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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction |
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(I.R.S. Employer |
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of Incorporation or Organization) |
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Identification No.) |
(Address of Principal Executive Office) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☑ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
Yes
As of November 4, 2022
, there were
TABLE OF CONTENTS
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Page |
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PART I |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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4 |
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5 |
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Unaudited Condensed Consolidated Statements of Stockholders’ Equity |
6 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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24 |
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25 |
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26 |
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27 |
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, 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, geopolitical conflicts 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on September 9, 2022 (our “2022 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)
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Three Months Ended |
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October 2, |
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October 3, |
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2022 |
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2021 |
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NET SALES |
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$ |
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$ |
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COST OF SALES |
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GROSS PROFIT |
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OPERATING EXPENSES: |
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Selling and marketing |
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General and administrative |
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Amortization of other intangible assets |
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Goodwill impairment |
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Total operating expenses |
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OPERATING INCOME |
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OTHER INCOME (EXPENSE): |
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Interest expense |
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(
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(
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Interest income |
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INCOME BEFORE INCOME TAX EXPENSE |
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INCOME TAX EXPENSE |
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NET INCOME FROM CONTINUING OPERATIONS |
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LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX (Note 3) |
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(
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(
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NET INCOME |
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$ |
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$ |
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NET INCOME (LOSS) PER SHARE: |
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Basic |
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Continuing operations |
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$ |
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$ |
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Discontinued operations |
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(
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(
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Net income |
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$ |
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$ |
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Diluted |
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Continuing operations |
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$ |
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$ |
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Discontinued operations |
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(
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(
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Net income |
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$ |
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$ |
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WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF: |
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Basic earnings per share |
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Diluted earnings per share |
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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)
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October 2, |
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June 30, |
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2022 |
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2022 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $
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Income tax receivable |
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Inventories, net (Note 4) |
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Prepaid expenses and other current assets |
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Current assets associated with discontinued operations (Note 3) |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill (Note 5) |
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Other intangible assets, net (Note 5) |
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Deferred income taxes |
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Deferred debt issuance costs, net |
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Other long-term assets |
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Non-current assets associated with discontinued operations (Note 3) |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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Income tax payable |
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Accrued expenses and other current liabilities (Note 6) |
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Current portion of long-term debt, net of unamortized debt issuance costs (Note 8) |
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Current liabilities associated with discontinued operations (Note 3) |
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Total current liabilities |
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Long-term debt, net of unamortized debt issuance costs (Note 8) |
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Unrecognized tax positions |
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Other long-term liabilities |
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Total liabilities |
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STOCKHOLDERS' EQUITY: |
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Common stock, $
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Additional |
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Common Stock |
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Paid-in |
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Retained |
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Shares |
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Amount |
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Capital |
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Earnings |
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Total |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation activity |
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— |
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Repurchase and retirement of common stock |
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(
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(
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(
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— |
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(
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Net income |
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— |
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— |
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— |
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Balance at October 2, 2022 |
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$ |
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$ |
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$ |
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$ |
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Additional |
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Retained Earnings |
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Common Stock |
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Paid-in |
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(Accumulated |
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Shares |
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Amount |
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Capital |
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Deficit) |
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Total |
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Balance at June 30, 2021 |
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$ |
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$ |
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$ |
(
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) |
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$ |
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Share-based compensation activity |
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— |
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Repurchase and retirement of common stock |
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(
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) |
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(
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) |
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(
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) |
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— |
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(
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) |
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Net income |
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— |
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— |
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— |
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Balance at October 3, 2021 |
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$ |
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$ |
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$ |
(
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) |
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$ |
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|
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)
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Three Months Ended |
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October 2, |
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October 3, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
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$ |
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Loss from discontinued operations |
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Net income from continuing operations |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Unrecognized tax benefits |
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(
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) |
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Deferred income taxes |
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(
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) |
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Amortization of debt issuance costs |
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Goodwill impairment |
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Changes in certain operating assets and liabilities |
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(
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) |
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(
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Other, net |
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Net cash provided by (used in) operating activities of continuing operations |
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(
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) |
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Net cash used in operating activities of discontinued operations |
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(
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) |
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(
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) |
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Net cash provided by (used in) operating activities |
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(
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) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
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(
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) |
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(
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) |
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Net cash used in investing activities of continuing operations |
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(
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) |
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(
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) |
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Net cash used in investing activities of discontinued operations |
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(
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) |
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(
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) |
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Net cash used in investing activities |
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(
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) |
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(
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) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal payments on revolving credit facility |
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(
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) |
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Borrowings on revolving credit facility |
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Principal payments on long-term debt |
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(
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) |
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(
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) |
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Repurchase and retirement of common stock |
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(
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) |
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(
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) |
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Other, net |
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(
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) |
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(
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) |
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Net cash used in financing activities of continuing operations |
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(
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) |
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(
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) |
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
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(
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) |
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CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS — END OF PERIOD |
|
$ |
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$ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash payments for interest |
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$ |
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$ |
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Cash payments for income taxes |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Capital expenditures in accounts payable and accrued expenses |
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Notes to Unaudited Condensed Consolidated Financial Statements form an integral part of the condensed consolidated financial statements.
