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MasterCraft Boat Holdings, Inc. - Quarter Report: 2017 December (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


FORM 10-Q


 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2017

OR

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 001-37502


Picture 3

MCBC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


 

Delaware

 

06-1571747

(State or Other Jurisdiction

 

(I.R.S. Employer

of Incorporation or Organization)

 

Identification No.)

 

100 Cherokee Cove Drive, Vonore, TN 37885

(Address of Principal Executive Office) (Zip Code)

 

(423) 884-2221

(Registrant’s telephone number, including area code)

 


 

 

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.

☑     Yes          ☐     No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Yes          ☐     No

    

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.

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

 

Emerging growth company

 

 

 

 

 

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 Act).

☐     Yes               No

As of February 5, 2018, there were 18,679,131 shares of the Registrant’s common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 


 

Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Unaudited Condensed Consolidated Statements of Operations

4

 

Unaudited Condensed Consolidated Balance Sheets

5

 

Unaudited Condensed Consolidated Statement 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

22

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. 

Controls and Procedures

35

 

 

 

PART II 

OTHER INFORMATION

 

Item 1. 

Legal

35

Item 1A. 

Risk Factors

35

Item 2. 

Unregistered Sales of Securities and Use of Proceeds

36

Item 3. 

Defaults Upon Senior Securities

36

Item 4. 

Mine Safety Disclosures

36

Item 5. 

Other Information

36

Item 6. 

Exhibits, Financial Statement Schedules

37

 

 

 

 

 

 

SIGNATURES 

 

39

 

 

 

 

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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. We use words such as “could,” “may,” “might,” “will,” “expect,” “likely,” “believe,” “continue,” “anticipate,” “estimate,” “intend,” “plan,” “project” and other similar expressions to identify some but not all forward-looking statements and include statements in this quarterly report on Form 10-Q concerning our pipeline of new models; 

our ability to continue our operating momentum, capture additional market share and deliver continued growth; expectations regarding driving margin expansion, sales increases and organic growth; the successful integration of Nautic Star, LLC into our business; our fiscal 2018 outlook and key growth initiatives. 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 in light of 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: general economic conditions, demand for our products, 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 large fixed cost base, the successful introduction of our new products, and the other important factors described under the caption “Risk Factors” in this quarterly report on Form 10-Q  and our Annual Report on Form 10-K for the fiscal year ended June 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on September 7, 2017 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2017, filed with the SEC on November 13, 2017. 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 emerge from time to time, and it is not possible for us to predict all of them.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

  

December 31, 2017

  

January 1, 2017

    

December 31, 2017

  

January 1, 2017

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

78,435

 

$

51,134

 

$

143,484

 

$

111,823

 

COST OF SALES

 

 

58,501

 

 

36,848

 

 

105,387

 

 

79,728

 

GROSS PROFIT

 

 

19,934

 

 

14,286

 

 

38,097

 

 

32,095

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

3,672

 

 

2,444

 

 

6,409

 

 

4,498

 

General and administrative

 

 

4,955

 

 

4,776

 

 

9,290

 

 

8,869

 

Amortization of intangible assets

 

 

525

 

 

27

 

 

552

 

 

54

 

Total operating expenses

 

 

9,152

 

 

7,247

 

 

16,251

 

 

13,421

 

OPERATING INCOME

 

 

10,782

 

 

7,039

 

 

21,846

 

 

18,674

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,139

 

 

512

 

 

1,630

 

 

1,123

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

9,643

 

 

6,527

 

 

20,216

 

 

17,551

 

INCOME TAX EXPENSE

 

 

1,634

 

 

2,496

 

 

5,161

 

 

6,537

 

NET INCOME

 

$

8,009

 

$

4,031

 

$

15,055

 

$

11,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.43

 

$

0.22

 

$

0.81

 

$

0.59

 

Diluted

 

$

0.43

 

$

0.22

 

$

0.81

 

$

0.59

 

WEIGHTED AVERAGE SHARES USED FOR COMPUTATION OF:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

18,619,834

 

 

18,592,936

 

 

18,617,467

 

 

18,592,372

 

Diluted earnings per share

 

 

18,702,352

 

 

18,605,078

 

 

18,694,489

 

 

18,598,841

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

    

2017

    

2017

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,250

 

$

4,038

 

Accounts receivable — net of allowances of $61 and $82, respectively

 

 

1,917

 

 

3,500

 

Inventories — net

 

 

18,283

 

 

11,676

 

Prepaid expenses and other current assets

 

 

3,021

 

 

2,438

 

Total current assets

 

 

29,471

 

 

21,652

 

Property, plant and equipment — net

 

 

19,533

 

 

14,827

 

Intangible assets — net

 

 

52,090

 

 

16,643

 

Goodwill

 

 

66,818

 

 

29,593

 

Deferred debt issuance costs — net

 

 

428

 

 

481

 

Other

 

 

302

 

 

125

 

Total assets

 

$

168,642

 

$

83,321

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

12,800

 

$

11,008

 

Income tax payable

 

 

2,413

 

 

780

 

Accrued expenses and other current liabilities

 

 

27,446

 

 

21,410

 

Current portion of long term debt, net of unamortized debt issuance costs

 

 

5,072

 

 

3,687

 

Total current liabilities

 

 

47,731

 

 

36,885

 

Long term debt, net of unamortized debt issuance costs (Note 8)

 

 

89,905

 

 

30,790

 

Deferred income taxes

 

 

266

 

 

953

 

Unrecognized tax positions

 

 

3,439

 

 

2,932

 

Total liabilities

 

 

141,341

 

 

71,560

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

Common stock, $.01 par value per share — authorized, 100,000,000 shares; issued and outstanding, 18,679,131 shares at December 31, 2017 and 18,637,445 shares at June 30, 2017

 

 

187

 

 

186

 

Additional paid-in capital

 

 

113,429

 

 

112,945

 

Accumulated deficit

 

 

(86,315)

 

 

(101,370)

 

Total stockholders' equity

 

 

27,301

 

 

11,761

 

Total liabilities and stockholders' equity

 

$

168,642

 

$

83,321

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 

(Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

Additional

    

    

 

    

    

 

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Total

 

Balance at June 30, 2017

 

18,637,445

 

$

186

 

$

112,945

 

$

(101,370)

 

$

11,761

 

Equity-based compensation activity

 

41,686

 

 

 1

 

 

484

 

 

 —

 

 

485

 

Net income

 

 —

 

 

 

 

 

 

15,055

 

 

15,055

 

Balance at December 31, 2017

 

18,679,131

 

$

187

 

$

113,429

 

$

(86,315)

 

$

27,301

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

    

December 31, 2017

    

January 1, 2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

15,055

 

$

11,014

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,210

 

 

1,622

 

Inventory obsolescence reserve

 

 

(322)

 

 

221

 

Deferred issuance costs

 

 

235

 

 

185

 

Stock-based compensation

 

 

528

 

 

305

 

Unrecognized tax benefits

 

 

258

 

 

307

 

Deferred income taxes

 

 

(604)

 

 

2,102

 

Net provision of doubtful accounts

 

 

(21)

 

 

30

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

3,377

 

 

472

 

Inventories

 

 

101

 

 

1,682

 

Prepaid expenses and other current assets

 

 

(489)

 

 

(242)

 

Income tax receivable

 

 

 —

 

 

(576)

 

Other assets

 

 

(11)

 

 

 —

 

Accounts payable

 

 

(849)

 

 

(1,609)

 

Income tax payable

 

 

1,633

 

 

(749)

 

Accrued expenses and other current liabilities

 

 

1,351

 

 

(1,843)

 

Net cash provided by operating activities

 

 

22,452

 

 

12,921

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Disposal of assets

 

 

96

 

 

 —

 

Payment for acquisition, net of cash acquired

 

 

(79,128)

 

 

 —

 

Purchases of property and equipment

 

 

(1,474)

 

 

(1,060)

 

Net cash used in investing activities

 

 

(80,506)

 

 

(1,060)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

80,832

 

 

 —

 

Payments of costs directly associated with offerings

 

 

 —

 

 

(254)

 

Cash paid for withholding taxes on vested stock

 

 

(43)

 

 

 —

 

Excess tax benefits

 

 

 —

 

 

312

 

Principal payments on long-term debt

 

 

(19,201)

 

 

(2,500)

 

Payments on revolving line of credit

 

 

 —

 

 

(3,126)

 

Payments of deferred financing costs

 

 

(1,322)

 

 

 —

 

Net cash used in financing activities

 

 

60,266

 

 

(5,568)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

2,212

 

 

6,293

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — BEGINNING OF PERIOD

 

 

4,038

 

 

73

 

CASH AND CASH EQUIVALENTS — END OF PERIOD

 

$

6,250

 

$

6,366

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash payments for interest

 

$

1,383

 

$

915

 

Cash payments for income taxes

 

$

3,872

 

$

5,148

 

SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Accrued working capital adjustment - NauticStar acquisition

 

 

1,383

 

 

 —

 

 

The notes form an integral part of the condensed consolidated financial statements.

 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

1.ORGANIZATION AND NATURE OF BUSINESS

 

MCBC Holdings, Inc. (the “Company”) was formed on January 28, 2000, as a Delaware holding company and operates primarily through its wholly owned subsidiaries, MasterCraft Boat Company, LLC; Nautic Star, LLC; MasterCraft Services, Inc.; MasterCraft Parts, Ltd.; and MasterCraft International Sales Administration, Inc. The Company and its subsidiaries collectively are referred to herein as the “Company”.

