What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-08-31 compared with 2019-08-29 · 398 added, 314 removed, 988 unchanged (42% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Management on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firm

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Notes to Consolidated Financial Statements

MALIBU BOATS, INC.

AND SUBSIDIARIES

Report of Management on Internal Control Over Financial Reporting

Malibu Boats, Inc.'s (the "Company") management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of the Company's financial reporting for external purposes in accordance with U.S.

generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company's management, including its chief executive officer and chief financial officer, assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2020.

In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013) .

Based on such assessment the Company's management has concluded that, as of June 30, 2020, its internal control over financial reporting is effective based on those criteria.

The effectiveness of internal control over financial reporting as of June 30, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report, which is included herein.

Malibu Boats, Inc.

Loudon, Tennessee

August 31, 2020

Report of Independent Registered Public Accounting Firm

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2020 and 2019, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated August 31, 2020 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired Pursuit Boats (Pursuit) during the year ended June 30, 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019, Pursuit’s internal control over financial reporting associated with total assets of $114.7 million and total revenues of $102.8 million included in the consolidated financial statements of the Company as of and for the year ended June 30, 2019.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Pursuit.

Basis for Opinion

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 31, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of certain assumptions underlying the product warranty liability for Malibu, Axis and Cobalt branded boats

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of certain assumptions underlying the product warranty liability for certain brands

As discussed in Note 9 to the consolidated financial statements, the Company’s product warranty liability as of June 30, 2020 was $27.5 million.

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Specifically, for Axis and Malibu model years prior to 2016, historical claims experience only exists for a warranty term of two and three years, respectively.

For Cobalt model years prior to 2018, historical claims experience only exists for a warranty term of three years.

For Cobalt model years prior to 2018, historical claims experience only exists for

a warranty term of three years.

This historical claims experience is shorter in duration than the five-year warranty term associated with the Company’s current warranty program.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s warranty accrual process, including controls over the development of the assumptions used to estimate the warranty cost per boat for warranty years four and five, for which no historical claims experience exists.

We performed sensitivity analyses to assess the impact of possible changes to these assumptions on the product warranty liability.

We assessed the Company’s historical claims experience and the relationship between the historical warranty costs per boat incurred in warranty year one compared to warranty year two, warranty year one compared to warranty year three, and warranty year two compared to warranty year three.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s warranty accrual process.

This included controls over the development of the assumptions used to estimate the warranty cost per boat for warranty years four and five, for which little or no historical claims experience exists.

We performed sensitivity analyses to assess the potential for possible changes to these assumptions on the product warranty liability.

We assessed the Company’s historical claims experience and the relationship between the historical warranty costs per boat incurred by warranty year.

We further assessed the Company’s assumptions underlying the anticipated warranty costs per boat for warranty years four and five by considering warranty claims received after year-end but before the consolidated financial statements were issued, to identify trends not considered by the Company when it developed its assumptions.

We also compared the Company’s prior year product warranty liability related to claims expected to be incurred in the current year to actual claims received in the current year to evaluate the historical accuracy of the Company’s estimates.

Evaluation of certain assumptions underlying the acquisition date fair value measurement of the Pursuit Boats intangible assets

As discussed in Note 4 to the consolidated financial statements, the Company acquired Pursuit Boats (Pursuit) in a business combination on October 15, 2018.

All of Pursuit’s sales are made to its dealer distribution network.

Pursuit’s long standing dealer relationships and trade name were identified as intangible assets to be recognized separately from goodwill, with acquisition date fair values of $25.4 million and $32.5 million, respectively.

We identified the evaluation of the acquisition date fair value measurement of these intangible assets as a critical audit matter.

The evaluation of certain internally-developed assumptions utilized within the discounted cash flow model used to estimate the acquisition date fair value required a higher degree of subjective auditor judgment in applying and evaluating the results of our procedures.

The discounted cash flow model included the following internally-developed assumptions for which there was limited observable market information:

Projected revenues,

Projected dealer attrition rate, and

Discount rate.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s acquisition date valuation process, including controls over the development of the projected revenues, projected dealer attrition rate, and discount rate assumptions.

We performed sensitivity analyses to assess the impact of possible changes to these assumptions on the acquisition date fair values.

We evaluated the key inputs used by the Company to determine projected revenues, by comparing them to the historical revenues of Pursuit, the historical revenues of other boat manufacturers, and third-party industry revenue growth forecasts.

We assessed the Company’s projected dealer attrition rate by comparing the estimate to historical dealer attrition experienced by Pursuit and by the Company’s other boat brands, each of which sells their boats to a similar dealer distribution network.

We evaluated the discount rate by involving valuation professionals with specialized skills and knowledge, who assisted in the assessment of the calculation of the internal rate of return for the transaction, the calculation of the Company’s weighted average cost of capital, and the after-tax rate of return that was assigned to the intangible assets.

We have served as the Company’s auditor since 2015.

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Fiscal Year Ended June 30,

2020 2019 2018

Net sales $ 653,163 $ 684,016 $ 497,002

Cost of sales 503,893 517,746 376,660

Gross profit 149,270 166,270 120,342

Operating expenses:

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General and administrative 39,912 44,256 31,359

Amortization 6,131 5,956 5,198

Operating income 85,310 98,112 70,067

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Income tax provision 19,076 22,096 58,418

Net income 64,656 69,701 30,969

Net income attributable to non-controlling interest 3,094 3,635 3,356

Net income attributable to Malibu Boats, Inc.

$ 61,562 $ 66,066 $ 27,613

Comprehensive income:

Net income $ 64,656 $ 69,701 $ 30,969

Other comprehensive income (loss), net of tax:

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Weighted average shares outstanding used in computing net income per share:

Basic 20,662,750 20,832,445 20,179,381

Diluted 20,852,361 20,966,539 20,281,210

Net income available to Class A Common Stock per share:

Basic $ 2.98 $ 3.17 $ 1.37

Diluted $ 2.95 $ 3.15 $ 1.36

The accompanying notes are an integral part of these Consolidated Financial Statements.

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(In thousands, except share data)

June 30, 2019

June 30, 2018

June 30, 2020 June 30, 2019

Current assets

Cash $ 33,787 $ 27,392

Trade receivables, net 13,767 27,961

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Prepaid expenses and other current assets 3,954 4,530

Income tax receivable

Total current assets 124,454 127,651

Property and equipment, net 94,310 65,756

Goodwill 51,273 51,404

Other intangible assets, net 139,892 146,061

Deferred tax assets 52,935 60,407

Other assets 14,482 35

Total assets $ 477,346 $ 451,314

Current liabilities

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Total stockholders' equity attributable to Malibu Boats, Inc.

254,580 204,235

Non-controlling interest 6,947 6,118

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(In thousands, except number of Class B shares)

Additional Paid In Capital

Non-controlling Interest in LLC

Accumulated Earnings (Deficit)

Accumulated Other Comprehensive Loss

Total Stockholders Equity

Malibu Boats, Inc.