7
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 accompanying unaudited condensed consolidated financial statements include the accounts of MasterCraft Boat Holdings, Inc. ("Holdings") and its wholly owned subsidiaries from the dates of their acquisitions. Holdings and its subsidiaries collectively are referred to herein as the "Company." 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, 2022 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of October 2, 2022, its results of operations for the three months ended October 2, 2022 and October 3, 2021, its cash flows for the three months ended October 2, 2022 and October 3, 2021, and its statements of stockholders’ equity for the three months ended October 2, 2022 and October 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, 2022 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 2022 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 months ended October 2, 2022 as compared with those described in the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2022 .
Discontinued Operations — On September 2, 2022, the Company sold substantially all of the assets and liabilities of its NauticStar segment. The disposal represented the Company's exit from the saltwater fishing and deck boat category, a strategic shift that has a significant effect on the Company's operations and financial results, and as such, qualifies for reporting as discontinued operations. The NauticStar segment results, for the periods presented, are reflected in our condensed consolidated statements of operations and condensed consolidated statements of cash flows as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations in our condensed consolidated balance sheets for the prior-period presented (see Note 3).
Unless otherwise indicated, the financial disclosures and related information provided herein relate to our continuing operations and we have recast prior period amounts to reflect discontinued operations.
Reclassifications — Certain historical amounts have been reclassified in these condensed consolidated financial statements to conform to the current presentation.
8
The following tables present the Company's revenue by major product category for each reportable segment:
|
|
|
Three Months Ended October 2, 2022 |
|
|||||||||||||
|
|
|
MasterCraft |
|
|
Crest |
|
|
Aviara |
|
|
Total |
|
||||
|
Major Product Categories: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Boats and trailers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other revenue |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended October 3, 2021 |
|
|||||||||||||
|
|
|
MasterCraft |
|
|
Crest |
|
|
Aviara |
|
|
Total |
|
||||
|
Major Product Categories: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Boats and trailers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Parts |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other revenue |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Contract Liabilities
On September 2, 2022, the Company sold its NauticStar business to certain affiliates of Iconic Marine Group, LLC ("Purchaser"). Pursuant to the terms of the purchase agreement, substantially all of the assets of NauticStar were sold, including, among other things, all of the issued and outstanding membership interests in its wholly-owned subsidiary NS Transport, LLC, all owned real property, equipment, inventory, intellectual property and accounts receivable, and the Purchaser assumed substantially all of the liabilities of NauticStar, including, among other things, product liability and warranty claims.
In conjunction with the purchase agreement, the Company entered into a joint employer services agreement and a transition services agreement, which provide certain services to the Purchaser for various periods of time after the sale. Both agreements ended during the second quarter of fiscal 2023. These agreements did not a have a material impact on expenditures, earnings, nor cash flows during the quarter ended October 2, 2022.
Further, the Company entered into the Second Amendment to the Credit Agreement as described further in Note 8 related to waivers of restrictions within the Credit Agreement, as amended, on the sale of assets.
The sale resulted in a non-cash pretax loss on sale of $
9
The following table summarizes the operating results of discontinued operations:
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
NET SALES |
|
$ |
|
|
|
$ |
|
|
|
COST OF SALES |
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
(
|
) |
|
|
(
|
) |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
||
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
Amortization of other intangible assets |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
OPERATING LOSS |
|
|
(
|
) |
|
|
(
|
) |
|
Loss on sale of discontinued operations |
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX BENEFIT |
|
|
(
|
) |
|
|
(
|
) |
|
INCOME TAX BENEFIT |
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX |
|
$ |
(
|
) |
|
$ |
(
|
) |
The following table summarizes the assets and liabilities associated with discontinued operations:
|
|
|
June 30, |
|
|
|
|
|
2022 |
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Accounts receivable, net of allowance |
|
$ |
|
|
|
Inventories, net |
|
|
|
|
|
Other current assets |
|
|
|
|
|
Total current assets classified as discontinued operations |
|
$ |
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS: |
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
|
|
|
Other long-term assets |
|
|
|
|
|
Total non-current assets classified as discontinued operations |
|
$ |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
Total current liabilities classified as discontinued operations |
|
$ |
|
|
Inventories consisted of the following:
|
|
|
October 2, |
|
|
June 30, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
Raw materials and supplies |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Obsolescence reserve |
|
|
(
|
) |
|
|
(
|
) |
|
Total inventories |
|
$ |
|
|
|
$ |
|
|
Inventories have increased for the three months ended October 2, 2022, primarily reflecting cyclical new model year production efforts, as well as increased material costs caused by inflation. Additionally, raw materials and supplies remain elevated to manage supply chain risks.