 

On October 2, 2017, the Company acquired all of the outstanding membership interests and other equity securities of Nautic Star, LLC, a Mississippi limited liability company (“NauticStar”). As a result of the acquisition, the Company consolidated the financial results of NauticStar. See Note 3: Acquisition. The Company reports its results of operations under two reportable segments: MasterCraft and NauticStar, based on their boat manufacturing operations.

 

The Company is a designer and manufacturer of premium inboard tournament ski boats and luxury performance V-drive runabouts under the MasterCraft brand and salt water fishing and general recreational boats under the NauticStar brand. The Company also leases a parts warehouse in the United Kingdom to expedite service, primarily to MasterCraft dealers and customers in Europe.

2.BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s fiscal year begins July 1 and ends June 30, with the interim quarterly reporting periods consisting of 13 weeks. Therefore, the quarter end will not always coincide with the date of the end of the calendar month.

 

The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. 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 U.S. Securities and Exchange Commission (“SEC”) for financial information have been condensed or omitted pursuant to such rules and regulations. The June 30, 2017 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2017.  

 

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, 2017 and, in the opinion of management, reflect all adjustments considered necessary to present fairly the Company’s financial position as of December 31, 2017 and results of its operations, and its cash flows for the six months ended December 31, 2017 and January 1, 2017 and statement of shareholders’ equity for the six months ended December 31, 2017. All adjustments are of a normal recurring nature. Our

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

interim operating results for the six months ended December 31, 2017 and January 1, 2017 are not necessarily indicative of the results to be expected in future operating quarters.

 

There have been no changes in the Company’s significant accounting policies or critical accounting estimates for the six months ended December 31, 2017 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the financial year ended June 30, 2017.

 

New Accounting Pronouncements Issued But Not Yet Adopted—In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact this new guidance is expected to have on its financial position or results of operations and related disclosures.

 

In May 2014, the FASB and International Accounting Standards Board jointly issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which includes new principles-based accounting guidance for revenue recognition that will supersede virtually all existing revenue guidance. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve the core principle, the guidance establishes the following five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligation in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also details the accounting treatment for costs to obtain or fulfill a contract. Lastly, disclosure requirements have been enhanced to provide sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB announced that the implementation date would be delayed by one year. During 2016, the FASB issued certain amendments to clarify and improve the implementation of the guidance in ASU 2014-09. The effective date and transition requirements for these amendments and ASU 2014-09 are now for annual and interim periods beginning after December 15, 2017.  The Company will adopt this guidance for our fiscal year beginning July 1, 2018.  

 

The Company is continuing to assess the potential effects of ASU 2014-09 on its consolidated financial statements, business processes, systems and controls. The Company plans to use the modified retrospective approach in applying the new standard. Based on the Company’s progress, it expects an impact from the new standard for dealers who are offered retail promotions which are currently recorded at the later of when the program has been communicated to the dealer or at the time of sale. Under the new standard, the Company expects these retail promotions to be recognized at the time of sale to a dealer. As a result, the Company expects a change in the timing of recording retail promotions and rebates; however, it does not expect a change in the total amount of cumulative revenue recognized for each transaction. Any potential effect

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

of adoption of this ASU has not yet been quantified. Additionally, the Company’s expectations may change as its implementation progresses.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The guidance clarifies the definition of a business that provides a two-step analysis in the determination of whether an acquisition or derecognition is a business or an asset. The update removes the evaluation of whether a market participant could replace any missing elements and provides a framework to assist entities in evaluating whether both an input and a substantive process are present. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods and early adoption is permitted for transactions that meet specified criteria. This guidance is to be applied on a prospective basis for transactions that occur after the effective date.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance eliminates Step 2 from the goodwill impairment test. Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019. The Company is currently evaluating the effect that the adoption of this new guidance is expected to have on our financial position or results of operations and related disclosures.

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This guidance provides clarity and reduces complexity when applying the guidance in Topic 718, Compensation—Stock Compensation to a change to the term or condition of a share-based payment. ASU 2017-09 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company is currently evaluating the effect that the adoption of this new guidance is expected to have on our financial position or results of operations and related disclosures.

 

New Accounting Pronouncements Issued And Adopted — In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory.  This ASU changes the measurement principle for inventories valued under the FIFO or weighted-average methods from the lower of cost or market to the lower of cost and net realizable value.  Net realizable value is defined by the FASB as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted. The Company adopted the provisions of ASU 2015-11 on a prospective basis during the first quarter of fiscal year 2018. The adoption of this ASU did not have an impact on our financial position or results of operations and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

permitted. The Company adopted the provisions of ASU 2016-1 on a prospective basis during the first quarter of fiscal year 2018. The adoption of this ASU did not have an impact on our financial position or results of operations and related disclosures.

 

There are no other recently issued accounting pronouncements that are expected to have a material impact on our financial position or results of operations and related disclosures.

 

3. ACQUISITION

 

On October 2, 2017, the Company completed its acquisition of NauticStar. The purchase price was $80,511, including customary adjustments for the amount of working capital in the acquired business at the closing date. A portion of the purchase price was deposited into an escrow account in order to secure certain post-closing obligations of the former members of NauticStar. The Company accounted for the transaction using the acquisition method in accordance with ASC 805, Business Combinations.

 

The total consideration has been allocated to the assets acquired and liabilities assumed based on preliminary estimates of their fair values as of the date of acquisition. Because of the complexities involved with performing the valuation, the Company has recorded the tangible and intangible assets acquired and liabilities assumed based on their preliminary fair values as of October 2, 2017. The preliminary measurements of fair value were based upon estimates utilizing the assistance of third party valuation specialists, and are subject to change. The Company expects the valuation of tangible and intangible assets and working capital adjustments to be finalized during the second half of fiscal 2018.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

The following table summarizes the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed of NauticStar at the acquisition date:

 

 

 

 

 

Purchase Price:

    

 

 

Cash paid, net of cash acquired

$

79,128

 

Accrued working capital adjustment

 

1,383

 

 

$

80,511

 

 

 

 

 

 

Recognized preliminary amounts of identifiable assets acquired and (liabilities assumed), at fair value:

    

 

 

Accounts receivable

$

1,773

 

Inventories

 

6,426

 

Other current assets

 

94

 

Indemnification asset

 

166

 

Deferred income taxes

 

83

 

Property, Plant and equipment

 

4,945

 

Identifiable intangible assets

 

36,000

 

Current liabilities

 

(5,952)

 

Unrecognized tax positions

 

(249)

 

Preliminary estimate of the fair value of assets acquired and liabilities assumed

 

43,286

 

Goodwill

 

37,225

 

 

$

80,511

 

 

The preliminary fair value estimates for the Company’s identifiable intangible assets acquired as part of the acquisition are as follows:

 

 

 

 

 

 

 

 

Estimates of Fair Value

 

Estimated Useful Life (in years)

Definite-lived intangible:

 

 

 

 

 

    Dealer network

$

20,000

 

 

10

Indefinite-lived intangible:

 

 

 

 

 

    Trade name

 

16,000

 

 

 

       Total identifiable intangible assets

$

36,000

 

 

 

 

The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less an estimated cost to complete and a reasonable profit margin. The value allocated to accounts receivable represents the estimated fair value of the acquired receivables based on the expected collection of those receivables, less an estimated allowance for bad debts. The fair value of the identifiable intangible assets were determined based on the following approaches:

 

·

Dealer Network - The value associated with NauticStar’s dealer network is attributed to its long standing dealer distribution network. The estimate of fair value assigned to this asset was determined using the income approach, which requires an estimate or forecast of the expected future cash flows from the dealer network through the application of the multi-period excess earnings approach. The estimated remaining useful life of dealer network is approximately ten years.

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

·

Trade Name - The value attributed to NauticStar’s trade name was determined using the relief from royalty method, a variation of the income approach, which requires an estimate or forecast of the expected future cash flows. The trade name has an indefinite life.

 

 

The fair value of the definite-lived intangible asset is being amortized using the straight-line method to amortization of intangible assets expense over the estimated useful life. Indefinite-lived intangible assets are not amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable definite-lived intangible assets acquired was 10.0 years. Goodwill of $37,225 arising from the acquisition consists of future growth prospects including dealer expansion into new geographic markets and capacity expansion as well as intangible assets that do not qualify for separate recognition. The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

 

Acquisition and integration related costs of $1,486, which were incurred by the Company during the first half of fiscal 2018, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income for the three and six months ended December 31, 2017.

