764 $ 296,129 Parts 5,883 387 180 — 6,450 Other revenue 513 374 9 — 896 Total $ 198,788 $ 62,498 $ 28,425 $ 13,764 $ 303,475 Three Months Ended January 3, 2021 MasterCraft Crest NauticStar Aviara Total Major Product Categories: Boats and trailers $ 77,558 $ 20,757 $ 14,857 $ 3,248 $ 116,420 Parts 1,726 138 87 — 1,951 Other revenue 227 74 5 — 306 Total $ 79,511 $ 20,969 $ 14,949 $ 3,248 $ 118,677 9 Six Months Ended January 3, 2021 MasterCraft Crest NauticStar Aviara Total Major Product Categories: Boats and trailers $ 142,367 $ 38,368 $ 27,073 $ 7,021 $ 214,829 Parts 6,271 529 211 — 7,011 Other revenue 464 111 7 — 582 Total $ 149,102 $ 39,008 $ 27,291 $ 7,021 $ 222,422 Contract Liabilities As of June 30, 2021, the Company had $ 1.8 million of contract liabilities associated with customer deposits. During the six months ended January 2, 2022, $ 1.6 million of this amount was recognized as revenue. As of January 2, 2022, total contract liabilities associated with customer deposits were $ 4.8 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, 2022. 3 . INVENTORIES Inventories consisted of the following: January 2, June 30, 2022 2021 Raw materials and supplies $ 56,795 $ 37,089 Work in process 17,404 10,171 Finished goods 6,134 8,362 Obsolescence reserve ( 1,951 ) ( 2,141 ) Total inventories $ 78,382 $ 53,481 Raw materials and supplies have increased to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process has increased due to supply chain disruptions. 10 4. GOODWILL AND OTHER INTANGIBLE ASSETS Beginning with the first quarter of fiscal 2022, the Company realigned its reportable segments to MasterCraft, Crest, NauticStar, and Aviara. Refer to Note 11 – Segment Information for further information on the Company’s reportable segments. As a result of the change in segments, in accordance with ASC 350, Intangibles-Goodwill and Other , the Company reallocated the goodwill recorded in the MasterCraft reporting unit to the two separate MasterCraft and Aviara reporting units using a relative fair value approach. Prior to realigning our segments, we evaluated our goodwill for impairment and determined no impairment existed as the fair value of our MasterCraft reporting unit, which was the only reporting unit containing goodwill, was in excess of its carrying amount. In conjunction with the reallocation of goodwill, we tested the goodwill at our MasterCraft and Aviara reporting units for impairment using an income-based approach, specifically a discounted cash flow model. The cash flow model included significant judgements and assumptions related to revenue growth and discount rates. At the time of the impairment test, near-term operating losses generated by start-up inefficiencies had negatively impacted the fair value of Aviara, causing the carrying value of the reporting unit to be in excess of the fair value. Consequently, a $ 1.1 million impairment charge was recognized in the first quarter of fiscal 2022. The carrying amounts of goodwill attributable to each of the Company’s reportable segments, were as follows: MasterCraft Crest NauticStar Aviara Total Balance at June 30, 2021 Goodwill $ 29,593 $ 36,238 $ 36,199 $ — $ 102,030 Accumulated impairment losses — ( 36,238 ) ( 36,199 ) — ( 72,437 ) Goodwill, net at June 30, 2021 29,593 — — — 29,593 Goodwill reallocation ( 1,100 ) — — 1,100 — Impairment — — — ( 1,100 ) ( 1,100 ) Goodwill, net at January 2, 2022 $ 28,493 $ — $ — $ — $ 28,493 The following table presents the carrying amount of Other intangible assets, net: January 2, June 30, 2022 2021 Gross Amount Accumulated Amortization / Impairment Other intangible assets, net Gross Amount Accumulated Amortization / Impairment Other intangible assets, net Amortized intangible assets Dealer networks $ 39,500 $ ( 15,700 ) $ 23,800 $ 39,500 $ ( 13,711 ) $ 25,789 Software 245 ( 159 ) 86 245 ( 135 ) 110 39,745 ( 15,859 ) 23,886 39,745 ( 13,846 ) 25,899 Unamortized intangible assets Trade names 49,000 ( 15,000 ) 34,000 49,000 ( 15,000 ) 34,000 Total other intangible assets $ 88,745 $ ( 30,859 ) $ 57,886 $ 88,745 $ ( 28,846 ) $ 59,899 Amortization expense related to Other intangible assets, net for both the three and six months ended January 2, 2022 and January 3, 2021 was $ 1.0 million and $ 2.0 million, respectively. Estimated amortization expense for the fiscal year ending June 30, 2022 is $ 4.0 million. 11 5 . ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: January 2, June 30, 2022 2021 Warranty $ 24,100 $ 22,329 Dealer incentives 9,986 10,634 Contract liabilities 4,839 1,848 Compensation and related accruals 4,493 6,046 Freight 669 778 Self-insurance 1,005 865 Inventory repurchase contingent obligation 1,027 471 Other 3,558 3,865 Total accrued expenses and other current liabilities $ 49,677 $ 46,836 Accrued warranty liability activity was as follows for the six months ended: January 2, January 3, 2022 2021 Balance at the beginning of the period $ 22,329 $ 20,004 Provisions 5,646 4,469 Payments made ( 4,969 ) ( 4,272 ) Aggregate changes for preexisting warranties 1,094 718 Balance at the end of the period $ 24,100 $ 20,919 6. COMMITMENTS AND CONTINGENCIES Purchase Commitments In October 2021, we signed a new supplier agreement to purchase marine outboard engines during fiscal 2022. During the term of the agreement, we committed to purchasing a minimum annual gross dollar value of $ 27.0 million in engines. Legal Proceedings The Company is subject to various litigation, claims and proceedings, which have arisen in the ordinary course of business. The Company accrues for litigation, claims and proceedings when a liability is both probable and the amount can be reasonably estimated. As of January 2, 2022, the Company’s accruals for litigation matters are not material. While these matters are subject to inherent uncertainties, management believes that current litigation, claims and proceedings, individually and in the aggregate, and after considering expected insurance reimbursements, are not likely to have a material adverse impact on the Company’s financial position, results of operations or cash flows. 12 7. LONG-TERM DEBT Long-term debt is as follows: January 2, June 30, 2022 2021 Revolving credit facility $ 15,728 $ 33,728 Term loans 58,500 60,000 Debt issuance costs on term loans ( 517 ) ( 585 ) Total debt 73,711 93,143 Less current portion of long-term debt 3,000 3,000 Less current portion of debt issuance costs on term loans ( 130 ) ( 134 ) Long-term debt, net of current portion $ 70,841 $ 90,277 On June 28, 2021, the Company entered into a credit agreement with a syndicate of certain financial institutions (the “Credit Agreement”). The Credit Agreement provides the Company with a $ 160.0 million senior secured credit facility, consisting of a $ 60.0 million term loan (the “Term Loan”) and a $ 100.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement refinanced and replaced the previously existing credit agreement. The Credit Agreement is secured by a first priority security interest in substantially all of the Company’s assets. The Credit Agreement contains a number of covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve; engage in businesses that are not in a related line of business; make loans, advances or guarantees; pay dividends or make other distributions; engage in transactions with affiliates; and make investments. The Company is also required to maintain a minimum fixed charge coverage ratio and a maximum net leverage ratio. The Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.25 % to 1.00 % or at an adjusted LIBOR rate plus an applicable margin ranging from 1.25 % to 2.00 %, in each case based on the Company’s net leverage ratio. The Company is also required to pay a commitment fee for any unused portion of the revolving credit facility ranging from 0.15 % to 0.30 % based on the Company’s net leverage ratio. Effective during the three and six months ended January 2, 2022, the applicable margin for loans accruing at the prime rate was 0.25 % and the applicable margin for loans accruing interest at LIBOR was 1.25 %. As of January 2, 2022, the interest rate on the Company’s term loan and revolving credit facility was 1.38 %. The Credit Agreement will mature and all remaining amounts outstanding thereunder will be due and payable on June 28, 2026. As of January 2, 2022, the Company was in compliance with its financial covenants under the Credit Agreement. Revolving Credit Facility As of January 2, 2022, the Company had $ 15.7 million of borrowings outstanding on its Revolving Credit Facility and had remaining availability of $ 84.3 million. 