10
The carrying amounts of goodwill as of October 2, 2022, and June 30, 2022, along with accumulated goodwill reallocations and accumulated impairment losses attributable to each of the Company’s reportable segments, were as follows:
|
|
|
MasterCraft |
|
|
Crest |
|
|
Aviara |
|
|
Total |
|
||||
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Goodwill reallocation |
|
|
(
|
) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Accumulated impairment losses |
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Goodwill, net |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Fiscal 2022 Goodwill Impairment
During the three months ended October 3, 2021
, a $
The following table presents the carrying amount of Other intangible assets, net:
|
|
|
October 2, |
|
|
June 30, |
|
||||||||||||||||||
|
|
|
2022 |
|
|
2022 |
|
||||||||||||||||||
|
|
|
Gross Amount |
|
|
Accumulated Amortization / Impairment |
|
|
Other intangible assets, net |
|
|
Gross Amount |
|
|
Accumulated Amortization / Impairment |
|
|
Other intangible assets, net |
|
||||||
|
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Dealer networks |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Software |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Unamortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Trade names |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Total other intangible assets |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
Amortization expense related to Other intangible assets, net for the three months ended October 2, 2022 and October 3, 2021
was $
Accrued expenses and other current liabilities consisted of the following:
|
|
|
October 2, |
|
|
June 30, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
Warranty |
|
$ |
|
|
|
$ |
|
|
|
Dealer incentives |
|
|
|
|
|
|
|
|
|
Compensation and related accruals |
|
|
|
|
|
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
|
Self-insurance |
|
|
|
|
|
|
|
|
|
Freight |
|
|
|
|
|
|
|
|
|
Liabilities retained associated with discontinued operations |
|
|
|
|
|
|
|
|
|
Inventory repurchase contingent obligation |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
|
|
|
$ |
|
|
11
Accrued warranty liability activity was as follows for the three months ended:
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Balance at the beginning of the period |
|
$ |
|
|
|
$ |
|
|
|
Provisions |
|
|
|
|
|
|
|
|
|
Payments made |
|
|
(
|
) |
|
|
(
|
) |
|
Aggregate changes for preexisting warranties |
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
|
|
|
$ |
|
|
7. COMMITMENTS AND CONTINGENCIES
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 October 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.
Long-term debt is as follows:
|
|
|
October 2, |
|
|
June 30, |
|
||
|
|
|
2022 |
|
|
2022 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
Term loan |
|
$ |
|
|
|
$ |
|
|
|
Debt issuance costs on term loan |
|
|
(
|
) |
|
|
(
|
) |
|
Total debt |
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
|
|
|
|
|
|
|
Less current portion of debt issuance costs on term loan |
|
|
(
|
) |
|
|
(
|
) |
|
Long-term debt, net of current portion |
|
$ |
|
|
|
$ |
|
|
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 $
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.
On August 31, 2022, the Company entered into the Second Amendment to the Credit Agreement to obtain the necessary consents and waivers related to the sale of the NauticStar segment on September 2, 2022, as discussed in Note 3.
12
The Credit Agreement, as amended, bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from
The Credit Agreement will mature and all remaining amounts outstanding thereunder will be due and payable on June 28, 2026. As of October 2, 2022, the Company was in compliance with its financial covenants under the Credit Agreement.
Revolving Credit Facility
As of October 2, 2022
, the Company had
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
The following table presents the components of share-based compensation expense by award type.
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Restricted stock awards |
|
$ |
|
|
|
$ |
|
|
|
Performance stock units |
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
Restricted Stock Awards
During the three months ended October 2, 2022
, the Company granted
13
The following table summarizes the status of nonvested RSAs as of October 2, 2022, and changes during the three months then ended.
|
|
|
|
|
|
Average |
|
||
|
|
|
Nonvested |
|
|
Grant-Date |
|
||
|
|
|
Restricted |
|
|
Fair Value |
|
||
|
|
|
Shares |
|
|
(per share) |
|
||
|
Nonvested at June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
Nonvested at October 2, 2022 |
|
|
|
|
|
|
|
|
As of October 2, 2022
, there was $
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
The following table summarizes the status of nonvested PSUs as of October 2, 2022, and changes during the three months then ended.
|
|
|
|
|
|
Average |
|
||
|
|
|
Nonvested |
|
|
Grant-Date |
|
||
|
|
|
Performance |
|
|
Fair Value |
|
||
|
|
|
Stock Units |
|
|
(per share) |
|
||
|
Nonvested at June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
Nonvested at October 2, 2022 |
|
|
|
|
|
|
|
|
14
The following table sets forth the computation of the Company’s net income per share:
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
Loss from discontinued operations, net of tax |
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
|
Weighted average shares — basic |
|
|
|
|
|
|
|
|
|
Dilutive effect of assumed exercises of stock options |
|
|
|
|
|
|
|
|
|
Dilutive effect of assumed restricted share awards/units |
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares — diluted |
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
|
|
|
|
|
||
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Diluted net income (loss) per share |
|
|
|
|
|
|
||
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
(
|
) |
|
|
(
|
) |
|
Net income |
|
$ |
|
|
|
$ |
|
|
For the three months ended October 2, 2022 and October 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 $
15
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 months ended October 2, 2022
, the Company’s CODM regularly assessed the operating performance of the Company’s boat brands under
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.