 

Pro Forma Financial Information:

 

The following unaudited pro forma consolidated results of operations for the three and six months ended December 31, 2017 and three and six months ended January 1, 2017, assumes that the acquisition of NauticStar occurred as of July 1, 2016. The unaudited pro forma financial information combines historical results of MasterCraft and NauticStar, with adjustments for depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2017 or the results that may occur in the future:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

    

December 31, 2017

    

January 1, 2017

    

December 31, 2017

    

January 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

78,435

 

$

68,286

 

$

161,553

 

$

146,400

Net income

 

$

8,876

 

$

4,293

 

$

16,981

 

$

10,797

Basic earnings per share

 

$

0.48

 

$

0.23

 

$

0.91

 

$

0.58

Diluted earnings per share

 

$

0.47

 

$

0.23

 

$

0.91

 

$

0.58

 

 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

4.INVENTORIES

 

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

December 31, 2017

    

    June 30, 2017    

 

Raw materials and supplies

 

$

11,550

 

$

7,164

 

Work in process

 

 

2,670

 

 

1,772

 

Finished goods

 

 

5,072

 

 

3,427

 

Obsolescence reserve

 

 

(1,009)

 

 

(687)

 

Total inventories

 

$

18,283

 

$

11,676

 

 

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

December 31, 2017

    

    June 30, 2017    

 

Prepaid photo shoot

 

$

682

 

$

497

 

Insurance

 

 

267

 

 

765

 

Trade show deposits

 

 

413

 

 

73

 

Interest rate cap

 

 

288

 

 

90

 

Other

 

 

1,371

 

 

1,013

 

Total prepaid expenses and other current assets

 

$

3,021

 

$

2,438

 

 

6.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

  

December 31, 2017

    

    June 30, 2017    

 

Warranty

 

$

14,918

 

$

12,237

 

Self-insurance

 

 

725

 

 

763

 

Compensation and related accruals

 

 

1,905

 

 

1,691

 

Inventory repurchase contingent obligation

 

 

1,253

 

 

1,008

 

Interest

 

 

2,021

 

 

1,008

 

Dealer incentives

 

 

2,489

 

 

2,755

 

Working capital adjustment - NauticStar acquistion

 

 

1,383

 

 

 —

 

Other

 

 

2,752

 

 

1,948

 

Total accrued expenses and other current liabilities

 

$

27,446

 

$

21,410

 

 

The following table provides a roll forward of the accrued warranty liability:

 

 

 

 

 

 

 

 

Beginning balance - June 30, 2017

 

$

12,237

Provisions

 

 

2,807

Additions for NauticStar acquisition

 

 

1,992

Payments made

 

 

(1,955)

Adjustments to preexisting warranties

 

 

(163)

Ending balance - December 31, 2017

 

$

14,918

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

 

7. GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill for the six months ended December 31, 2017, were as follows:

 

 

 

 

Goodwill as of June 30, 2017

 

$

29,593

Addition related to the acquisition of NauticStar

 

 

37,225

Goodwill as of December 31, 2017

 

$

66,818

As of December 31, 2017, and June 30, 2017, details of the Company’s intangible assets other than goodwill were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Gross

 

 

 

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

Dealer network

    

$

21,590

    

$

(1,500)

    

$

20,090

 

Total amortizable intangible assets

 

 

21,590

 

 

(1,500)

 

 

20,090

 

Trade names

 

 

32,000

 

 

 —

 

 

32,000

 

Total intangible assets

 

$

53,590

 

$

(1,500)

 

$

52,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Gross

 

 

 

Net

 

 

 

Carrying

Accumulated

 

Carrying

 

 

 

Amount

Amortization

 

Amount

 

Dealer network

    

$

1,590

    

$

(947)

    

$

643

 

Total amortizable intangible assets

 

 

1,590

 

 

(947)

 

 

643

 

Trade names

 

 

16,000

 

 

 —

 

 

16,000

 

Total intangible assets

 

$

17,590

 

$

(947)

 

$

16,643

 

Amortization expense recognized on all amortizable intangibles was $552 and $54 for the six months ended December 31, 2017 and January 1, 2017, respectively.

The estimated future amortization of definite-lived intangible assets is as follows:

 

 

 

 

 

Fiscal years ending June 30,

 

 

 

 

Remainder of 2018

 

$

1,054

 

2019

 

 

2,107

 

2020

 

 

2,107

 

2021

 

 

2,107

 

2022

 

 

2,107

 

and thereafter

 

 

10,608

 

Total

 

$

20,090

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

 

8. FAIR VALUE MEASUREMENTS

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

 

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

 

The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Level 1

 

Level 2

 

Level 3

 

Asset — interest rate cap

 

$

 —

 

$

288

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

Level 1

 

Level 2

 

Level 3

 

Asset — interest rate cap

    

$

    

$

90

    

$

 —

 

 

The interest rate cap is valued utilizing pricing models taking into account inputs such as interest rates and notional amounts. In November 2017, the Company entered into an interest rate cap agreement with its existing lender to cap its London Interbank Offered Rate (“LIBOR”) rate at 2% for $34,594 of outstanding principal on its long-term debt. Fair value measurements for the Company’s interest rate cap are classified under Level 2 because such measurements are based on significant other observable inputs. There were no transfers of assets or liabilities between Level 1 and Level 2 during the six months ended December 31, 2017.

 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

9. LONG-TERM DEBT

 

Long-term debt outstanding is as follows:

 

 

 

 

 

 

 

 

 

 

  

December 31, 2017

  

    June 30, 2017    

 

Revolving credit facility

 

$

 —

 

$

 —

 

Senior secured term loan

 

 

96,775

 

 

35,135

 

Debt issuance costs on term loan

 

 

(1,798)

 

 

(658)

 

Total debt

 

 

94,977

 

 

34,477

 

Less current portion of long-term debt

 

 

5,513

 

 

3,904

 

Less current portion of debt issuance costs on term loan

 

 

(441)

 

 

(217)

 

Long-term debt — less current portion

 

$

89,905

 

$

30,790

 

 

On October 2, 2017, the Company entered into a Third Amended and Restated Credit and Guaranty Agreement with Fifth Third Bank, as the agent and letter of credit issuer, and the lenders party thereto (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement replaced and paid off the Company’s Second Amended and Restated Credit Agreement, dated May 27, 2016. The Third Amended Credit Agreement provides the Company with a $145,000 senior secured credit facility, consisting of a $115,000 term loan (the “Third Term Loan”) and a $30,000 revolving credit facility (the “Revolving Credit Facility”).

   

The Third Amended Credit Agreement bears interest, at the Company’s option, at either the prime rate plus an applicable margin ranging from 0.75% to 1.75% or at an adjusted LIBOR plus an applicable margin ranging from 1.75% to 2.75%, in each case based on the Company’s senior leverage ratio. Based on the Company’s current senior leverage ratio, the applicable margin for loans accruing interest at the prime rate is 1.25% and the applicable margin for loans accruing interest at LIBOR is 2.25%. In connection with the Third Amended Credit Agreement, the Company paid $1,322 of financing costs. The Third Term Loan will mature and all remaining amounts outstanding thereunder will be due and payable on October 2, 2022. On October 17, 2017, and December 1, 2017, the Company made voluntary payments on the Third Term Loan of $10,000 and $7,000, respectively, out of excess cash. As of December 31, 2017 and June 30, 2017, the Company’s unamortized deferred financing costs were $2,226 and $1,139, respectively. These costs are being amortized over the term of the Third Amended Credit Agreement. The Company was in compliance with all of its debt covenants under its Third Amended Credit Agreement.

 

As of December 31, 2017 and June 30, 2017, the Company had no borrowings outstanding on its Revolving Credit Facility. Availability under the Revolving Credit Facility is reduced by letters of credit. There were specified letters of credit outstanding of $750 and $250 at December 31, 2017 and June 30, 2017, respectively. As of December 31, 2017 and June 30, 2017, availability under the Revolving Credit Facility was $29,250 and $29,750, respectively, and unamortized deferred financing costs were $428 and $481, respectively. 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

10. INCOME TAXES

 

The Company’s results for the three and six months ended December 31, 2017, reflect the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017. The Tax Reform Act reduced federal corporate income tax rates and changed numerous other provisions. As we have a June 30 fiscal year-end, the lower corporate federal income tax rate will be phased in, resulting in a U.S. federal statutory tax rate of 28.1% for our fiscal year ending June 30, 2018, and 21.0% for subsequent fiscal years. The quarter and six months ended December 31, 2017 included a year-to-date provisional expense of approximately $171 to reflect federal deferred taxes at the lower blended effective tax rate. This adjustment to the provision was more than offset by a one-time discrete provisional benefit of approximately $651 as a result of applying the new lower federal income tax rates to the Company’s net deferred tax liabilities.

 

The changes included in the Tax Reform Act are broad and complex. The final transition impacts may differ from the above estimate, due to, among other things, changes in interpretations, any legislative action to address questions that arise because of the Tax Reform Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to estimates we have utilized to calculate the transition impacts. The SEC issued guidance in Staff Accounting Bulletin 118 which allows the Company to record provisional amounts during a one-year measurement period.  The Company has determined a reasonable estimate for the measurement and accounting for certain effects of the Tax Reform Act, including the re-measurement of the Company’s net deferred tax assets and liabilities, which have been reflected as provisional amounts in the December 31, 2017 financial statements. The amounts represent the Company’s best estimates based on records, information, and current guidance.  Additional information and analysis is required to finalize the impact that the Tax Reform Act will have on the Company’s full year financial results.  This includes filing the fiscal 2017 United States federal income tax return, which could impact the Company’s estimated deferred income tax assets and liabilities.  Although the Company does not anticipate material adjustments to the provisional amounts, final results could vary from these provisional amounts. The Company currently anticipates finalizing and recording any resulting adjustments by the end of the fiscal year ending June 30, 2018.