8 . INCOME TAXES The Company’s consolidated interim effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The differences between the Company’s effective tax rates and the statutory federal tax rate of 21.0 % primarily relate to the inclusion of the state tax rate in the overall effective rate, the benefit of federal and state credits, and a permanent benefit associated with the foreign derived intangible income deduction, partially offset by a permanent add-back for Section 162(m) limitations. During the three months ended January 2, 2022 and January 3, 2021, the Company’s effective tax rate was 23.7 % and 22.2 %, respectively. During the six months ended January 2, 2022 and January 3, 2021, the Company’s effective tax rate was 23.8 % and 22.5 %, respectively. The Company’s effective tax rate for the three and six months ended January 2, 2022 is higher compared to the effective 13 tax rate for th e three and six months ended January 3, 2021 , primarily due to an increase in the effective state tax rate, an increase in the tax impact of uncertain state tax positions and a reduction in the benefit of federal and state tax credits, partially offset by an increase in the Company’s net permanent benefits, largely driven by changes in foreign derived intangible income due to an increase in forecasted foreign taxable income, sales and gross margin. 9 . SHARE-BASED COMPENSATION The following table presents the components of share-based compensation expense by award type. Three Months Ended Six Months Ended January 2, January 3, January 2, January 3, 2022 2021 2022 2021 Restricted stock awards $ 518 $ 388 $ 985 $ 805 Performance stock units 690 255 1,119 478 Share-based compensation expense $ 1,208 $ 643 $ 2,104 $ 1,283 Restricted Stock Awards During the six months ended January 2, 2022, the Company granted 74,961 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 2, 2022, 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 2, 2022, was $ 26.14 per share. The following table summarizes the status of nonvested RSAs as of January 2, 2022, and changes during the six months then ended. Average Nonvested Grant-Date Restricted Fair Value Shares (per share) Nonvested at June 30, 2021 118,193 $ 19.42 Granted 74,961 26.14 Vested ( 58,086 ) 19.16 Forfeited ( 2,660 ) 26.01 Nonvested at January 2, 2022 132,408 23.22 As of January 2, 2022, there was $ 2.3 million of total unrecognized compensation expense related to nonvested RSAs. The Company expects this expense to be recognized over a weighted average period of 1.8 years. Performance Stock Units Performance stock units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of the Company’s stockholders, and to create long-term stockholder value. The awards will be earned based on the Company’s achievement of certain performance criteria over a three-year performance period. The performance period for the awards commences on July 1 of the fiscal year in which they were granted and continue for a three-year period, ending on June 30 of the applicable year. The probability of achieving the performance criteria is assessed quarterly. Following the determination of the Company’s achievement with respect to the performance criteria, the number of shares awarded is subject to further adjustment based on the application of a total shareholder return (“TSR”) modifier. The grant date fair value is determined based on both the probability assessment of the Company achieving the performance criteria and an estimate of the expected TSR modifier. The TSR modifier estimate is determined using a Monte Carlo Simulation model, which considers the 14 likelihood of numerous possible outcomes of long-term market performance. Compensation expense related to nonvested PSUs is recognized ratably over the performance period. The following table summarizes the status of nonvested PSUs as of January 2, 2022, and changes during the six months then ended. Average Nonvested Grant-Date Performance Fair Value Stock Units (per share) Nonvested at June 30, 2021 160,285 $ 21.03 Granted 53,842 28.73 Forfeited ( 2,177 ) 28.71 Nonvested at January 2, 2022 211,950 22.91 As of January 2, 2022, there was $ 2.9 million of total unrecognized compensation expense related to nonvested PSUs. The Company expects this expense to be recognized over a weighted average period of 1.9 years. 10 . EARNINGS PER SHARE AND COMMON STOCK The following table sets forth the computation of the Company’s net income per share: Three Months Ended Six Months Ended January 2, January 3, January 2, January 3, 2022 2021 2022 2021 Net income $ 15,402 $ 12,501 $ 25,788 $ 22,068 Weighted average shares — basic 18,722,386 18,807,316 18,786,343 18,790,826 Dilutive effect of assumed exercises of stock options 12,994 13,950 13,618 14,025 Dilutive effect of assumed restricted share awards/units 163,756 107,142 151,666 92,766 Weighted average outstanding shares — diluted 18,899,136 18,928,408 18,951,627 18,897,617 Basic net income per share $ 0.82 $ 0.66 $ 1.37 $ 1.17 Diluted net income per share $ 0.81 $ 0.66 $ 1.36 $ 1.17 For the three and six months ended January 2, 2022 