Common Stock Additional Paid In Capital Non-controlling Interest in LLC Accumulated Earnings (Deficit) Accumulated Other Comprehensive Loss Total Stockholders Equity

Class A Class B

Shares Amount Shares Amount

Balance at June 30, 2017 17,938 $ 179 19 $ — $ 48,328 $ 4,941 $ 151 $ ( 1,363 ) $ 52,236

Net Income — — — — — 3,356 27,613 — 30,969

Stock based compensation, net of withholding taxes on vested equity awards 56 1 — — 1,282 — — — 1,283

Issuances of equity for services 5 — — — 867 — — — 867

Issuance of Class A common stock for acquisition 39 — — — 1,000 — — — 1,000

Issuance of Class A Common Stock for Offerings, net of underwriting discounts 2,300 23 — — 55,294 — — — 55,317

Capitalized Offering costs — — — — ( 650 ) — — — ( 650 )

Increase in payable pursuant to the tax receivable agreement — — — — ( 1,685 ) — — — ( 1,685 )

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Foreign currency translation adjustment — — — — — ( 23 ) — ( 621 ) ( 644 )

Reallocation to non-controlling interest from additional paid in capital and accumulated other comprehensive income

Balance at June 30, 2018 20,555 204 17 — 108,360 5,502 27,789 ( 1,984 ) 139,871

Net Income — — — — — 3,635 66,066 — 69,701

Stock based compensation, net of withholding taxes on vested equity awards 55 1 — — 1,376 — — — 1,377

Issuances of equity for services — — — — 784 — — — 784

Issuance of Class A common stock for acquisition

Issuance of Class A Common Stock for Offerings, net of underwriting discounts

Capitalized Offering costs

Issuance of equity for exercise of options 29 — — — 749 — — — 749

Increase in payable pursuant to the tax receivable agreement — — — — ( 2,676 ) — — — ( 2,676 )

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Balance at June 30, 2019 20,853 207 15 — 113,004 6,118 93,852 ( 2,828 ) 210,353

Net income — — — — — 3,094 61,562 — 64,656

Stock based compensation, net of withholding taxes on vested equity awards 112 1 — — 2,191 — — — 2,192

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Issuance of equity for exercise of options 12 — — — 377 — — — 377

Repurchase and retirement of common stock ( 483 ) ( 5 ) — — ( 13,828 ) — — — ( 13,833 )

Cumulative-effect transition adjustment for ASC 842 — — — — — — ( 1,703 ) — ( 1,703 )

Increase in payable pursuant to the tax receivable agreement — — — — ( 1,041 ) — — — ( 1,041 )

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Exchange of LLC Units for Class A Common Stock 100 1 — — 879 ( 879 ) — — 1

Cancellation of Class B Common Stock

Distributions to LLC Unit holders — — — — — ( 1,370 ) — — ( 1,370 )

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Fiscal Year Ended June 30,

2020 2019 2018

Operating activities:

Net income $ 64,656 $ 69,701 $ 30,969

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

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Non-cash compensation to directors 829 791 834

Non-cash litigation payable

Depreciation and amortization

Amortization of deferred financing costs

Depreciation 12,249 10,004 7,656

Amortization 6,131 5,956 5,198

Deferred income taxes 8,715 6,794 45,793

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Trade receivables 14,193 ( 3,041 ) ( 12,181 )

Inventories ( 5,263 ) ( 15,410 ) ( 6,336 )

Prepaid expenses and other assets 551 ( 786 ) ( 447 )

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Payment pursuant to tax receivable agreement ( 3,458 ) ( 3,865 ) ( 4,293 )

Litigation settlement

Net cash provided by operating activities 94,141 81,500 58,455

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Payment of costs directly associated with offerings — — ( 650 )

Repurchase and retirement of Class A Common Stock ( 13,833 ) — —

Cash paid for tax withholdings ( 831 ) ( 1,219 ) ( 691 )

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Cash paid for income taxes 10,529 14,173 9,887

Non-cash investing and financing activities:

Non-cash operating, investing and financing activities:

Establishment of deferred tax assets from step-up in tax basis 1,364 3,275 3,004

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On October 15, 2018, the Company's subsidiary Malibu Boats, LLC, purchased the assets of Pursuit Boats ("Pursuit") from S2 Yachts, Inc., expanding the Company's product offering into the fiberglass outboard fishing boat market.

As a result of the acquisition, the Company consolidates the financial results of Pursuit.

Refer to Note 4.

The Company reports its results of operations under four reportable segments:

Malibu U.S., Malibu Australia, Cobalt, and Pursuit based on their boat manufacturing operations.

The Company reports its results of operations under three reportable segments:

Malibu, Cobalt, and Pursuit based on their boat manufacturing operations.

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S.

generally accepting accounting principles ("GAAP").

generally accepted accounting principles ("GAAP").

Certain reclassifications have been made to the prior period presentation to conform to the current period presentation.

Units and shares are presented as whole numbers while all dollar amounts are presented in thousands, unless otherwise noted.

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All intercompany balances and transactions have been eliminated upon consolidation.

Segment Reporting

The Company has three reportable segments, Malibu, Cobalt and Pursuit.

The Malibu segment participates in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sports boats throughout the world.

The Cobalt and Pursuit segments participate in the manufacturing, distribution, marketing and sale of Cobalt and Pursuit boats, respectively, throughout the world.

The Company revised its segment reporting effective July 1, 2019 to conform to changes in its internal management reporting based on the Company’s boat manufacturing operations.

Prior to this change in reporting segments, the Company had four reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit.

The Company now aggregates Malibu U.S.

and Malibu Australia into one reportable segment as they have similar economic characteristics and qualitative factors.

All segment information in the accompanying consolidated financial statements has been revised to conform to the Company’s current reporting segments for comparison purposes.

Additional segment information is contained in Note 20.

Use of Estimates

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For dealers that use local floor plan financing programs or pay cash, the Company may extend credit without collateral under the dealer agreement based on the Company’s evaluation of the dealer’s credit risk and past payment history.

maintains allowances for potential credit losses that it believes are adequate.

The Company maintains allowances for potential credit losses that it believes are adequate.

See Trade Accounts Receivable section within this footnote for more information.

The Company’s top ten dealers represented 37.5% , 30.4% and 40.6% , of the Company’s volume for the fiscal years ended June 30, 2019 , 2018 and 2017 , respectively.

The Company’s top ten dealers represented 38.5 %, 39.6 % and 37.8 %, of the Company’s net sales for the fiscal years ended June 30, 2020, 2019 and 2018, respectively.

Sales to our dealers under common control of OneWater Marine, Inc.

represented approximately 15.2 %, 15.1 % and 10.7 % of consolidated net sales in the fiscal years ended June 30, 2020 , 2019 , and 2018 respectively.

The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.

Cash equivalents are stated at cost, which approximates fair value.

As of June 30, 2019 and 2018 , no highly liquid investments were held and the entire balance consists of traditional cash.

As of June 30, 2020 and 2019, no highly liquid investments were held and the entire balance consists of cash.

At June 30, 2020 and 2019, substantially all cash on hand was held by two financial institutions.

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Capitalized offering costs are costs directly attributable to the Company's shelf registration statement and equity offerings.