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 October 2, 2022 |
|
|||||||||||||
|
|
|
MasterCraft |
|
|
Crest |
|
|
Aviara |
|
|
Consolidated |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended October 3, 2021 |
|
|||||||||||||
|
|
|
MasterCraft |
|
|
Crest |
|
|
Aviara |
|
|
Consolidated |
|
||||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents total assets for the Company’s reportable segments.
|
|
|
October 2, 2022 |
|
|
June 30, 2022 |
|
||
|
Assets: |
|
|
|
|
|
|
||
|
MasterCraft |
|
$ |
|
|
|
$ |
|
|
|
Crest |
|
|
|
|
|
|
|
|
|
Aviara |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read together with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition, the statements in this discussion and analysis regarding our expectations concerning 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” above and in “Risk Factors” set forth in our 2022 Annual Report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Certain statements in the following discussions are based on non-GAAP financial measures. A “non-GAAP financial measure” is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statements of operations, balance sheets or statements of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Non-GAAP financial measures do not include operating and statistical measures. The Company includes non-GAAP financial measures in Management’s Discussion and Analysis, as the Company’s management believes that these measures and the information they provide are useful to users of the financial statements, including investors, because they permit users of the financial statements to view the Company’s performance using the same tools that management utilizes and to better evaluate the Company’s ongoing business performance. In order to better align the Company’s reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting amortization related to business acquisitions.
Discontinued Operations
On September 2, 2022, the Company completed the sale of its NauticStar business. This business, which was previously reported as the Company's NauticStar segment, is being reported as discontinued operations for all periods presented. The Company's results for all periods presented, as discussed in Management's Discussion and Analysis, are presented on a continuing operations basis with prior year amounts recast to provide visibility and comparability. See Note 3 in Notes to Unaudited Condensed Consolidated Financial Statements for more information on Discontinued Operations.
Overview
All segments contributed to the strong performance and reported substantial net sales and increased profitability despite ongoing supply chain disruptions and macroeconomic volatility. Net sales increased $38.9 million, or 29.7 percent, compared to the prior-year period. Gross margin increased 370 basis points due to increased net sales and improved production efficiencies. The increase was partially offset by higher costs from inflationary pressures. Additionally, dealer incentive costs increased as dealer pipeline inventories begin to return to healthier levels following historically low inventory levels as a result of the COVID-19 pandemic. Moreover, dealer incentive costs increased due to higher interest rates impacting floor plan financing costs.
Outlook
Our sales are impacted by general economic conditions, which affect the demand for our products, optional features, availability and cost of credit for our dealers and retail consumers, and overall consumer confidence. While the marine industry benefited from changes in consumer preferences accelerated by the COVID-19 pandemic in fiscal 2021 and fiscal 2022, macroeconomic headwinds may adversely impact our financial results in fiscal 2023. However, as retail trends evolve, we believe our highly flexible business model will allow us to mitigate any downward pressures for fiscal 2023.
We will continue to actively monitor the impact of general economic conditions, supply chain disruptions, macroeconomic volatility, inflation, and other evolving factors on our business. However, the full extent of the impact on our business, operations, and financial results cannot be predicted. See Part I. Item 1A. Risk Factors set forth in our 2022 Annual Report on Form 10-K.
17
Results of Continuing Operations
Consolidated Results
The table below presents our consolidated results of operations for the three months ended:
|
|
|
Three Months Ended |
|
|
2023 vs. 2022 |
|
||||||||||
|
|
|
October 2, |
|
|
October 3, |
|
|
|
|
|
% |
|
||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Consolidated statements of operations : |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
NET SALES |
|
$ |
169,516 |
|
|
$ |
130,650 |
|
|
$ |
38,866 |
|
|
|
29.7 |
% |
|
COST OF SALES |
|
|
123,543 |
|
|
|