 

The Company’s effective tax rate is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items.  During the six months ended December 31, 2017, the Company’s effective tax rate was 25.5%.  The rate was lower than the 28.1% statutory rate primarily due to the impact of Tax Reform, and a permanent benefit associated with the domestic production activities deduction, which was partially offset by the inclusion of the state tax rate in the overall effective rate. 

 

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

11. EARNINGS PER SHARE

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Six Months Ended

    

 

 

    

December 31, 2017

    

January 1, 2017

    

December 31, 2017

    

January 1, 2017

    

 

Net income

 

$

8,009

 

$

4,031

 

$

15,055

 

$

11,014

 

 

Weighted average common shares — basic

 

 

18,619,834

 

 

18,592,936

 

 

18,617,467

 

 

18,592,372

 

 

Dilutive effect of assumed exercises of stock options

 

 

34,994

 

 

4,453

 

 

32,969

 

 

2,227

 

 

Dilutive effect of assumed restricted share awards\units

 

 

47,524

 

 

7,689

 

 

44,054

 

 

4,242

 

 

Weighted average outstanding shares — diluted

 

 

18,702,352

 

 

18,605,078

 

 

18,694,489

 

 

18,598,841

 

 

Basic earnings per share

 

$

0.43

 

$

0.22

 

$

0.81

 

$

0.59

 

 

Diluted earnings per share

 

$

0.43

 

$

0.22

 

$

0.81

 

$

0.59

 

 

 

For the three months ended December 31, 2017, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share included 24,847 restricted stock awards. For the three months ended January 1, 2017, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share included 1,898 restricted stock awards and options to purchase 122,640 shares of common stock.

 

For the six months ended December 31, 2017, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share included 37,905 restricted stock awards. For the six months ended January 1, 2017, the weighted average shares that were anti-dilutive, and therefore excluded from the computation of diluted earnings per share included 16,534 restricted stock awards and options to purchase 122,640 shares of common stock.

 

12.STOCK-BASED COMPENSATION

 

During fiscal year ended June 30, 2015 the Company adopted the Amended and Restated MCBC Holdings, Inc. 2015 Incentive Award Plan (“2015 Plan”) in order to facilitate the grant of cash and equity incentives to non-employee directors, employees, and consultants of the Company and certain of its affiliates and to enable the Company and certain of its affiliates to obtain and retain the services of these individuals, which is essential to our long-term success. In July 2015, the Board amended and restated the Company’s 2015 Plan which became effective just prior to the closing of the Company’s initial public offering to increase the shares available for issuance under the 2015 Plan. During the six months ended December 31, 2017 and January 1, 2017, the Company recognized $528 and $305, respectively in stock-based compensation expense.

 

In July 2017, the Company granted to certain employees 23,932 shares of restricted stock awards (“RSAs”) under the 2015 Plan at a per share fair value of $19.34, which is the market value of the Company’s common stock on the grant date. The RSAs will vest in three equal annual installments. In addition, the Company granted 17,064 RSAs under the 2015 Plan to certain non-employee directors for their annual equity award at a per share fair value of $19.34. In November 2017, the Company granted 5,578 of RSAs to certain employees under the 2015 Plan at a per share fair value of $22.31.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

In July 2017, the Company granted 23,929 performance stock units (“PSUs”) under its 2015 Plan to certain employees at a per share fair value of $19.34, which is the market value of the Company’s common stock on the grant date. In November 2017, the Company granted 2,306 PSUs under its 2015 Plan, at a per share fair value of $22.31. The awards will be earned based upon the Company’s attainment of certain performance criteria over a three-year period. The performance period for the awards are a three-year period commencing July 1, 2017 and ending June 30, 2020.  Following the determination of the Company’s achievement with respect to the performance criteria, the amount of shares awarded will be subject to adjustment based upon the application of a total shareholder return (“TSR”) modifier.

 

In July 2015, the Company granted 137,786 non-qualified stock options (“NSOs”) to certain employees at an option price equal to the $15.00 per share of the Company’s common stock, which was the initial public offering price, which will vest in 25% increments annually on each of the first four anniversaries of the grant date. In June 2016, the Company reduced the exercise price of these options by $4.30 per share, which was the amount of the special cash dividend paid in June 2016. Therefore, the exercise price of the options is $10.70 per share. The other terms of the options remained unchanged. We estimated the grant date fair value of stock options using the Black-Scholes pricing model assuming a risk-free interest rate of 1.93%, an expected term of 6.25 years, no dividend yield and a volatility rate of 56.7%.

 

13.SEGMENT INFORMATION

 

The Company designs, manufactures, and markets recreational sport boats and has two operating and reportable segments: MasterCraft and NauticStar. The Company’s segments are defined by management’s reporting structure, product brands, and distribution channels. The MasterCraft product brand consists of recreational performance boats primarily used for water skiing, wakeboarding and wake surfing, and general recreational boating. The Company distributes the MasterCraft product brand through its dealer network. The NauticStar product brand consists of recreational boats primarily used for salt water fishing, and general recreational boating. The Company distributes the NauticStar product brand through its dealer network. The Company’s chief operating decision maker (“CODM”) regularly reviews the operating performance of each product brand including measures of performance based on income from operations. The Company considers each of the product brands to be an operating segment and has further concluded that presenting disaggregated information of these two operating segments provides meaningful information as certain economic characteristics are dissimilar as well as the characteristics of the customer base served.

 

Management evaluates performance based on business segment 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.

 

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MCBC HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

 

The following tables present financial information for the Company’s reportable segments for the three and six months ended December 31, 2017 and January 1, 2017, respectively, and the Company’s financial position at December 31, 2017 and June 30, 2017, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2017

 

 

    

MasterCraft

    

NauticStar

    

Consolidated

 

Net sales

 

$

58,239

 

$

20,196

 

$

78,435

 

Cost of sales

 

 

41,856

 

 

16,645

 

 

58,501

 

Operating income

 

 

9,113

 

 

1,669

 

 

10,782

 

Depreciation and amortization

 

 

876

 

 

602

 

 

1,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended January 1, 2017

 

 

    

MasterCraft

    

NauticStar

    

Consolidated

 

Net sales

 

$

51,134

 

$

 —

 

$

51,134

 

Cost of sales

 

 

36,848

 

 

 —

 

 

36,848

 

Operating income

 

 

7,039

 

 

 —

 

 

7,039

 

Depreciation and amortization

 

 

825

 

 

 —

 

 

825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2017

 

 

    

MasterCraft

    

NauticStar

    

Consolidated

 

Net sales

 

$

123,288

 

$

20,196

 

$

143,484

 

Cost of sales

 

 

88,742

 

 

16,645

 

 

105,387

 

Operating income

 

 

20,177

 

 

1,669

 

 

21,846

 

Depreciation and amortization

 

 

1,608

 

 

602

 

 

2,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended January 1, 2017

 

 

    

MasterCraft

    

NauticStar

    

Consolidated

 

Net sales

 

$

111,823

 

$

 —

 

$

111,823

 

Cost of sales

 

 

79,728

 

 

 —

 

 

79,728

 

Operating income

 

 

18,674

 

 

 —

 

 

18,674

 

Depreciation and amortization

 

 

1,622

 

 

 —

 

 

1,622

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

As of June 30, 2017

Assets

 

 

 

 

 

 

MasterCraft

 

$

82,978

 

$

83,321

NauticStar

 

 

85,664

 

 

 —

Total Assets(a)

 

$

168,642

 

$

83,321

 


(a)

Total assets as of December 31, 2017 includes goodwill of $29,593 and $37,225 related to MasterCraft and NauticStar, respectively. Total assets as of June 30, 2017 includes goodwill of $29,593 related to MasterCraft.

 

 

 

 

 

 

 

 

 

 

 

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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 industry outlook, our expectations regarding the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the successful integration of Nautic Star, LLC into our business and the risks and uncertainties described in “Cautionary Note Regarding Forward-Looking Statements” above and in “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 and in our Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2017. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

Overview

 

We are a world-renowned innovator, designer, manufacturer, and marketer of recreational sport boats, including performance sport boats, salt water fishing and general recreational boats. We have a leading market position in the U.S., a strong international presence, and dealers around the world. Our boats are used for water skiing, wakeboarding, wake surfing, and salt water fishing as well as general recreational boating. Our robust product portfolio is manufactured to the highest standards of quality, performance, and styling.

 

We sell our boats through an extensive network of independent dealers in North America and internationally. Through our MasterCraft segment, we partner with 96 North American dealers with 160 locations and 50 international dealers with 82 locations throughout the rest of the world. Through our NauticStar segment, we partner with 80 North American dealers with 84 locations. For the six months ended December 31, 2017, 91.1% of our net sales were generated from North America and 8.9% of our net sales were generated from outside of North America.

 

Outlook

 

Our sales are impacted by general economic conditions, which affect the demand for our products, the demand for optional features, the availability of credit for our dealers and retail consumers, and overall consumer confidence. While the performance sport boat, salt water fishing and general recreational categories have grown in recent years, new unit sales remain significantly below historical peaks. While there is no guarantee that our market will continue to grow, we believe that increased consumer demand, limited used boat inventory and the superior quality, performance, styling, and value proposition of our recently released boats present a long runway for future growth. Our revamped manufacturing and product development processes have led to operational efficiencies which we expect will continue to drive margin expansion.