As of June 30, 2019 and 2018 , $140 and $80 of costs directly attributable to the Company's shelf registration statement and equity offerings were capitalized as prepaid assets.

As of June 30, 2020 and 2019, $ 140 of costs directly attributable to the Company's shelf registration statement and equity offerings were capitalized as prepaid assets.

Upon closing of the offerings, these costs are netted against the proceeds and, as such, are reclassified into additional paid in capital.

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If the fair value of an individual reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired.

If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then management determines the implied fair value of the reporting unit’s goodwill.

If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit,

then management determines the implied fair value of the reporting unit’s goodwill.

If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.

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The useful life of reacquired franchise rights is based on the remainder of the contractual term of the Licensee's exclusive manufacturing and distributors agreement with the Company.

The estimated useful lives of the Company’s trade

names are based on a number of factors including technological obsolescence and the competitive environment.

The estimated useful lives of the Company’s trade names are based on a number of factors including technological obsolescence and the competitive environment.

The estimated useful lives of legal and contractual rights are estimated based on the benefits that the patent provides for its remaining terms unless competitive, technological obsolescence or other factors indicate a shorter life.

The useful life of the non-compete agreement is based on a ten-year agreement entered into by the Company and former owner of the Licensee as part of the acquisition.

In addition we have indefinite lived intangible assets for acquired trade names.

Management, assisted by third-party valuation specialists, determined the estimated fair values of separately identifiable intangible assets at the date of acquisition under the income approach.

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If the asset is considered to be impaired, the carrying value is compared to the fair value and this difference is recognized as an impairment loss.

Intangible assets not subject to amortization are assessed for impairment at least annually and whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired.

The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount.

An impairment loss is recognized for the amount by which the carrying value exceeds the fair value of the asset.

There was no impairment loss recognized on intangible assets for the fiscal years ended June 30, 2020, 2019 and 2018.

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Fiscal Year Ended June 30,

2020 2019 2018

Balance at beginning of year $ 6,376 $ 5,559 $ 3,178

Dealer rebate expense

Dealer rebate incentive 19,555 20,712 15,713

Additions for Pursuit acquisition — 205 —

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Fiscal Year Ended June 30,

2020 2019 2018

Balance at beginning of year $ 681 $ 211 $ 117

Flooring expense

Flooring incentive 9,492 8,526 5,813

Additions for Cobalt acquisition — — 132

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These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

In connection with the Company's IPO and the recapitalization the Company completed in connection with its IPO, the Company entered into a tax receivable agreement with the pre-IPO owners of the LLC that provides for the payment by the Company to the pre-IPO owners (or any permitted assignees) of 85% of the amount of the benefits, if any, that the Company deems to realize as a result of (i) increases in tax basis and (ii) certain other tax benefits, including those attributable to payments, under the tax receivable agreement.

In connection with the recapitalization the Company completed in connection with its IPO, the Company entered into a tax receivable agreement with the pre-IPO owners of the LLC that provides for the payment by the Company to the pre-IPO owners (or any permitted assignees) of 85 % of the amount of the benefits, if any, that the Company deems to realize as a result of (i) increases in tax basis and (ii) certain other tax benefits, including those attributable to payments, under the tax receivable agreement.

These contractual payment obligations are the Company's obligations and are not obligations of the LLC, and are accounted for in accordance with ASC 450, Contingencies , since the obligations were deemed to be probable and reasonably estimable.

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this occurs when control of promised goods (boats, parts, or other) is transferred to the customer, which is upon shipment.

Revenue is measured as the amount of consideration expected to be entitled in exchange for transferring goods or providing services.

The Company generally manufactures products based on specific order from dealers and often ships completed products only after receiving credit approval from financial institutions.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

The Company generally manufactures products based on specific orders from dealers and often ships completed products only after receiving credit approval from financial institutions.

The amount of consideration the Company receives and revenue it recognizes varies with changes in marketing incentives and rebates it offers to its dealers and their customers.

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Refer to Note 9 and Note 18 related to the Company’s product warranty and repurchase commitment obligations, respectively.

Revenue associated with sales of materials, parts, boats or engine products sold under the Company’s exclusive manufacturing and distribution agreement with its acquired Australian subsidiary are eliminated in consolidation.

Revenue associated with sales of materials, parts, boats or engine products sold under the Company’s exclusive manufacturing and distribution agreement with its Australian subsidiary are eliminated in consolidation.

The Company earns royalties on boats shipped with the Company's proprietary wake surfing technology under licensing agreements with various marine manufacturers.

Royalty income is recognized when products are used or sold with our patented technology by these other boat manufacturers and industry suppliers.

Royalty income is recognized when products are used or sold with our patented technology by other boat manufacturers and industry suppliers.

The usage of our technology satisfies the performance obligation in the contract.

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Stock options granted to executives on June 29, 2017, November 6, 2017, August 22, 2018 and January 14, 2019 were valued using the Black-Scholes option pricing model.

Stock awards granted on November 22, 2019 based on total shareholder return were valued using a Monte Carlo simulation.

The fair value of restricted stock unit awards granted under the Company's Long Term Incentive Plan ("Incentive Plan") are measured based on the market price of the Company’s stock on the grant date.

See Note 16 for more information.

Segment Reporting

The Company reports its results of operations under four reportable segments:

Malibu U.S., Malibu Australia, Cobalt, and Pursuit, based on its boat manufacturing operations.

The Malibu U.S.

and Malibu Australia segments participate in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sport boats.

The Malibu U.S.

segment primarily serves markets in North America, South America, Europe, and Asia while the Malibu Australia operating segment principally serves the Australian and New Zealand markets.

The Company's Cobalt and Pursuit segments participate in the manufacturing, distribution, marketing and sale of Cobalt and Pursuit boats throughout the world, respectively.

See Note 19 for more information.

Foreign Currency Translation

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dollars that result in unrealized gains or losses are referred to as translation adjustments.

Cumulative translation adjustments are reflected as a component of "Accumulated other comprehensive loss," in the stockholders' equity section of the accompanying consolidated balance sheets and periodic changes are included in comprehensive income.

Cumulative translation adjustments are reflected as a

component of "Accumulated other comprehensive loss," in the stockholders' equity section of the accompanying consolidated balance sheets and periodic changes are included in comprehensive income.

Comprehensive Income

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The Company has chosen to disclose comprehensive income in a single continuous statement of operations and comprehensive income.

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States.

The COVID-19 pandemic has impacted the Company’s operations and financial results.

Due to the impact of the COVID-19 pandemic, the Company elected to suspend operations at all of its facilities on March 24, 2020, which impacted the second half of fiscal year 2020.

The shut-down continued into the fourth quarter with operations resuming between late April and early May, depending on the facility.

Due to the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, the Company cannot reasonably estimate the length or severity of the pandemic or its impact on the Company’s liquidity, results of operations, and financial condition, which could have a material adverse effect.

Recent Accounting Pronouncements

On July 1, 2018, the Company adopted the new accounting standard, ASC Topic 606, Revenue from Contracts with Customers, and all the related amendments (“ASC 606”) and applied the provisions of the standard to all contracts using the

modified retrospective method.