100,068 |
|
|
|
23,475 |
|
|
|
23.5 |
% |
|
GROSS PROFIT |
|
|
45,973 |
|
|
|
30,582 |
|
|
|
15,391 |
|
|
|
50.3 |
% |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Selling and marketing |
|
|
3,779 |
|
|
|
3,893 |
|
|
|
(114 |
) |
|
|
(2.9 |
%) |
|
General and administrative |
|
|
9,483 |
|
|
|
8,720 |
|
|
|
763 |
|
|
|
8.8 |
% |
|
Amortization of other intangible assets |
|
|
489 |
|
|
|
489 |
|
|
|
— |
|
|
|
0.0 |
% |
|
Goodwill impairment |
|
|
— |
|
|
|
1,100 |
|
|
|
(1,100 |
) |
|
|
— |
|
|
Total operating expenses |
|
|
13,751 |
|
|
|
14,202 |
|
|
|
(451 |
) |
|
|
(3.2 |
%) |
|
OPERATING INCOME |
|
|
32,222 |
|
|
|
16,380 |
|
|
|
15,842 |
|
|
|
96.7 |
% |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest expense |
|
|
(562 |
) |
|
|
(382 |
) |
|
|
(180 |
) |
|
|
47.1 |
% |
|
Interest income |
|
|
151 |
|
|
|
— |
|
|
|
151 |
|
|
|
— |
|
|
INCOME BEFORE INCOME TAX EXPENSE |
|
|
31,811 |
|
|
|
15,998 |
|
|
|
15,813 |
|
|
|
98.8 |
% |
|
INCOME TAX EXPENSE |
|
|
7,176 |
|
|
|
3,766 |
|
|
|
3,410 |
|
|
|
90.5 |
% |
|
NET INCOME FROM CONTINUING OPERATIONS |
|
$ |
24,635 |
|
|
$ |
12,232 |
|
|
$ |
12,403 |
|
|
|
101.4 |
% |
|
Additional financial and other data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Unit sales volume: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
MasterCraft |
|
|
781 |
|
|
|
783 |
|
|
|
(2 |
) |
|
|
(0.3 |
%) |
|
Crest |
|
|
846 |
|
|
|
716 |
|
|
|
130 |
|
|
|
18.2 |
% |
|
Aviara |
|
|
32 |
|
|
|
19 |
|
|
|
13 |
|
|
|
68.4 |
% |
|
Consolidated unit sales volume |
|
|
1,659 |
|
|
|
1,518 |
|
|
|
141 |
|
|
|
9.3 |
% |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
MasterCraft |
|
$ |
113,020 |
|
|
$ |
92,015 |
|
|
$ |
21,005 |
|
|
|
22.8 |
% |
|
Crest |
|
|
43,561 |
|
|
|
32,780 |
|
|
|
10,781 |
|
|
|
32.9 |
% |
|
Aviara |
|
|
12,935 |
|
|
|
5,855 |
|
|
|
7,080 |
|
|
|
120.9 |
% |
|
Consolidated net sales |
|
$ |
169,516 |
|
|
$ |
130,650 |
|
|
$ |
38,866 |
|
|
|
29.7 |
% |
|
Net sales per unit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
MasterCraft |
|
$ |
145 |
|
|
$ |
118 |
|
|
$ |
27 |
|
|
|
22.9 |
% |
|
Crest |
|
|
51 |
|
|
|
46 |
|
|
|
5 |
|
|
|
10.9 |
% |
|
Aviara |
|
|
404 |
|
|
|
308 |
|
|
|
96 |
|
|
|
31.2 |
% |
|
Consolidated net sales per unit |
|
|
102 |
|
|
|
86 |
|
|
|
16 |
|
|
|
18.6 |
% |
|
Gross margin |
|
|
27.1 |
% |
|
|
23.4 |
% |
|
370 bps |
|
|
|
|
||
Net sales increased 29.7 percent during the first quarter of fiscal 2023, when compared with the same prior-year period. The net sales increase reflects increased volume and mix, along with price increases. Volume and mix include higher unit volume, favorable model mix, increased content, strong option demand and higher parts revenue. Price increases were partially offset by increased dealer incentives for floor plan financing costs and other incentives as dealer inventories begin to return to normal following historically low levels due to the COVID-19 pandemic.
Gross margin increased 370 basis points during the first quarter of fiscal 2023, when compared to the same prior-year period. The increase was primarily due to higher net sales and improved production efficiencies, partially offset by higher costs from inflationary pressures and higher dealer incentives.
18
Operating expenses decreased $0.5 million during the first quarter of fiscal 2023, when compared to the same prior-year period, primarily due to an impairment charge of $1.1 million related to the allocated goodwill associated with the Aviara segment recorded in the first quarter of fiscal 2022, as discussed in Note 5 to the Unaudited Condensed Consolidated Financial Statements.
Segment Results
MasterCraft Segment
The following table sets forth MasterCraft segment results for the three months ended:
|
|
|
Three Months Ended |
|
|
2023 vs. 2022 |
|
||||||||||
|
|
|
October 2, |
|
|
October 3, |
|
|
|
|
|
% |
|
||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||
|
Net sales |
|
$ |
113,020 |
|
|
$ |
92,015 |
|
|
$ |
21,005 |
|
|
|
22.8 |
% |
|
Operating income |
|
|
24,072 |
|
|
|
16,180 |
|
|
|
7,892 |
|
|
|
48.8 |
% |
|
Purchases of property, plant and equipment |
|
|
2,109 |
|
|
|
2,064 |
|
|
|
45 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Unit sales volume |
|
|
781 |
|
|
|
783 |
|
|
|
(2 |
) |
|
|
(0.3 |
%) |
|
Net sales per unit |
|
$ |
145 |
|
|
$ |
118 |
|
|
$ |
27 |
|
|
|
22.9 |
% |
Net sales increased 22.8 percent during the first quarter of fiscal 2023, when compared with the same prior-year period. The increase was driven by higher prices, higher option and content sales, and favorable model mix, partially offset by higher dealer incentives as dealer pipeline inventories begin to return to healthier levels. Also, dealer incentives increased due to higher interest rates impacting floor plan financing costs.