 

Recent Transactions

 

Acquisition of Nautic Star, LLC

 

On October 2, 2017, we completed the acquisition of Nautic Star, LLC. The aggregate purchase price was $80.5 million, including customary adjustments for the amount of working capital in the acquired business at the closing date. A portion of the purchase price was deposited into an escrow account in order to secure certain post-closing obligations of the

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former members of NauticStar. Due to the timing of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed.

 

Third Amended and Restated Credit Agreement

 

On October 2, 2017, we entered into a Third Amended and Restated Credit and Guaranty Agreement with Fifth Third Bank, as the agent and letter of credit issuer, and the lenders party thereto (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement replaced and paid off our Second Amended and Restated Credit Agreement, dated May 27, 2016. The Third Amended Credit Agreement provides us with a $145 million senior secured credit facility, consisting of a $115 million term loan (the “Third Term Loan”) and a $30 million revolving credit facility. On October 17, 2017, and December 1, 2017, we made voluntary payments on the Third Term Loan of $10.0 million and $7.0 million, respectively, out of excess cash.

 

Seasonality and Other Factors That Affect Our Business

 

Our operating results are subject to annual and seasonal fluctuations resulting from a variety of factors, including:

 

·

seasonal variations in retail demand for boats, with a significant majority of sales occurring during peak boating season, which we attempt to manage by providing incentive programs and floor plan subsidies to encourage dealer purchases throughout the year, which may include offering off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to encourage retail demand;

 

·

product mix, which is driven by boat model mix and option order rates; product mix can significantly affect margins, sales of larger boats and boats with optional content produce higher absolute profits;

 

·

inclement weather, which can affect production at our manufacturing facility as well as consumer demand;

 

·

competition from other performance sports boat, salt water fishing boat and general recreational boat manufacturers;

 

·

general economic conditions; and

 

·

foreign currency exchange rates.

 

Key Performance Measures

 

From time to time we use certain key performance measures in evaluating our business and results of operations and we may refer to one or more of these key performance measures in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These key performance measures include:

 

·

Unit volume — We define unit volume as the number of our boats sold to our dealers during a period.

 

·

Net sales per unit — We define net sales per unit as net sales divided by unit volume.

 

·

Gross margin — We define gross margin as gross profit divided by net sales, expressed as a percentage.

 

·

Adjusted EBITDA — We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation, and amortization, as further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations. For a reconciliation of Adjusted EBITDA to net income, see “Non-GAAP Measures” below.

 

·

Adjusted net income — We define Adjusted net income as net income excluding income taxes adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing

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operations and an adjustment for income tax expense at a normalized annual effective tax rate. For a reconciliation of Adjusted net income to net income, see “Non-GAAP Measures” below.

 

Components of Results of Operations

 

Net Sales

 

We generate sales from the sale of boats, trailers, and accessories to our dealers. The substantial majority of our net sales are derived from the sale of boats, including optional features included at the time of the initial wholesale purchase of the boat. Net sales consist of the following:

 

·

Gross sales, which are derived from:

 

·

Boat sales — sales of boats to our dealer network. In addition, nearly all of our boat sales include optional feature upgrades, which increase the average selling price of our boats; and

 

·

Trailers, parts and accessories, and other revenues — sales of boat trailers, replacement and aftermarket boat parts and accessories, and transportation charges to our dealer network.

 

·

Net of:

 

·

Dealer programs and flooring subsidies — incentives, including rebates and subsidized flooring, we provide to our dealers to drive volume and level dealer purchases throughout the year. If a dealer meets certain volume levels over the course of the year during certain defined periods, the dealer will be entitled to a specified rebate. These rebates change annually and may include volume and exclusivity incentives. Dealers who participate in our floor plan financing program may be entitled to have their flooring costs subsidized by us to promote dealer orders in the offseason.

 

Cost of Sales

 

Our cost of sales includes all of the costs to manufacture our products, including raw materials, components, supplies, direct labor, and factory overhead. For components and accessories manufactured by third-party vendors, our costs are the amounts invoiced to us by the vendors. Cost of sales includes shipping and handling costs, depreciation expense related to manufacturing equipment and facilities, and warranty costs associated with the repair or replacement of our boats under warranty.

 

Operating Expenses

 

Our operating expenses include selling and marketing costs, general and administrative costs, and amortization costs. These items include personnel and related expenses, non-manufacturing overhead, and various other operating expenses. Further, selling and marketing expenditures include the cost of advertising and marketing materials. General and administrative expenses include, among other things, salaries, benefits, and other personnel related expenses for employees engaged in product development, engineering, finance, information technology, human resources, and executive management. Other costs include outside legal and accounting fees, acquisition or integration related expenses, investor relations, risk management (insurance), and other administrative costs.

 

Other Expense

 

Other expense includes interest expense. Interest expense consists of interest charged under our credit facilities, including deferred financing fees and debt issuance costs written off in connection with the pay down of amounts owed on our credit facilities.

 

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Income Tax Expense

 

Our accounting for income tax expense reflects management’s assessment of future tax assets and liabilities based on assumptions and estimates for timing, likelihood of realization, and tax laws existing at the time of evaluation. We record a valuation allowance, when appropriate, to reduce deferred tax assets to an amount that is more likely than not to be realized.

Results of Operations

 

The table below sets forth our results of operations for the periods presented. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

December 31, 2017

    

January 1, 2017

    

December 31, 2017

    

January 1, 2017

    

 

 

(Unaudited)

 

(Unaudited)

 

 

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Consolidated statement of operations:

    

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

78,435

 

$

51,134

 

$

143,484

 

$

111,823

 

Cost of sales

 

 

58,501

 

 

36,848

 

 

105,387

 

 

79,728

 

Gross profit

 

 

19,934

 

 

14,286

 

 

38,097

 

 

32,095

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

3,672

 

 

2,444

 

 

6,409

 

 

4,498

 

General and administrative

 

 

4,955

 

 

4,776

 

 

9,290

 

 

8,869

 

Amortization of intangible assets

 

 

525

 

 

27

 

 

552

 

 

54

 

Total operating expenses

 

 

9,152

 

 

7,247

 

 

16,251

 

 

13,421

 

Operating income

 

 

10,782

 

 

7,039

 

 

21,846

 

 

18,674

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,139

 

 

512

 

 

1,630

 

 

1,123

 

Income before income tax expense

 

 

9,643

 

 

6,527

 

 

20,216

 

 

17,551

 

Income tax expense

 

 

1,634

 

 

2,496

 

 

5,161

 

 

6,537

 

Net income

 

$

8,009

 

$

4,031

 

$

15,055

 

$

11,014

 

Additional financial and other data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit volume:

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft

 

 

675

 

 

631

 

 

1,450

 

 

1,349

 

NauticStar

 

 

526

 

 

 —

 

 

526

 

 

 —

 

MasterCraft sales

 

$

58,239

 

$

51,134

 

$

123,288

 

$

111,823

 

NauticStar sales

 

$

20,196

 

$

 —

 

$

20,196

 

$

 —

 

Consolidated sales

 

$

78,435

 

$

51,134

 

$

143,484

 

$

111,823

 

Per Unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

MasterCraft sales

 

$

86

 

$

81

 

$

85

 

$

83

 

NauticStar sales

 

$

38

 

$

 —

 

$

38

 

$

 —

 

Consolidated sales

 

$

65

 

$

81

 

$

73

 

$

83

 

Gross margin

 

 

25.4

%  

 

27.9

%  

 

26.6

%  

 

28.7

%  

 

Three months ended December 31, 2017 Compared to Three months ended January 1, 2017

 

Net Sales.  Net sales for the three months ended December 31, 2017, increased 53.4%, or $27.3 million to $78.4 million compared to $51.1 million for the three months ended January 1, 2017. The increase was primarily due to the inclusion of NauticStar which increased net sales by 39.5%, or $20.2 million. The remaining increase of 13.9%, or $7.1 million, was attributable to an increase in MasterCraft unit sales volume, favorable product mix and price increases.

 

Cost of Sales.  Our cost of sales increased $21.7 million, or 58.8%, to $58.5 million for the three months ended December 31, 2017 compared to $36.8 million for the three months ended January 1, 2017. The increase in cost of sales resulted primarily

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from the inclusion of NauticStar, which increased cost of sales by 45.2%, or $16.7 million. The remaining increase was primarily due to higher material and shipping costs and a 7.0% increase in MasterCraft unit volume.

 

Gross Profit.  For the three months ended December 31, 2017, our gross profit increased $5.6 million, or 39.5%, to $19.9 million compared to $14.3 million for the three months ended January 1, 2017. The inclusion of NauticStar contributed $3.5 million to gross profit. An increase in MasterCraft unit sales volume, a favorable product mix and price increases, offset by higher material and shipping costs accounted for the remaining increase in gross profit. Gross margin decreased to 25.4% for the three months ended December 31, 2017 compared to 27.9% for the three months ended January 1, 2017. The decrease in gross margin was primarily due to the dilutive effect from the inclusion of NauticStar’s gross margin which is in the high-teens.