On July 1, 2018, the Company adopted the new accounting standard, ASC Topic 606, Revenue from Contracts with Customers , and all the related amendments (“ASC 606”) and applied the provisions of the standard to all contracts using the modified retrospective method.

The cumulative effect of adopting the new revenue standard was immaterial and no adjustment has been recorded to the opening balance of retained earnings.

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New controls and processes designed to meet the requirements of the standard were implemented, and the required new disclosures are presented in Note 2.

The adoption of ASC Topic 606 did not have a material impact on the amounts reported in the Company's unaudited condensed consolidated financial position, results of operations or cash flows.

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016‑-02, Leases (Topic 842).

The amendments in this update create Topic 842, Leases , and supersede the requirements in Topic 840, Leases .

Topic 842 sets out the principles for recognition, measurement, presentation, and disclosure of leases for both parties to a lease agreement (i.e., lessees and lessors) and supersedes the previous leases standard, Leases (Topic 840).

Topic 842 requires lessees to recognize on the balance sheet a right‑of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months.

The guidance also requires certain qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.

The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply.

In June 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements, which provides entities with an additional (optional) transition method to adopt the new lease standard.

Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The new leases standard is effective for fiscal years beginning after December 15, 2018.

Early application is permitted.

The Company plans to adopt the standard as of July 1, 2019 using the alternative transition method provided under Topic 842, which allows the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carry forward the historical lease classification.

The Company will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet.

The Company will also elect the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.

Accordingly, all costs associated with a lease contract are accounted for as lease cost.

The Company estimates that the adoption of Topic 842 will result in the recognition of additional net lease assets and lease liabilities of approximately $15,000 to $20,000 , as of July 1, 2019.

The Company does not believe the adoption of Topic 842 will have a material impact on the Company’s consolidated results of operations, equity or cash flows as of the adoption date.

Under the alternative method of adoption, comparative information will not be restated, but will continue to be reported under the standards in effect for those periods.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments .

This guidance provides specific classification of how certain cash receipts and cash payments are presented in the statement of cash flows.

The ASU was applied using a retrospective transition method.

The adoption of this ASU on July 1, 2018 did not have a material impact on the Company's consolidated financial statements.

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 will be applied on a prospective basis for transactions that occur after the effective date.

The adoption of this ASU on July 1, 2018 did not have a material impact on the Company's consolidated financial statements.

The adoption of ASC Topic 606 did not have a material impact on the amounts reported in the Company's consolidated financial position, results of operations or cash flows.

On July 1, 2019, the Company adopted the new accounting standard, ASC Topic 842, Leases , which superseded the requirements in ASC Topic 840, Leases .

ASC Topic 842 requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months.

The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company applied the modified retrospective transition method which allowed for the election of the application of practical expedients, which among other things, allowed the Company to carry forward the historical lease classification.

Under this new transition method, at the adoption date the Company recognized a cumulative-effect adjustment to the opening balance of retained earnings.

The adoption of ASC Topic 842 did not have a material impact on the Company’s consolidated results of operations, equity or cash flows as of the adoption date.

Under the optional transition approach, comparative information was not restated, but will continue to be reported under the standards in effect for those periods.

See Note 11 for further information regarding the Company’s leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and in November 2018 issued a subsequent amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that have the contractual right to receive cash.

ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019, and is effective for the Company’s fiscal year beginning July 1, 2020.

The adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

There are no other new accounting pronouncements that are expected to have a significant impact on the Company's consolidated financial statements and related disclosures.

Revenue Recognition

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Fiscal Year Ended June 30, 2020

Malibu Australia

Malibu Cobalt Pursuit Consolidated

Revenue by product:

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Total revenue $ 354,769 $ 174,768 $ 123,626 $ 653,163

Fiscal Year Ended June 30, 2019

Malibu Cobalt Pursuit Consolidated

Revenue by product:

Boat and trailer sales $ 362,200 $ 203,825 $ 102,070 $ 668,095

Part and other sales 12,411 2,773 737 15,921

Total revenue $ 374,611 $ 206,598 $ 102,807 $ 684,016

Revenue by geography:

North America $ 341,190 $ 196,734 $ 93,003 $ 630,927

International 33,421 9,864 9,804 53,089

Total revenue $ 374,611 $ 206,598 $ 102,807 $ 684,016

Boat and Trailer Sales

Consists of sales of boats and trailers to the Company's dealer network, net of sales returns, discounts, rebates and free flooring incentives.

Boat and trailer sales also includes optional boat features.

Sales returns consist of boats returned by dealers under our warranty program and boats repurchased under the Company's floorplan financing program due to the default of one of its dealers.

Sales returns consist of boats returned by dealers under our warranty program.

Rebates, free flooring and discounts are incentives that the Company provides to its dealers based on sales of eligible products.

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The ownership of Malibu Boats Holdings, LLC is summarized as follows:

As of June 30, 2019

As of June 30, 2018

As of June 30, 2020 As of June 30, 2019

Units Ownership % Units Ownership %

Non-controlling LLC unit holders ownership in Malibu Boats Holdings, LLC 730,652 3.4 % 830,152 3.8 %

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ownership in Malibu Boats Holdings, LLC 20,595,969 96.6 % 20,852,640 96.2 %

21,326,621 100.0 % 21,682,792 100.0 %

Balance of non-controlling interest as of June 30, 2018 $ 5,502

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Issuance of Additional LLC Units

Under the limited liability company agreement of the LLC (the "LLC Agreement'), the Company is required to cause the LLC to issue additional LLC Units to the Company when the Company issues additional shares of Class A Common Stock.

Under the first amended and restated limited liability company agreement of the LLC, as amended (the "LLC Agreement'), the Company is required to cause the LLC to issue additional LLC Units to the Company when the Company issues additional shares of Class A Common Stock.

Other than in connection with the issuance of Class A Common Stock in connection with an equity incentive program, the Company must contribute to the LLC net proceeds and property, if any, received by the Company with respect to the issuance of such additional shares of Class A Common Stock.

The Company must cause the LLC to issue a number of LLC Units equal to the number of shares of Class A Common Stock issued such that, at all times, the number of LLC Units held by the Company equals the number of outstanding shares of Class A Common Stock.

During the fiscal year ended June 30, 2019 , the LLC issued a total of 322,181 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for his services, (ii) the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc.

Long-Term Incentive Plan (the "Incentive Plan"), (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan, (iv) the issuance of Class A Common Stock to LLC Unit holders for exchange of their LLC Units and (v) the issuance of Class A Common Stock for the exercise of options granted under the Incentive Plan.

During the fiscal year ended June 30, 2020, the Company caused the LLC to issue a total of 242,741 LLC Units to the Company in connection with (i) the Company's issuance of Class A Common Stock to a non-employee director for her services, (ii) the issuance of Class A Common Stock for the vesting of awards granted under the Malibu Boats, Inc.

Long-Term Incentive Plan (the "Incentive Plan"), (iii) the issuance of restricted Class A Common Stock granted under the Incentive Plan, (iv) the issuance of Class A Common Stock to LLC Unit holders in exchange of their LLC Units and (v) the issuance of Class A Common Stock for the exercise of options granted under the Incentive Plan.