Operating income increased $7.9 million during the first quarter of fiscal 2023, when compared to the same prior-year period. The increase was driven by higher net sales and improved production efficiencies, partially offset by higher material and overhead costs from inflationary pressures and higher dealer incentives.
Crest Segment
The following table sets forth Crest segment results for the three months ended:
|
|
|
Three Months Ended |
|
|
2023 vs. 2022 |
|
||||||||||
|
|
|
October 2, |
|
|
October 3, |
|
|
|
|
|
% |
|
||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||
|
Net sales |
|
$ |
43,561 |
|
|
$ |
32,780 |
|
|
$ |
10,781 |
|
|
|
32.9 |
% |
|
Operating income |
|
|
7,543 |
|
|
|
3,799 |
|
|
|
3,744 |
|
|
|
98.6 |
% |
|
Purchases of property, plant and equipment |
|
|
2,523 |
|
|
|
371 |
|
|
|
2,152 |
|
|
|
580.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Unit sales volume |
|
|
846 |
|
|
|
716 |
|
|
|
130 |
|
|
|
18.2 |
% |
|
Net sales per unit |
|
$ |
51 |
|
|
$ |
46 |
|
|
$ |
5 |
|
|
|
10.9 |
% |
Net sales increased $10.8 million during the first quarter of fiscal 2023, when compared to the same prior-year periods, as a result of higher prices, higher unit volume, and higher option sales.
Operating income for the first quarter of fiscal 2023 increased 98.6 percent, when compared to the same prior-year periods. The increase is primarily the result of higher net sales, partially offset by higher material costs from inflationary pressures.
19
Aviara Segment
The following table sets forth Aviara segment results for the three months ended:
|
|
|
Three Months Ended |
|
|
2023 vs. 2022 |
|
||||||||||
|
|
|
October 2, |
|
|
October 3, |
|
|
|
|
|
% |
|
||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||
|
Net sales |
|
$ |
12,935 |
|
|
$ |
5,855 |
|
|
$ |
7,080 |
|
|
|
120.9 |
% |
|
Operating income (loss) |
|
|
607 |
|
|
|
(3,599 |
) |
|
|
4,206 |
|
|
|
116.9 |
% |
|
Goodwill impairment |
|
|
— |
|
|
|
1,100 |
|
|
|
(1,100 |
) |
|
|
— |
|
|
Purchases of property, plant and equipment |
|
|
1,336 |
|
|
|
115 |
|
|
|
1,221 |
|
|
|
1061.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Unit sales volume |
|
|
32 |
|
|
|
19 |
|
|
|
13 |
|
|
|
68.4 |
% |
|
Net sales per unit |
|
$ |
404 |
|
|
$ |
308 |
|
|
$ |
96 |
|
|
|
31.2 |
% |
Net sales increased $7.1 million during the first quarter of fiscal 2023, when compared to the same prior-year period, due to increased unit volume, higher prices, and favorable model mix.
Operating income was $0.6 million for the first quarter of fiscal 2023, compared to an operating loss of $3.6 million for the first quarter of fiscal 2022. The change was primarily a result of higher net sales and improved production efficiencies, partially offset by higher material costs from inflationary pressures. Additionally, a goodwill impairment charge was recorded during the first quarter of fiscal 2022.
Non-GAAP Measures
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define EBITDA as net income from continuing operations, before interest, 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 share-based compensation and goodwill impairment. 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 from continuing operations, 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 reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. For the periods presented herein, these adjustments include other intangible asset amortization, share-based compensation, and goodwill impairment.
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 reflecting income tax expense on adjusted net income before income taxes at our estimated annual effective tax rate. 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:
20
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.
Beginning in the first quarter of fiscal 2023, due to the effects of discontinued operations, as discussed above, the Company's non-GAAP financial measures are presented on a continuing operations basis, for all periods presented.