and January 3, 2021, an immaterial number of shares were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive. Stock Repurchase Program On June 24, 2021, the board of directors of the Company authorized a stock repurchase program that allows for the repurchase of up to $ 50.0 million of our common stock during the three-year period ending June 24, 2024. During the three months ended January 2, 2022, the Company repurchased 356,296 shares of common stock for $ 9.9 million in cash, including related fees and expenses. During the six months ended January 2, 2022, the Company repurchased 414,675 shares of common stock for $ 11.4 million in cash, including related fees and expenses. As of January 2, 2022, $ 38.6 million remained available under the program. 15 11. SEGMENT INFORMATION Change in Reportable Segments Beginning with the first quarter of fiscal 2022 and as discussed in Note 1, our CODM began to manage our business, allocate resources, and evaluate performance based on the reportable segments of MasterCraft, Crest, NauticStar, and Aviara. Reportable Segments Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the CODM in making decisions on how to allocate resources and assess performance. For the three and six months ended January 2, 2022, the Company’s CODM regularly assessed the operating performance of the Company’s boat brands under four operating and reportable segments: • The MasterCraft segment produces boats at its Vonore, Tennessee facility. These are premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating. • The Crest segment produces pontoon boats at its Owosso, Michigan facility. Crest’s boats are primarily used for general recreational boating. • The NauticStar segment produces boats at its Amory, Mississippi facility. NauticStar’s boats are primarily used for saltwater fishing and general recreational boating. • The Aviara segment produces luxury day boats at its Merritt Island, Florida facility. Aviara boats are primarily used for general recreational boating. Beginning in fiscal 2022, the CODM has begun to assess Aviara’s performance on a stand-alone basis using criteria consistent with our other operating and reportable segments. Each segment distributes its products through its own independent dealer network. Each segment also has its own management structure which is responsible for the operations of the segment and is directly accountable to the CODM for the operating performance of the segment, which is regularly assessed by the CODM who allocates resources based on that performance, including using measures of performance based operating income. The Company files a consolidated income tax return and does not allocate income taxes and other corporate-level expenses, including interest, to operating segments. All material corporate costs are included in the MasterCraft segment. Selected financial information for the Company’s reportable segments was as follows: For the Three Months Ended January 2, 2022 MasterCraft Crest NauticStar Aviara Consolidated Net sales $ 106,773 $ 29,718 $ 15,065 $ 7,909 $ 159,465 Operating income (loss) 21,302 4,637 ( 3,066 ) ( 2,320 ) 20,553 Depreciation and amortization 1,226 647 877 491 3,241 Purchases of property, plant and equipment 1,468 673 702 254 3,097 For the Six Months Ended January 2, 2022 MasterCraft Crest NauticStar Aviara Consolidated Net sales $ 198,788 $ 62,498 $ 28,425 $ 13,764 $ 303,475 Operating income (loss) 37,482 8,436 ( 5,402 ) ( 5,919 ) 34,597 Depreciation and amortization 2,514 1,341 1,772 968 6,595 Goodwill impairment — — — 1,100 1,100 Purchases of property, plant and equipment 3,532 1,044 1,770 369 6,715 16 For the Three Months Ended January 3, 2021 MasterCraft Crest NauticStar Aviara Consolidated Net sales $ 79,511 $ 20,969 $ 14,949 $ 3,248 $ 118,677 Operating income (loss) 16,660 2,650 ( 326 ) ( 2,039 ) 16,945 Depreciation and amortization 1,116 624 802 319 2,861 Purchases of property, plant and equipment 1,063 23 516 15,349 16,951 For the Six Months Ended January 3, 2021 MasterCraft Crest NauticStar Aviara Consolidated Net sales $ 149,102 $ 39,008 $ 27,291 $ 7,021 $ 222,422 Operating income (loss) 31,027 4,312 ( 1,945 ) ( 3,045 ) 30,349 Depreciation and amortization 2,210 1,248 1,616 525 5,599 Purchases of property, plant and equipment 2,699 23 759 15,422 18,903 The following table presents total assets for the Company’s reportable segments. January 2, 2022 June 30, 2021 Assets: MasterCraft $ 136,693 $ 158,610 Crest 46,089 42,204 NauticStar 55,357 44,181 Aviara 32,751 31,465 Total assets $ 270,890 $ 276,460 17