During fiscal year 2020, 15,733 LLC Units were canceled in connection with the vesting of share-based equity awards to satisfy employee tax withholding requirements and the retirement of 15,733 treasury shares in accordance with the LLC Agreement.

During the fiscal year ended June 30, 2020, 483,679 LLC Units were redeemed and canceled by the LLC in connection with the purchase and retirement of 483,679 treasury shares under the Company's stock repurchase program.

Distributions and Other Payments to Non-controlling Unit Holders

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

Inventories $ 8,332

Other current assets 350

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Fair value of assets acquired and liabilities assumed 80,548

Goodwill 19,525

Total purchase price $ 100,073

The 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)

Estimates of Fair Value Estimated Useful Life (in years)

Definite-lived intangibles:

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Indefinite-lived intangible:

Trade name 32,500

Total other intangible assets $ 57,900

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The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax purposes.

Acquisition-related costs of $2,848 and $329 , which were incurred by the Company in the fiscal year ended June 30, 2019 and 2018 , respectively, related to the Pursuit acquisition, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income.

Acquisition-related costs of $ 2,848 and $ 329 incurred by the Company for fiscal years ended June 30, 2019 and 2018, respectively, related to the Pursuit acquisition, were expensed in the period incurred, and are included in general and administrative expenses in the consolidated statement of operations and comprehensive income.

Pro Forma Financial Information (unaudited):

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Fiscal Year Ended June 30,

2020 2019 2018

Net sales $ 653,163 $ 725,658 $ 620,908

Net income 64,656 73,672 33,618

Net income attributable to Malibu Boats, Inc.

61,562 69,830 29,871

Basic earnings per share $ 2.98 $ 3.35 $ 1.48

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Trade receivables 2,329

Inventories 14,343

Other current assets 363

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Fair value of assets acquired and liabilities assumed 110,734

Goodwill 19,791

Total purchase price $ 130,525

The 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)

Estimates of Fair Value Estimated Useful Life (in years)

Definite-lived intangibles

Dealer relationships $ 56,300 20

Patent 2,600 15

Total definite-lived intangibles 58,900

Indefinite-lived intangible:

Trade name 31,000

Total other intangible assets $ 89,900

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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:

Fiscal Year Ended June 30,

2020 2019 2018

Net sales $ 653,163 $ 684,016 $ 497,002

Net income 64,656 69,701 30,696

Net income attributable to Malibu Boats, Inc.

61,562 66,066 27,361

Basic earnings per share $ 2.98 $ 3.17 $ 1.36

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Depreciation on leasehold improvements is computed using the straight-line method based on the lesser of the remaining lease term or the estimated useful life and depreciation of equipment is computed using the straight-line method over the estimated useful life as follows:

Leasehold improvements

Shorter of useful life or lease term

Leasehold improvements Shorter of useful life or lease term

Machinery and equipment 3 - 5

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In accordance with ASC Topic 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable.

The Company periodically reviews for indicators and, if indicators are present, tests the carrying value of long-lived assets, assessing their net realizable values based on estimated undiscounted cash flows over their remaining estimated useful lives.

The Company periodically reviews for indicators and, if indicators are present, tests the carrying value of long-lived assets, assessing their net realizable values based

on estimated undiscounted cash flows over their remaining estimated useful lives.

If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on discounted cash flows.

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As of June 30,

Land $ 2,540 $ 2,194

Building and leasehold improvements 54,318 28,957

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Construction in process 10,470 9,764

130,190 94,267

Less accumulated depreciation ( 35,880 ) ( 28,511 )

During the first quarter of fiscal 2019 and the first quarter of fiscal 2018, the Company disposed of various molds for models not currently in production with zero net book value and historical costs of $3,285 and a $2,122 , respectively.

$ 94,310 $ 65,756

Depreciation expense was $ 12,249 , $ 10,004 and $ 7,656 for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, substantially all of which was recorded in cost of sales.

During fiscal year 2020 the Company disposed of various assets with a net book value of $ 958 and recorded a loss of $ 61 related to these disposals.

During fiscal year 2019, the Company disposed of various molds for models not currently in production with zero net book value.

Sale-Leaseback Transaction

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Simultaneous with the sale, the Company entered into an agreement to lease back the buildings for an initial term of 20 years.

The net gain on this transaction of $203 has been deferred and is being amortized over the initial lease term.

The net gain on this transaction of $ 203 had been deferred and is being amortized over the initial lease term.

On July 1, 2019, as part of lease implementation under Topic 842 the Company recognized the unamortized portion of the gain on the sale leaseback of $ 89 .

For the fiscal years ended June 30, 2019 and 2018, the realized gain recognized was $ 10 and $ 10 respectively.

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Goodwill as of June 30, 2018 $ 32,230

Addition related to the acquisition of Cobalt

Addition related to the acquisition of Pursuit

Effect of foreign currency changes on goodwill

Goodwill as of June 30, 2019 51,404

Addition related to the acquisition of Pursuit

Effect of foreign currency changes on goodwill

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The components of other intangible assets were as follows:

As of June 30,

Estimated Useful Life (in years)

Weighted Average Remaining Useful Life (in years)

As of June 30, Estimated Useful Life (in years) Weighted Average Remaining Useful Life (in years)

Reacquired franchise rights $ — $ 1,264 5 0.0

Dealer relationships 111,293 111,339 8 - 20

Patent 3,986 3,986 12 - 15

Trade name 24,667 24,667 15 1.4

Non-compete agreement 48 49 10 4.3

Total 139,994 141,305

Accumulated amortization ( 63,602 ) ( 58,744 )

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Indefinite-lived intangible:

Trade names 63,500 63,500

Total other intangible assets $ 139,892 $ 146,061

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Estimated future amortization expenses as of June 30, 2020 are as follows:

As of June 30, 2019

Fiscal Year As of June 30, 2020

Thereafter 52,538

Accrued Expenses

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As of June 30,

Warranties $ 27,500 $ 23,820

Dealer incentives 7,777 7,394

Accrued compensation 9,885 13,122

Current operating lease liabilities 2,006 —

Accrued legal and professional fees 1,055 740

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Product Warranties

Malibu and Axis brands have a limited warranty for a period up to five years.

Prior to fiscal year 2016, the Company provided a limited warranty for a period of up to three years for our Malibu brand boats and two years for our Axis boats.

For our Cobalt brand boats, the Company provides a structural warranty of up to ten years which covers hull/deck joints, bulkheads, floor, transom, stringers, and motor mount.

In addition, the Company provides a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery.

The Company's Malibu and Axis brand boats have a limited warranty for a period up to five years .

The Company's Cobalt brand boats have (1) a structural warranty of up to ten years which covers the hull, deck joints, bulkheads, floor, transom, stringers, and motor mount, and (2) a five year bow-to-stern warranty on all components manufactured or purchased (excluding hull and deck structural components), including canvas and upholstery.

Gelcoat is covered up to three years for Cobalt and one year for Malibu and Axis.

For Pursuit boats, the Company provides a limited warranty for a period of up to five years on structural components such as the hull, deck and defects in the gelcoat surface of the hull bottom.