The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to EBITDA, and Adjusted EBITDA, and net income margin (expressed as a percentage of net sales) to Adjusted EBITDA Margin (expressed as a percentage of net sales) for the periods indicated:
|
|
|
Three Months Ended |
||||||||||
|
|
|
October 2, |
|
|
% of Net |
|
October 3, |
|
|
% of Net |
||
|
|
|
2022 |
|
|
sales |
|
2021 |
|
|
sales |
||
|
Net income from continuing operations |
|
$ |
24,635 |
|
|
14.5% |
|
$ |
12,232 |
|
|
9.4% |
|
Income tax expense |
|
|
7,176 |
|
|
|
|
|
3,766 |
|
|
|
|
Interest expense |
|
|
562 |
|
|
|
|
|
382 |
|
|
|
|
Interest income |
|
|
(151 |
) |
|
|
|
|
— |
|
|
|
|
Depreciation and amortization |
|
|
2,601 |
|
|
|
|
|
2,459 |
|
|
|
|
EBITDA |
|
|
34,823 |
|
|
20.5% |
|
|
18,839 |
|
|
14.4% |
|
Share-based compensation |
|
|
1,120 |
|
|
|
|
|
862 |
|
|
|
|
Goodwill impairment (a) |
|
|
— |
|
|
|
|
|
1,100 |
|
|
|
|
Adjusted EBITDA |
|
$ |
35,943 |
|
|
21.2% |
|
$ |
20,801 |
|
|
15.9% |
21
The following table presents a reconciliation of net income from continuing operations as determined in accordance with U.S. GAAP to Adjusted Net Income for the periods indicated:
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(Dollars in thousands, except per share data) |
|
|||||
|
Net income from continuing operations |
|
$ |
24,635 |
|
|
$ |
12,232 |
|
|
Income tax expense |
|
|
7,176 |
|
|
|
3,766 |
|
|
Amortization of acquisition intangibles |
|
|
462 |
|
|
|
462 |
|
|
Share-based compensation |
|
|
1,120 |
|
|
|
862 |
|
|
Goodwill impairment (a) |
|
|
— |
|
|
|
1,100 |
|
|
Adjusted Net Income before income taxes |
|
|
33,393 |
|
|
|
18,422 |
|
|
Adjusted income tax expense (b) |
|
|
7,680 |
|
|
|
4,237 |
|
|
Adjusted Net Income |
|
$ |
25,713 |
|
|
$ |
14,185 |
|
|
|
|
|
|
|
|
|
||
|
Adjusted Operating Net Income per share: |
|
|
|
|
|
|
||
|
Basic |
|
$ |
1.43 |
|
|
$ |
0.75 |
|
|
Diluted |
|
$ |
1.43 |
|
|
$ |
0.75 |
|
|
Weighted average shares used for the computation of (c) : |
|
|
|
|
|
|
||
|
Basic Adjusted Net Income per share |
|
|
17,946,061 |
|
|
|
18,850,301 |
|
|
Diluted Adjusted Net Income per share |
|
|
18,031,725 |
|
|
|
19,004,119 |
|
The following table presents the reconciliation of net income from continuing operations per diluted share to Adjusted Net Income per diluted share for the periods presented:
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net income from continuing operations per diluted share |
|
$ |
1.37 |
|
|
$ |
0.65 |
|
|
Impact of adjustments: |
|
|
|
|
|
|
||
|
Income tax expense |
|
|
0.40 |
|
|
|
0.20 |
|
|
Amortization of acquisition intangibles |
|
|
0.03 |
|
|
|
0.02 |
|
|
Share-based compensation |
|
|
0.06 |
|
|
|
0.05 |
|
|
Goodwill impairment (a) |
|
|
— |
|
|
|
0.06 |
|
|
Adjusted Net Income per diluted share before income taxes |
|
$ |
1.86 |
|
|
$ |
0.98 |
|
|
Impact of adjusted income tax expense on net income per diluted share before income taxes (b) |
|
|
(0.43 |
) |
|
|
(0.23 |
) |
|
Adjusted Net Income per diluted share |
|
$ |
1.43 |
|
|
$ |
0.75 |
|
22
Liquidity and Capital Resources
Our primary liquidity and capital resource needs are to finance working capital, fund capital expenditures, service our debt, fund our stock repurchase program, and fund potential business acquisitions. 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. 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.
Cash and cash equivalents totaled $40.8 million as of October 2, 2022, an increase of $6.6 million from $34.2 million as of June 30, 2022. Total debt as of October 2, 2022 and June 30, 2022 was $55.8 million and $56.5 million, respectively.
As of October 2, 2022, we had no amounts outstanding under the Revolving Credit Facility, leaving $100.0 million of available borrowing capacity. Refer to Note 8 — Long Term Debt in the Notes to Unaudited Condensed Consolidated Financial Statements for further details.
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 October 2, 2022, the Company repurchased 191,360 shares of common stock for $4.2 million in cash, including related fees and expenses.
The following table summarizes our cash flows from continuing operations from operating, investing, and financing activities:
|
|
|
Three Months Ended |
|
|||||
|
|
|
October 2, |
|
|
October 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(Dollars in thousands) |
|
|||||
|
Total cash provided by (used in): |
|
|
|
|
|
|
||
|
Operating activities |
|
$ |
20,718 |
|
|
$ |
(7,450 |
) |
|
Investing activities |
|
|
(5,968 |
) |
|
|
(2,550 |
) |
|
Financing activities |
|
|
(5,393 |
) |
|
|
(10,428 |
) |
|
Net change in cash from continuing operations |
|
$ |
9,357 |
|
|
$ |
(20,428 |
) |
Three Months Ended October 2, 2022 Cash Flow
Net cash provided by operating activities for the three months ended October 2, 2022 was $20.7 million, primarily due to higher net earnings, partially offset by 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 condensed consolidated balance sheets, excluding the impact of acquisitions and non-cash adjustments. Working capital usage primarily consisted of an increase in inventories and income tax receivable, and a decrease in accrued expenses and other current liabilities and income tax payable. Partially offsetting the working capital usage was a decrease in accounts receivable and prepaid expenses and other current assets. Inventories increased as we rebalance inventory levels after the summer selling season and increased materials costs from inflation. Income tax receivable increased and income tax payable decreased due to the tax benefit generated from the sale of NauticStar. Accrued expenses and other current liabilities decreased due to payment of variable compensation and payment of dealer incentives, partially offset by increased warranty costs. Accounts receivable decreased as a result of lower sales at the end of the period compared to the end of the prior-year period due to supply chain disruptions. Prepaid expenses and other current assets decreased due to amortization of insurance premiums.