 

Operating Expenses.  Selling and marketing expense increased $1.3 million, or 50.2%, to $3.7 million for the three months ended December 31, 2017 compared to $2.4 million for the three months ended January 1, 2017. This increase resulted mainly from the inclusion of NauticStar, which increased selling and marketing expenses by $0.6 million, an increase in dealer meeting costs and an increase in promotion activities. General and administrative expense increased by $0.2 million, or 3.7%, to $5.0 million for the three months ended December 31, 2017 compared to $4.8 million for the three months ended January 1, 2017. This increase resulted mainly from the inclusion of NauticStar, which increased general and administrative expenses by $0.8 million, and an increase of $0.5 million for legal and advisory fees related to our acquisition of NauticStar. Increases in general and administrative expenses due to NauticStar were partially offset by a decrease of $0.9 million for legal and advisory fees related to our litigation with Malibu Boats, which was subsequently settled during the fourth quarter of fiscal 2017. Operating expenses as a percentage of net sales was 11.7% during the three months ended December 31, 2017 compared to 14.2% for the three months ended January 1, 2017. This favorable impact resulted from leverage experienced through significant net sales increases compared to increases in selling and marketing expenses and general and administrative expenses.

 

Other Expense.  Interest expense increased for the three months ended December 31, 2017 compared to the three months ended January 1, 2017. The increase is due to an increase in our term loan balance when compared to the principal balance owed on our term loan during the three months ended January 1, 2017.

 

Income Tax Expense.    Our results for the three months ended December 31, 2017 reflect the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017. The Tax Reform Act reduced federal corporate income tax rates and changed numerous other provisions. As we have a June 30 fiscal year-end, the lower corporate federal income tax rate will be phased in, resulting in a U.S. federal statutory tax rate of 28.1% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. The quarter ended December 31, 2017 included a year-to-date provisional expense of approximately $171 to reflect federal deferred taxes at the lower blended effective tax rate. This adjustment to the provision was more than offset by a one-time discrete provisional benefit of approximately $651 as a result of applying the new lower federal income tax rates to our net deferred tax liabilities.

 

The changes included in the Tax Reform Act are broad and complex. The final transition impacts may differ from the above estimate, due to, among other things, changes in interpretations, any legislative action to address questions that arise because of the Tax Reform Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to estimates we have utilized to calculate the transition impacts. The SEC issued guidance in Staff Accounting Bulletin 118 which allows us to record provisional amounts during a one-year measurement period.  We have determined a reasonable estimate for the measurement and accounting for certain effects of the Tax Reform Act, including the re-measurement of our net deferred tax assets and liabilities, which have been reflected as provisional amounts in the December 31, 2017 financial statements. The amounts represent our best estimates based on records, information, and current guidance.  Additional information and analysis is required to finalize the impact that the Tax Reform Act will have on our full year financial results.  This includes filing the fiscal 2017 United States

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federal income tax return, which could impact our estimated deferred income tax assets and liabilities.  Although we do not anticipate material adjustments to the provisional amounts, final results could vary from these provisional amounts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending June 30, 2018.

 

Our income tax expense was $1.6 million for the three months ended December 31, 2017, reflecting an effective tax rate of 16.9%.  Our effective tax rate during the three months ended December 31, 2017 was lower than the 28.1% statutory rate primarily due to the impact of the Tax Reform Act, and a permanent benefit associated with the domestic production activities deduction, which was partially offset by the inclusion of the state tax rate in the overall effective rate.

 

Six months ended December 31, 2017 Compared to Six months ended January 1, 2017

 

Net Sales.  Net sales for the six months ended December 31, 2017, increased 28.3%, or $31.7 million to $143.5 million compared to $111.8 million for the six months ended January 1, 2017. The increase was primarily due to the inclusion of NauticStar which increased net sales by 18.1%, or $20.2 million. The remaining increase of 10.2%, or $11.5 million, was attributable to MasterCraft primarily due to an increase in unit sales volume, favorable product mix and price increases.

 

Cost of Sales.  Our cost of sales increased $25.7 million, or 32.2%, to $105.4 million for the six months ended December 31, 2017 compared to $79.7 million for the six months ended January 1, 2017. The increase in cost of sales resulted primarily from the inclusion of NauticStar, which increased cost of sales by 20.9%, or $16.6 million. The remaining increase was primarily due to higher material and shipping costs, a 7.5% increase in MasterCraft unit volume and an increase in cost over the prior year due to our model year change over that occurred during the first quarter of fiscal 2018.  

 

Gross Profit.  For the six months ended December 31, 2017, our gross profit increased $6.0 million, or 18.7%, to $38.1 million compared to $32.1 million for the six months ended January 1, 2017. The inclusion of NauticStar contributed $3.5 million to gross profit. The remaining increase was due to an increase in MasterCraft unit sales volume and favorable pricing, partially offset by higher material and shipping costs. Gross margin decreased to 26.6% for the six months ended December 31, 2017 compared to 28.7% for the six months ended January 1, 2017. The decrease in gross margin was primarily due to the dilutive effect from the inclusion of NauticStar’s gross margin which is in the high-teens.

 

Operating Expenses.  Selling and marketing expense increased $1.9 million, or 42.5%, to $6.4 million for the six months ended December 31, 2017 compared to $4.5 million for the six months ended January 1, 2017. This increase resulted mainly from the inclusion of NauticStar, which increased selling and marketing expenses by $0.6 million, an increase in dealer training costs, an increase in dealer meeting costs and increased promotion activities related to the introduction of the redesigned 2018 MasterCraft XStar. General and administrative expense increased by $0.4 million, or 4.7%, to $9.3 million for the six months ended December 31, 2017 compared to $8.9 million for the six months ended January 1, 2017. This increase resulted mainly from the inclusion of NauticStar, which increased general and administrative expenses by $0.8 million, and an increase of $1.4 million for legal and advisory fees related to our acquisition of NauticStar. Increases in general and administrative expenses due to NauticStar were partially offset by a decrease of $1.7 million for legal and advisory fees related to our litigation with Malibu Boats, which was subsequently settled during the fourth quarter of fiscal 2017. Operating expenses as a percentage of net sales was 11.3% during the six months ended December 31, 2017 compared to 12.0% for the six months ended January 1, 2017. This favorable impact resulted from leverage experienced through significant net sales increases compared to increases in selling and marketing expenses and general and administrative expenses.

 

Other Expense.  Interest expense increased for the six months ended December 31, 2017 compared to the six months ended January 1, 2017. The increase is due to an increase in our term loan balance when compared to the principal balance owed on our term loan during the six months ended January 1, 2017.

 

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Income Tax Expense.    Our results for the six months ended December 31, 2017 reflect the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017. The Tax Reform Act reduced federal corporate income tax rates and changed numerous other provisions. As we have a June 30 fiscal year-end, the lower corporate federal income tax rate will be phased in, resulting in a U.S. federal statutory tax rate of 28.1% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. The six months ended December 31, 2017 included a year-to-date provisional expense of approximately $171 to reflect federal deferred taxes at the lower blended effective tax rate. This adjustment to the provision was more than offset by a one-time discrete provisional benefit of approximately $651 as a result of applying the new lower federal income tax rates to our net deferred tax liabilities.

 

The changes included in the Tax Reform Act are broad and complex. The final transition impacts may differ from the above estimate, due to, among other things, changes in interpretations, any legislative action to address questions that arise because of the Tax Reform Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to estimates we have utilized to calculate the transition impacts. The SEC issued guidance in Staff Accounting Bulletin 118 which allows us to record provisional amounts during a one-year measurement period.  We have determined a reasonable estimate for the measurement and accounting for certain effects of the Tax Reform Act, including the re-measurement of our net deferred tax assets and liabilities, which have been reflected as provisional amounts in the December 31, 2017 financial statements. The amounts represent our best estimates based on records, information, and current guidance.  Additional information and analysis is required to finalize the impact that the Tax Reform Act will have on our full year financial results.  This includes filing the fiscal 2017 United States federal income tax return, which could impact our estimated deferred income tax assets and liabilities.  Although we do not anticipate material adjustments to the provisional amounts, final results could vary from these provisional amounts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending June 30, 2018.

 

Our income tax expense was $5.2 million for the six months ended December 31, 2017, reflecting an effective tax rate of 25.5%.  Our effective tax rate during the six months ended December 31, 2017 was lower than the 28.1% statutory rate primarily due to the impact of the Tax Reform Act, and a permanent benefit associated with the domestic production activities deduction, which was partially offset by the inclusion of the state tax rate in the overall effective rate.

 

Non-GAAP Measures

 

We define EBITDA as earnings before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations, including fees and expenses related to our follow-on offering, transaction expenses associated with the acquisition of NauticStar, acquisition related inventory step up adjustment and our stock-based compensation expense. We define Adjusted net income as net income adjusted to eliminate certain non-cash charges and unusual items that we do not consider to be indicative of our ongoing operations, including fees and expenses related to our follow-on offering, transaction expenses associated with the acquisition of NauticStar, our stock-based compensation expense, and an adjustment for income tax expense at a normalized annual effective tax rate.  We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of sales. Adjusted EBITDA, Adjusted net income and Adjusted EBITDA margin are not measures of net income or operating income as determined under accounting principles generally accepted in the United States, which we refer to as GAAP. Adjusted EBITDA and Adjusted net income are not measures of performance in accordance with GAAP and should not be considered as an alternative to net income or operating cash flows determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow for management’s discretionary use. We believe that the inclusion of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted net income is appropriate to provide additional information to investors because securities analysts, noteholders and other investors use these non GAAP financial measures to assess our operating performance across periods

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on a consistent basis and to evaluate the relative risk of an investment in our securities. We use Adjusted net income 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 GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP alone measures.  We believe Adjusted net income assists our board of directors, management and investors in comparing our net income on a consistent basis from period to period because it removes non-cash and non-recurring items.  Adjusted EBITDA and Adjusted net income 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 GAAP. Some of these limitations are:

 

·

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements;

·

Adjusted EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

·

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

·

Adjusted EBITDA does not reflect our tax expense or any cash requirements to pay income taxes;

·

Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest payments on our indebtedness; and

·

Adjusted net income and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters we do not consider to be indicative of our ongoing operations, but may nonetheless have a material impact on our results of operations.