Some materials, components or parts of the boat that are not covered by the Company's limited product warranties are separately warranted by their manufacturers or suppliers.

These other warranties include warranties covering engines purchased from suppliers and other components.

The Company provides a limited warranty of up to five years or five-hundred hours on engines that it manufactures for Malibu and Axis models.

The Company’s standard warranties require the Company or its dealers to repair or replace defective products during such warranty period at no cost to the consumer.

The Company estimates the costs that may be incurred under its limited warranty and records a liability for such costs at the time the product revenue is recognized.

Pursuit brand boats have (1) a limited warranty for a period of up to five years on structural

components such as the hull, deck and defects in the gelcoat surface of the hull bottom and (2) a bow-to-stern warranty of two years (excluding hull and deck structural components).

For each boat brand, there are certain materials, components or parts of the boat that are not covered by our warranty and certain components or parts that are separately warranted by the manufacturer or supplier (such as the engine).

Engines that we manufacture for Malibu and Axis models have a limited warranty of up to five years or five-hundred hours.

The Company’s standard warranties require it or its dealers to repair or replace defective products during the warranty period at no cost to the consumer.

The Copmany estimates warranty costs it expects to incur and record a liability for such costs at the time the product revenue is recognized.

The Company utilizes historical claims trends and analytical tools to develop the estimate of its warranty obligation on a per boat basis, by brand and warranty year.

Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim.

The Company assesses the adequacy of its recorded warranty liabilities by brand on a quarterly basis and adjusts the amounts as necessary.

The Company utilizes historical claims trends and analytical tools to assist in determining the appropriate warranty liability.

Changes in the Company’s product warranty liability were as follows:

The Company assesses the adequacy of its recorded warranty liabilities and adjust the amounts as necessary.

Beginning in model year 2016, the Company increased the term of its limited warranty for Malibu brand boats from three years to five years and for Axis brand boats from two years to five years .

Beginning in model year 2018, the Company increased the term of its bow-to-stern warranty for Cobalt brand boats from three years to five years .

As a result of these changes, all of the Company’s Malibu, Axis and Cobalt brand boats with historical claims experience that are no longer covered under warranty had warranty terms shorter than the current warranty term of five years .

Accordingly, the Company has little to no historical claims experience for warranty years four and five, and as such, these estimates give rise to a higher level of estimation uncertainty.

Future warranty claims may differ from our estimate of the warranty liability, which could lead to changes in the Company’s warranty liability in future periods.

Changes in the Company’s product warranty liability, which are included in accrued expenses in the accompanying consolidated balance sheet, were as follows:

Fiscal Year Ended June 30,

2020 2019 2018

Beginning balance $ 23,820 $ 17,217 $ 10,050

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As of June 30,

Term loan $ 75,000 $ 75,000

Revolving credit loan 8,800 40,000

Less unamortized debt issuance costs ( 961 ) ( 1,367 )

Total debt 82,839 113,633

Less current maturities — —

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As of June 30, 2020, the Company had $ 8,800 outstanding under its revolving credit facility and $ 1,185 in outstanding letters of credit.

On March 19, 2020, the Company elected to draw the then remaining available funds of $ 98,800 from the revolving credit facility.

In June 2020, the Company repaid $ 110,000 on the revolving credit facility.

The revolving credit facility matures on July 1, 2024 and the term loan matures on July 1, 2022.

The revolving credit facility and term loan are governed by a credit agreement (the “Credit Agreement”) with Malibu Boats, LLC (“Boats LLC”) as the borrower and SunTrust Bank, as the administrative agent, swingline lender and issuing bank.

The obligations of Boats LLC under the Credit Agreement are guaranteed by the LLC, and, subject to certain exceptions, the present and future domestic subsidiaries of Boats LLC, and all such obligations are secured by substantially all of the assets of the the LLC, Boats LLC and such subsidiary guarantors.

The revolving credit facility and term loan are governed by a credit agreement (the “Credit Agreement”) with Malibu Boats, LLC (“Boats LLC”) as the borrower and Truist Financial Corp.

(previously known as SunTrust Bank), as the administrative agent, swingline lender and issuing bank.

Malibu Boats, Inc.

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The applicable margin will be based upon the consolidated leverage ratio of the LLC and its subsidiaries calculated on a consolidated basis.

As of June 30, 2019, the interest rate on the Company’s term loan and revolving credit facility was 3.65% .

The Company is required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.20% to 0.40% per annum, depending on the LLC’s and its subsidiaries’ consolidated leverage ratio.

As of June 30, 2020, the interest rate on the Company’s term loan and revolving credit facility wa s 1.66 %.

The Company is required to pay a commitment fee for any unused portion of the revolving credit facility which will range from 0.20 % to 0.40 % per annum, depending on the LLC’s and its subsidiaries’ consolidated leverage ratio.

The Credit Agreement permits prepayment of the term loan without any penalties.

On August 17, 2017 the Company made

a voluntary principal payment on the term loan in the amount of $50,000 with a portion of the net proceeds from its equity offering completed on August 14, 2017.

On August 17, 2017 the Company made a voluntary principal payment on the term loan in the amount of $ 50,000 with a portion of the net proceeds from its equity offering completed on August 14, 2017.

The Company exercised its option to apply the prepayment in forward order to principal installments on its term loan through December 31, 2021 and a portion of the principal installments due on March 31, 2022.

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In addition, the LLC may make dividends and distributions of up to $ 10,000 in any fiscal year, subject to compliance with other financial covenants.

In connection with entering into the Credit Agreement, the Company capitalized $2,074 in deferred financing costs in fiscal year 2017.

These costs, in addition to the unamortized balance for lenders in the syndicate who experienced an insubstantial modification of $671 , are being amortized over the term of the Credit Agreement into interest expense using the effective interest method and presented as a direct offset to the total debt outstanding on the consolidated balance sheet.

The Company used proceeds from an offering on August 24, 2017 to repay $50,000 on its term loan under the Credit Agreement (refer to Note 14) and exercised its option to apply the prepayment to principal installments through December 31, 2021, and a portion of principal installments due on March 31, 2022.

Accordingly, no principal payments are required under the Credit Agreement until March 31, 2022, and as such, all borrowings as of March 31, 2018 and June 30, 2017, are reflected as noncurrent.

In connection with entering into the Credit Agreement, the Company capitalized $ 2,074 in deferred financing costs during fiscal 2017.

These costs, in addition to the unamortized balance related to costs associated with the Company's previous credit facility of $ 671 , are being amortized over the term of the Credit Agreement into interest expense using the effective interest method and presented as a direct offset to the total debt outstanding on the consolidated balance sheet.

As described above, the Company used proceeds from an offering on August 24, 2017 to repay $ 50,000 on its term loan under the Credit Agreement and exercised its option to apply the prepayment to principal installments through December 31, 2021, and a portion of principal installments due on March 31, 2022.

Accordingly, no principal payments are required under the Credit Agreement until March 31, 2022, and as such, all borrowings as of June 30, 2020 and June 30, 2019, are reflected as noncurrent.