Net cash used in investing activities was $6.0 million, which included capital expenditures. Our capital spending was focused on expanding our capacity, maintenance capital, and information technology.
Net cash used in financing activities was $5.4 million, which included net payments of $0.8 million on long-term debt and stock repurchases totaling $4.2 million.
23
Three Months Ended October 3, 2021 Cash Flow
Net cash used in operating activities for the three months ended October 3, 2021 totaled $7.5 million mainly due to working capital usage, partially offset by net income. Working capital usage primarily consisted of an increase in inventory, accounts receivable, and a decrease in accrued expenses and other current liabilities. Partially offsetting the working capital usage was an increase in accounts payable. Inventory increased $17.0 million for the first quarter of fiscal 2022 due to an increase in raw materials to support higher production volumes and to increase safety stock to manage supply chain risk. Work in process increased due to supply chain disruptions. Accounts receivable increased due to increased sales at the end of the period compared to the end of the prior-year period. Accrued expenses and other current liabilities decreased because of continuing strong retail demand without the need for rebates and payments of variable compensation that was accrued for at June 30, 2021. Accounts payable increased mainly due to the increase in inventory safety stock.
Net cash used in investing activities was $2.6 million, which consisted of capital expenditures. Our capital spending was focused on expanding our capacity and maintenance capital.
Net cash used in financing activities was $10.4 million and related to net payments of long-term debt of $8.8 million and funding of the stock repurchase program totaling $1.5 million.
Off Balance Sheet Arrangements
The Company did not have any off balance sheet financing arrangements as of October 2, 2022.
Critical Accounting Policies
As of October 2, 2022, there were no significant changes in or changes to the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on September 9, 2022.
ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK.
Refer to our 2022 Annual Report for a complete discussion of the Company’s market risk. There have been no material changes in market risk from those disclosed therein.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) (of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of October 2, 2022.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended October 2, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART I I – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a discussion of the Company’s legal proceedings, see Part I – Item 1. – Note 7 Commitments and Contingencies to the Company’s unaudited condensed consolidated financial statements.
ITEM 1A. RISK FACTORS.
During the three months ended October 2, 2022, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.
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 first three months of fiscal 2023, we repurchased approximately $4.2 million of our common stock. As of October 2, 2022, the remaining authorization under the program was approximately $20.4 million.
During the three months ended October 2, 2022, the Company repurchased the following shares of common stock:
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share (a) |
|
|
Total Number of Shares Purchased as part of Publicly Announced Program |
|
|
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (dollars in thousands) |
|
||||
|
July 1, 2022 - July 31, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
24,546 |
|
|
August 1, 2022 - August 28, 2022 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,546 |
|
|
August 29, 2022 - October 2, 2022 |
|
|
191,360 |
|
|
|
21.81 |
|
|
|
191,360 |
|
|
|
20,368 |
|
|
Total |
|
|
191,360 |
|
|
$ |
21.81 |
|
|
|
191,360 |
|
|
$ |
20,368 |
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
25
ITEM 6. EXHIBIT S , FINANCIAL STATEMENT SCHEDULES.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
||||||||
|
Exhibit
|
|
Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
Filed
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of MCBC Holdings, Inc. |
|
10-K |
|
001-37502 |
|
3.1 |
|
9/18/15 |
|
|
|
|
3.2 |
|
|
10-Q |
|
001-37502 |
|
3.2 |
|
11/9/18 |
|
|
|
|
|
3.3 |
|
|
8-K |
|
001-37502 |
|
3.1 |
|
10/25/19 |
|
|
|
|
|
3.4 |
|
Fourth Amended and Restated By-laws of MasterCraft Boat Holdings, Inc. |
|
8-K |
|
001-37502 |
|
3.2 |
|
10/25/19 |
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
|
|
|
|
|
|
* |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
|
|
|
|
|
|
* |
|
|
32.1 |
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
32.2 |
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
|
|
|
|
* |
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
* |
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
|
|
|
|
|
|
* |
|
* Filed herewith.
** Furnished herewith.
26
SIGNAT URES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
MASTERCRAFT BOAT HOLDINGS, INC. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
Date: |
November 9, 2022 |
By: |
/s/ FREDERICK A. BRIGHTBILL |
|
|
|
|
Frederick A. Brightbill |
|
|
|
|
Chief Executive Officer (Principal Executive Officer) and Chairman of the Board |
|
|
|
|
|
|
Date: |
November 9, 2022 |
By: |
/s/ TIMOTHY M. OXLEY |
|
|
|
|
Timothy M. Oxley |
|
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer), |
|
|
|
|
Treasurer and Secretary |
|
|
|
|
|
27