 

In addition, because not all companies use identical calculations, our presentation of Adjusted EBITDA and Adjusted net income may not be comparable to similarly titled measures of other companies, including companies in our industry. Furthermore, certain non-GAAP financial measures presented have been provided for comparison purposes only and these non-GAAP financial measures may change in the future based on our calculations and forecasts regarding the interpretation of certain recent changes to U.S. federal income tax law and anticipated impacts on our financial results.

 

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The following table sets forth a reconciliation of net income as determined in accordance with GAAP to Adjusted EBITDA for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

    

December 31, 2017

 

January 1, 2017

    

December 31, 2017

    

January 1, 2017

    

 

 

(Unaudited)

 

(Unaudited)

 

 

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Net income

 

$

8,009

    

$

4,031

    

$

15,055

 

$

11,014

 

Income tax expense

 

 

1,634

 

 

2,496

 

 

5,161

 

 

6,537

 

Interest expense

 

 

1,139

 

 

512

 

 

1,630

 

 

1,123

 

Depreciation and amortization

 

 

1,478

 

 

825

 

 

2,210

 

 

1,622

 

EBITDA

 

 

12,260

 

 

7,864

 

 

24,056

 

 

20,296

 

Transaction expense(a)

 

 

605

 

 

 5

 

 

1,486

 

 

59

 

Inventory step-up adjustment – acquisition related(b)

 

 

501

 

 

 —

 

 

501

 

 

 —

 

Litigation charge(c)

 

 

 —

 

 

944

 

 

 —

 

 

1,653

 

Stock-based compensation

 

 

264

 

 

186

 

 

528

 

 

305

 

Adjusted EBITDA

 

$

13,630

 

$

8,999

 

$

26,571

 

$

22,313

 

Adjusted EBITDA Margin(d)

 

 

17.4%

 

 

17.6%

 

 

18.5%

 

 

20.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

(a)

Represents fees, expenses and integration costs associated with our acquisition of NauticStar and our follow-on offering in the prior-year period.

 

(b)

Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during the second quarter of fiscal 2018.

 

(c)

Represents legal and advisory fees related to our litigation with Malibu Boats, LLC, which was settled during the fourth quarter of fiscal 2017.

 

(d)

We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of sales.  

 

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The following table sets forth a reconciliation of net income as determined in accordance with GAAP to Adjusted net income for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 2017

 

October 1, 2017

 

January 1, 2017

 

December 31, 2017

 

January 1, 2017

 

 

(Unaudited)

 

(Unaudited)

 

 

(Dollars in thousands, except share and per share amounts)

 

(Dollars in thousands, except share and per share amounts)

 

Net income

$

8,009

    

$

7,046

    

$

4,031

 

$

15,055

    

$

11,014

    

Income tax expense

 

1,634

 

 

3,527

 

 

2,496

 

 

5,161

 

 

6,537

 

Transaction expense(a)

 

605

 

 

881

 

 

 5

 

 

1,486

 

 

59

 

Inventory step-up adjustment – acquisition related(b)

 

501

 

 

 —

 

 

 —

 

 

501

 

 

 —

 

Litigation charge(c)

 

 —

 

 

 —

 

 

944

 

 

 —

 

 

1,653

 

Stock-based compensation

 

264

 

 

264

 

 

186

 

 

528

 

 

305

 

Adjusted net income before income taxes(d)

 

11,013

 

 

11,718

 

 

7,662

 

 

22,731

 

 

19,568

 

Adjusted income tax expense(e)

 

3,194

 

 

3,398

 

 

2,758

 

 

6,592

 

 

7,044

 

Adjusted net income

$

7,819

    

$

8,320

    

$

4,904

 

$

16,139

    

$

12,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro-forma Adjusted net income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.42

 

 

0.45

 

 

0.26

 

 

0.87

 

 

0.67

 

Diluted

 

0.42

 

 

0.44

 

 

0.26

 

 

0.86

 

 

0.67

 

Pro-forma weighted average shares used for the computation of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Adjusted net income per share(f)

 

18,619,834

 

 

18,619,834

 

 

18,593,296

 

 

18,619,834

 

 

18,593,296

 

Diluted Adjusted net income per share(f)

 

18,792,214

 

 

18,798,236

 

 

18,711,764

 

 

18,795,225

 

 

18,695,528

 

 


(a)

Represents fees, expenses and integration costs associated with our acquisition of NauticStar and our follow-on offering in the prior-year period.

 

(b)

Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during the second quarter of fiscal 2018.

 

(c)

Represents legal and advisory fees related to our litigation with Malibu Boats, LLC, which was settled during the fourth quarter of fiscal 2017.

 

(d)

Excludes $0.5 million of amortization charges for acquired intangible assets incurred during the second quarter of fiscal 2018.

 

(e)

Reflects income tax expense at an estimated annual effective income tax rate of 29% for all current-year periods presented and 36% for all prior-year periods presented. We expect our estimated annual effective income tax rate to be reduced to about 24% for fiscal 2019.

 

(f)

The weighted average shares used for computation of pro-forma diluted earnings per common share gives effect to 59,297 shares of restricted stock awards, 59,148 performance stock units and 53,935 shares for the dilutive effect of stock options. The average of the prior quarters is used for computation of the six month ended periods.

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The following table shows the reconciliation of net income per diluted share to Adjusted net income per diluted pro-forma weighted average share for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 2017

 

October 1, 2017

 

January 1, 2017

 

December 31, 2017

 

January 1, 2017

 

 

(Unaudited)

 

(Unaudited)

Net income per diluted share

 

 

0.43

 

 

0.38

 

 

0.22

 

 

0.81

 

 

0.59

Impact of adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

0.09

 

 

0.19

 

 

0.14

 

 

0.28

 

 

0.35

Transaction expense(a)

 

 

0.03

 

 

0.05

 

 

 -

 

 

0.08

 

 

 -

Inventory step-up adjustment – acquisition related(b)

 

 

0.03

 

 

 -

 

 

 -

 

 

0.03

 

 

 -

Litigation charge(c)

 

 

 -

 

 

 -

 

 

0.05

 

 

 -

 

 

0.09

Stock-based compensation

 

 

0.01

 

 

0.01

 

 

0.01

 

 

0.03

 

 

0.02

Adjusted net income per diluted share before income taxes(d)

 

 

0.59

 

 

0.63

 

 

0.42

 

 

1.23

 

 

1.05

Impact of adjusted income tax expense on net income per diluted share before income taxes(e)

 

 

(0.17)

 

 

(0.18)

 

 

(0.15)

 

 

(0.35)

 

 

(0.38)

Impact of increased share count(f)

 

 

 -

 

 

(0.01)

 

 

(0.01)

 

 

(0.02)

 

 

 -

Adjusted net income per diluted pro-forma weighted average share

 

 

0.42

 

 

0.44

 

 

0.26

 

 

0.86

 

 

0.67

 

 


(a)

Represents fees, expenses and integration costs associated with our acquisition of NauticStar and our follow-on offering in the prior-year period.

 

(b)

Represents post-acquisition adjustment to cost of goods sold for the fair value step up of inventory acquired all of which was sold during the second quarter of fiscal 2018.

 

(c)

Represents legal and advisory fees related to our litigation with Malibu Boats, LLC, which was settled during the fourth quarter of fiscal 2017.

 

(d)

Excludes $0.5 million of amortization charges for acquired intangible assets incurred during the second quarter of fiscal 2018.

 

(e)

Reflects income tax expense at an estimated annual effective income tax rate of 29% for all current-year periods presented and 36% for all prior-year periods presented. We expect our estimated annual effective income tax rate to be reduced to about 24% for fiscal 2019.

 

(f)

Reflects impact of increased share counts giving effect to the exchange of all restricted stock awards, the vesting of all performance stock units and for the dilutive effect of stock options included in outstanding shares. 

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Liquidity and Capital Resources

 

Our primary liquidity and capital resource needs are to finance working capital and fund capital expenditures. Our principal source of funds is cash generated from operating activities. As of December 31, 2017, we had borrowing availability of $29.3 million under our revolving credit facility. We believe our cash from operations, along with borrowings under our revolving credit facility, will be sufficient to provide for our working capital and capital expenditures for at least the next 12 months. The following table summarizes the cash flows from operating, investing, and financing activities:

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

January 1, 2017

    

 

 

(Unaudited)

 

 

(Dollars in thousands)

Total cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

22,452

 

$

12,921

 

Investing activities

 

 

(80,506)

 

 

(1,060)

 

Financing activities

 

 

60,266

 

 

(5,568)

 

Net increase in cash

 

$

2,212

 

$

6,293

 

 

Operating Activities

 

Our net cash provided by operating activities increased by $9.5 million, or 73.8%, for the six months ended December 31, 2017 compared to the six months ended January 1, 2017, to $22.4 million from $12.9 million. This increase was primarily due to an increase in net income, an increase due to the change in accounts receivable, a decrease in cash paid for taxes and an increase due to the change in accrued expenses and other current liabilities. These increases were partially offset by an increase in cash payments for interest related to an increase in our term loan balance when compared to the principal balance owed on our term loan during the six months ended January 1, 2017.