The $ 50,000 repayment resulted in a write off of deferred financing costs of $ 829 in fiscal year 2018, which was included in amortization expense on the consolidated statement of operations and comprehensive income.

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therefore, changes in the fair value of the derivative instrument are being recognized in earnings in the Company's consolidated statements of operations and comprehensive income.

For the fiscal year ended ended June 30, 2019 the Company record a loss of $350 and for the fiscal year ended June 30, 2018 , the Company recorded a gain of $369 , for the change in fair

value of the interest rate swap, which is included in interest expense in the consolidated statements of operations and comprehensive income.

The swap matured on March 31, 2020.

For the fiscal year ended June 30, 2020 and 2019, the Company record a loss of $ 68 and $ 350 , respectively, for the change in fair value of the interest rate swap, which is included in interest expense in the consolidated statements of operations and comprehensive income.

The Company leases certain manufacturing facilities, warehouses, office space, land, and equipment.

The Company determines if a contract is a lease or contains an embedded lease at the inception of the agreement.

The Company recorded right-of-use assets, included in other assets on the balance sheet, totaling $ 16,142 as of July 1, 2019.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.

The Company's lease liabilities do not include future lease payments related to options to extend or terminate lease agreements as it is not reasonably certain those options will be exercised.

Lease expense recorded in the fiscal year ended June 30, 2020 under ASC Topic 842 was not materially different from lease expense that would have been recorded under the previous lease accounting standard.

Other information concerning the Company's operating leases accounted for under ASC Topic 842 is as follows (in thousands):

Classification As of June 30, 2020

Right-of-use assets Other assets $ 14,315

Current operating lease liabilities Accrued expenses $ 2,006

Long-term operating lease liabilities Other liabilities 14,013

Total lease liabilities $ 16,019

Classification Fiscal Year Ended June 30, 2020

Operating lease costs (1)

Cost of sales $ 1,966

Selling, general and administrative 863

Sublease income Other income (expense) 38

Cash paid for amounts included in the measurement of operating lease liabilities Cash flows from operating activities 2,606

(1) Includes short-term leases, which are insignificant, and are not included in the lease liability.

The lease liability for operating leases that contain variable escalating rental payments with scheduled increases that are based on the lesser of a stated percentage increase or the cumulative increase in an index, are determined using the stated percentage increase.

The weighted average remaining lease term is 7.27 years.

The weighted average discount rate determined based on the Company's incremental borrowing rate is 3.65 %, as of June 30, 2020.

Future annual minimum lease payments for the following fiscal years as of June 30, 2020 are as follows:

2026 and thereafter 6,014

Less imputed interest ( 2,254 )

Present value of lease liabilities $ 16,019

The following represents the Company's future minimum rental payments at June 30, 2019 for agreements classified as operating leases under ASC Topic 840:

2025 and thereafter 8,577

Total $ 21,240

Tax Receivable Agreement Liability

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The Company's Tax Receivable Agreement liability was determined on an undiscounted basis in accordance with ASC 450, Contingencies , since the contractual payment obligations were deemed to be probable and reasonably estimable.

For purposes of the Tax Receivable Agreement, the benefit deemed realized by the Company will be computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of the LLC as a result of the purchases or exchanges, and had the Company not entered into the Tax Receivable Agreement.

For purposes of the Tax Receivable Agreement, the benefit deemed realized by the Company is computed by comparing the actual income tax liability of the Company (calculated with certain assumptions) to the amount of such taxes that the Company would have been required to pay had there been no increase to the tax basis of the assets of the LLC as a result of the purchases or exchanges, and had the Company not entered into the Tax Receivable Agreement.

The following table reflects the changes to the Company's Tax Receivable Agreement liability:

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Payment under tax receivable agreement ( 3,458 ) ( 3,865 )

49,665 53,754

Less current portion under tax receivable agreement ( 3,589 ) ( 3,592 )

Ending balance $ 46,076 $ 50,162

The Tax Receivable Agreement further provides that, upon certain mergers, asset sales or other forms of business combinations or other changes of control, the Company (or its successor) would owe to the pre-IPO owners of the LLC a lump-sum payment equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement that would be based on certain assumptions, including a deemed exchange of LLC Units and that the Company would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the Tax Receivable Agreement.

Receivable Agreement that would be based on certain assumptions, including a deemed exchange of LLC Units and that the Company would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the Tax Receivable Agreement.

The Company also is entitled to terminate the Tax Receivable Agreement, which, if terminated, would obligate the Company to make early termination payments to the pre-IPO owners of the LLC.

In addition, a pre-IPO owner may elect to unilaterally terminate the Tax Receivable Agreement with respect to such pre-IPO owner, which would obligate the Company to pay to such existing owner certain payments for tax benefits received through the taxable year of the election.

During the second quarter of fiscal 2018, the U.S.

Congress enacted tax legislation called the Tax Cuts and Jobs Act of 2017 ("the Tax Act") on December 22, 2017, which, among other provisions, lowered the Company's U.S.

corporate tax rate from 35% to 21%, effective January 1, 2018.

The Tax Act lowered the estimated tax rate used to compute the Company's future tax obligations and, in turn, reduced the future tax benefit expected to be realized by the Company related to increased tax basis from previous sales and exchanges of LLC Units by pre-IPO owners of the LLC.

The change in the underlying tax-rate assumptions used to estimate the tax receivable agreement liability, resulted in a decrease in the tax receivable agreement liability of $30,317 during the second quarter of fiscal 2018.

Refer to Note 12 for further information on the Tax Act.

Also, during the first quarter of fiscal 2018, the Company acquired Cobalt, which expanded the Company's footprint into new state tax jurisdictions.

This change in the Company's state tax posture increased the estimated tax rate used in computing the Company's future tax obligations and, in turn, increased the future tax benefit expected to be realized by the Company related to increased tax basis from previous sales and exchanges of LLC Units by pre-IPO owners of the LLC.

The change in the underlying tax-rate assumptions used to estimate the tax receivable agreement liability resulted in an increase in the tax receivable agreement liability of $6,047 during the first quarter of fiscal 2018.

These amounts are included in other income (expense), net in the accompanying condensed consolidated statements of operations and comprehensive (loss) income.

Additionally, during the second quarter of fiscal 2019, the Company analyzed the impact of the Pursuit acquisition on its state

footprint and determined that there was an immaterial change to the estimated tax rate used in computing the Company's future tax obligations.

During the fourth quarter of fiscal year 2017, the state of Tennessee enacted tax legislation that provided for an alternative single sales apportionment formula for manufacturers, such as the LLC, that are engaged in qualifying activities within the state for the purpose of reducing their estimated future tax obligation in Tennessee.

The Company intends to utilize the new apportionment formula, which will lower the estimated tax rate used in computing its future tax obligations and, in turn, reduce the future tax benefit expected to be realized by the Company related to increased tax basis from previous sales and exchanges of LLC Units by pre-IPO owners.

When estimating the expected reduction in taxes paid from the increased tax basis, the Company continuously monitors changes in their overall tax posture, including changes in tax legislation.