 

Investing Activities

 

Net cash used in investing activities increased by $79.4 million for the six months ended December 31, 2017 compared to the six months ended January 1, 2017, to $80.5 million from $1.1 million. This increase was primarily due to the acquisition of NauticStar and an increase in capital expenditures.

 

Financing Activities

 

Net financing activities was a source of cash for the six months ended December 31, 2017 of $60.3 million. Net financing activities for the six months ended January 1, 2017 was a use of cash of $5.6 million. The change in net financing activities was a source of cash of $65.9 million.  Cash provided by financing activities for the six months ended December 31, 2017 increased primarily from proceeds from issuance of long term debt of $80.8 million, which was partially offset by deferred financing costs of $1.3 million and payments on our term loan of $19.2 million, which was an increase of $13.6 million over the six months ended January 1, 2017, and payments on our term loan and repayment of our revolving credit facility were $5.6 million.

 

Third Amended and Restated Credit Agreement

 

On October 2, 2017, we entered into a Third Amended and Restated Credit and Guaranty Agreement with Fifth Third Bank, as the agent and letter of credit issuer, and the lenders party thereto (the “Third Amended Credit Agreement”). The

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Third Amended Credit Agreement replaced and paid off our Second Amended and Restated Credit Agreement, dated May 27, 2016. The Third Amended Credit Agreement provides us with a $145 million senior secured credit facility, consisting of a $115 million term loan (the “Third Term Loan”) and a $30 million revolving credit facility. On October 17, 2017, and December 1, 2017, we made voluntary payments on the Third Term Loan of $10.0 million and $7.0 million, respectively, out of excess cash.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2017, we did not have any off-balance sheet financings.

 

Emerging Growth Company

 

We are an emerging growth company, as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding stockholder advisory “say-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation.

 

The JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pursuant to Section 107 of the JOBS Act, we have irrevocably chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.”

 

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of fiscal year following the fifth anniversary of the closing of the IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined under the Exchange Act.

 

Critical Accounting Policies

 

As of December 31, 2017, there were no significant changes in or changes in the application of our critical accounting policies or estimation procedures from those presented in our Annual Report on Form 10-K.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Refer to our Annual Report on Form 10-K for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed therein.

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ITEM 4.CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2017.

 

Changes in Internal Control Over Financial Reporting

 

During the second quarter ended December 31, 2017, we completed the acquisition of NauticStar. Prior to the acquisition, NauticStar was a privately-held company and was not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into NauticStar and to augment our company-wide controls to reflect the risks that may be inherent in acquisitions of privately-held companies.

Other than our integration of NauticStar, there have been no changes in our internal control over financial reporting during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

Legal Proceedings

 

None.

 

 

ITEM 1A.RISK FACTORS.

 

During the quarter ended December 31, 2017, there were no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” in our Annual Report filed on Form 10-K.

 

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ITEM 2.UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS.

 

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES.

 

None.

ITEM 5.OTHER INFORMATION.

 

None.

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Table of Contents

ITEM 6.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

 

Exhibit
No.

 

Description

 

 

Form

 

File No.

 

Exhibit

 

Filing Date

 

Filed
Herewith

 

3.1

 

Amended and Restated Certificate of Incorporation of MCBC Holdings, Inc.

 

 

10-K

 

001-37502

 

3.1

 

9/18/15

 

 

 

3.2

 

Amended and Restated By-laws of MCBC Holdings, Inc.

 

 

10-K

 

001-37502

 

3.2

 

9/18/15

 

 

 

10.1

  

Registration Rights Agreement between MCBC Holdings, Inc. and Wayzata Opportunities Fund II, L.P.; Wayzata Opportunities Fund Offshore II, L.P. and Wayzata Recovery Fund, LLC, dated July 22, 2015

  

 

10-K

 

001-37502

 

10.2

 

9/18/15

 

 

 

10.4†

 

MCBC Holdings, Inc. 2015 Incentive Award Plan

 

 

S-1/A

 

333-203815

 

10.4

 

7/15/15

 

 

 

10.5†

 

Form of Restricted Stock Award Agreement and Grant Notice under 2015 Incentive Award Plan (employee)

 

 

S-1/A

 

333-203815

 

10.10

 

7/1/15

 

 

 

10.6†

 

Form of Stock Option Agreement and Grant Notice under 2015 Incentive Award Plan (employee)

 

 

S-1/A

 

333-203815

 

10.12

 

7/7/15

 

 

 

10.7†

 

Form of Restricted Stock Award Grant Notice under 2015 Incentive Award Plan (director)

 

 

S-1/A

 

333-203815

 

10.13

 

7/7/15

 

 

 

10.8†

 

Senior Executive Incentive Bonus Plan

 

 

10-K

 

001-37502

 

10.8

 

9/18/15

 

 

 

10.9†

 

Non-Employee Director Compensation Policy

 

 

S-1/A

 

333-203815

 

10.17

 

7/1/15

 

 

 

10.11†

 

Employment Agreement between MasterCraft Boat Company and Terry McNew, dated July 26, 2012

 

 

S-1/A

 

333-203815

 

10.6

 

6/25/15

 

 

 

10.12†

 

Employment Agreement between MCBC Holdings, Inc. and Terry McNew, effective as of July 1, 2015

 

 

S-1/A

 

333-203815

 

10.14

 

7/7/15

 

 

 

10.13†

 

Employment Agreement between MCBC Holdings, Inc. and Timothy M. Oxley, effective as of July 1, 2015

 

 

S-1/A

 

333-203815

 

10.15

 

7/7/15

 

 

 

10.14†

 

Employment Agreement between MCBC Holdings, Inc. and Shane Chittum, effective as of July 1, 2015

 

 

S-1/A

 

333-203815

 

10.16

 

7/7/15

 

 

 

10.17†

 

Form of Indemnification Agreement for directors and officers

 

 

S-1/A

 

333-203815

 

10.9

 

7/7/15

 

 

 

10.18

 

Amendment No. 1, dated as of February 18, 2016, to the Amended and Restated Credit and Guaranty Agreement among MasterCraft Boat Company, LLC, MasterCraft Services, Inc., MCBC Hydra Boats LLC, MasterCraft International Sales Administration, Inc. as borrowers and other credit parties, various lenders and Fifth Third Bank as the agent and L/C issuer and lender

 

 

8-K

 

001-37502

 

10.1

 

2/19/16

 

 

 

10.19

 

Second Amended and Restated Credit and Guaranty Agreement, dated May 26, 2016, by and among MasterCraft Boat Company, LLC, MasterCraft Services, Inc., MCBC Hydra Boats LLC, MasterCraft International Sales Administration, Inc. as borrowers and other credit parties, various lenders and Fifth Third Bank as the agent and L/C issuer and lender

 

 

8-K

 

001-37502

 

10.1

 

5/27/16

 

 

 

10.20

 

Amendment No. 1, dated as of August 19, 2016, to the Second Amended and Restated Credit and Guaranty Agreement, dated May 26, 2016, by and among MasterCraft Boat Company, LLC, MasterCraft Services, Inc., MCBC Hydra Boats LLC, MasterCraft International Sales Administration, Inc. as borrowers and other credit parties, various lenders and Fifth Third Bank as the agent and L/C issuer and lender

 

 

10-K

 

001-37502

 

10.20

 

9/8/16

 

 

 

37


 

Table of Contents

10.21

 

Form of Performance Stock Unit Award Agreement under 2015 Incentive Award Plan

 

 

8-K

 

001-37502

 

10.1

 

8/26/16

 

 

 

10.22

 

Membership Interest Purchase Agreement, dated October 2, 2017 among MCBC Holdings, Inc., Nautic Star, LLC and each of the other parties thereto

 

 

8-K

 

001-37502

 

2.1

 

10/2/17

 

 

 

10.23

 

Third Amended and Restated Credit and Guaranty Agreement, dated October 2, 2017, by and among MasterCraft Boat Company, LLC, MasterCraft Services, Inc., MCBC Hydra Boats, LLC, MasterCraft International Sales Administration, Inc., Nautic Star, LLC, NS Transport, LLC and Navigator Marine, LLC as borrowers and other credit parties, various lenders and Fifth Third Bank as the agent and L/C issuer and lender

 

 

8-K

 

001-37502

 

10.1

 

10/2/17

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

*

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

*

 

32.1

 

Section 1350 Certification of Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

**

 

32.2

 

Section 1350 Certification of Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

**

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

 

*

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

 

*

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

 

*

 


Indicates management contract or compensatory plan.

*Filed herewith.

**Furnished herewith.

38


 

Table of Contents

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

 

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ TERRY MCNEW

 

President and Chief Executive Officer (Principal Executive Officer) and Director

 

 

Terry McNew

 

 

 

February 8, 2018

 

 

 

 

 

/s/ TIMOTHY M. OXLEY

 

Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary

 

 

Timothy M. Oxley

 

 

 

February 8, 2018

 

 

 

 

 

 

39