The change in the underlying tax-rate assumptions used to estimate the Tax Receivable Agreement liability, resulted in a decrease in the Tax Receivable Agreement liability of $8,140 during the fourth quarter of fiscal year ended June 30, 2017, and is included in other income, net in the accompanying consolidated statements of operations and comprehensive income.

When estimating the expected tax rate to use in order to determine the tax benefit expected to be recognized from the Company’s increased tax basis as a result of exchanges of LLC Units by the pre-IPO owners of the LLC, the Company continuously monitors changes in its overall tax posture, including changes resulting from new legislation and changes as a result of new jurisdictions in which the Company is subject to tax.

As of June 30, 2020 and 2019, the Company recorded deferred tax assets of $ 111,511 and $ 110,545 , respectively, associated with basis differences in assets upon acquiring an interest in Malibu Boats Holdings, LLC and pursuant to making an election under Section 754 of the Internal Revenue Code of 1986 (the "Internal Revenue Code"), as amended.

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corporate tax rate from 35% to 21%, effective January 1, 2018.

The Company's statutory tax rate for fiscal year 2019 is 21% as a result of the change in statutory rates.

For fiscal year 2018, we recorded an increase to income tax expense of $44,500 for the remeasurement of deferred taxes on the enactment date and the deferred tax impact related to the reduction in the tax receivables agreement liability.

The Company's statutory tax rate for each of fiscal years 2020 and 2019 was 21% as a result of the change in statutory rates.

For fiscal year 2018, the Company recorded an increase to income tax expense of $ 44,500 for the remeasurement of deferred taxes on the enactment date and the deferred tax impact related to the reduction in the tax receivables agreement liability.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.

The CARES Act contains significant business tax provisions, including modifications to the rules limiting the deductibility of net operating losses (NOLs), expensing of qualified improvement property (QIP) and business interest in Internal Revenue Code Sections 172(a) and 163(j), respectively.

The effects of the new legislation are recognized upon enactment.

The Company did not recognize any significant impact to income tax expense for fiscal year 2020 relating to the CARES Act.

The components of provision for income taxes are as follows:

Fiscal Year Ended June 30,

2020 2019 2018

Current tax expense:

Federal $ 8,062 $ 11,240 $ 10,111

State 1,979 3,368 1,758

Foreign 378 725 756

Total current 10,419 15,333 12,625

Deferred tax expense:

Federal 7,849 5,336 51,358

State 917 1,609 ( 5,369 )

Foreign ( 109 ) ( 182 ) ( 196 )

Total deferred 8,657 6,763 45,793

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Fiscal Year Ended June 30,

2020 2019 2018

Federal tax provision at statutory rate 21.0 % 21.0 % 28.0 %

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Change in valuation allowance — — ( 0.4 )

Other, net — 0.4 —

Total income tax expense on continuing operations 22.8 % 24.1 % 65.4 %

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Partnership basis differences $ 61,650 $ 69,632

Fixed assets and intangibles

Accrued liabilities and reserves 496 428

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Acquisition costs — 6

Other 275 337

Less valuation allowance ( 14,582 ) ( 14,252 )

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These net operating losses have a 15 year carryover and will expire, if unused, between 2030 and 2035.

Additionally, a valuation allowance was recorded related to a foreign tax credit carryforward that is not expected to be utilized in the future.

This also includes a valuation allowance in the amount of $ 580 related to foreign tax credit carryforward that is not expected to be utilized in the future.

Unrecognized tax benefits are discussed in the Company's accounting policy for income taxes (Refer to Note 1 on Income Taxes for more information).

The Company has filed federal and state income tax returns that remain open to examination for years 2016 through 2018, while its subsidiaries, Malibu Boats Holdings, LLC and Malibu Boats Pty Ltd., remain open to

examination for years 2015 through 2018.

The Company closed the IRS examination of its June 30, 2015 return during the fourth quarter of fiscal 2019, resulting in an immaterial adjustment to its tax liability.

The Company has filed federal and state income tax returns that remain open to examination for fiscal years 2017 through 2019, while its subsidiaries, Malibu Boats Holdings, LLC and Malibu Boats Pty Ltd., remain open to examination for fiscal years 2016 through 2019.

The Company closed the IRS examination of its June 30, 2015 return during the fourth quarter of fiscal year 2019, resulting in an immaterial adjustment to its tax liability.

A reconciliation of changes in the amount of unrecognized tax benefits for the fiscal years ended June 30, 2020, 2019, 2018 is as follows:

Fiscal Year Ended June 30,

2020 2019 2018

Balance as of July 1 $ 1,401 $ 329 $ 113

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Reductions for settlements with taxing authorities ( 93 ) ( 144 ) —

Reductions due to statute settlements ( 64 ) — —

Reductions for tax positions of prior years ( 113 ) — —

Balance as of June 30 $ 1,445 $ 1,401 $ 329

In fiscal year 2019 , the Company settled $ 144 related to the fiscal year 2015 audit in connection with inventory subject to Internal Revenue Code Sec.

Also in fiscal year 2019, the Company recorded $ 922 in connection with its state tax filing positions.

In fiscal year 2020, the Company settled $ 93 related to its state tax filing positions.

Also in fiscal year 2020, the Company reduced its uncertain tax positions $ 92 as a result of a method change filed in connection with inventory subject to Internal Revenue Code Sec.

263A, and recorded $ 203 in connection with its current year state filing positions.

As of June 30, 2020, it is reasonably possible that $ 307 of the total unrecognized tax benefits recorded will reverse within the next twelve months.

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Fair Value Measurements at Reporting Date Using

Quoted Prices

Total Quoted Prices

Identical Assets

(Level 1) Significant

(Level 2) Significant

As of June 30, 2020:

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Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy.

The Company generally uses projected cash flows, discounted as necessary, to estimate the fair values of property, plant and equipment and intangibles using key inputs such as management’s projections of cash flows on a held-and-used basis (if applicable), management’s projections of cash flows upon disposition and discount rates.

The Company generally uses projected cash flows, discounted as necessary, to estimate the fair values of property, plant and equipment and intangibles using key inputs such as management’s

projections of cash flows on a held-and-used basis (if applicable), management’s projections of cash flows upon disposition and discount rates.

Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy.

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Exchange of LLC Units for Class A Common Stock

During fiscal year 2017, four non-controlling LLC Unit holders exchanged LLC Units for the issuance of Class A Common Stock.

In connection with the exchange, one share of Class B Common Stock was automatically transferred to the Company and retired.

As of June 30, 2017 the Company had a total of 19 shares of its Class B Common Stock issued and outstanding.

During fiscal year 2018, eleven non-controlling LLC Unit holders exchanged LLC Units for the issuance of Class A Common Stock.

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As of June 30, 2019, the Company had a total of 15 shares of its Class B Common Stock issued and outstanding.

During fiscal year 2020, four non-controlling LLC Unit holders exchanged LLC Units for the issuance of Class A Common Stock.

In connection with the exchange, no shares of Class B Common Stock were automatically transferred to the Company and retired.

As of June 30, 2020, the Company had a total of 15 shares of its Class B Common Stock issued and outstanding.

Stock Repurchase Program

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The Company has no obligation to repurchase any shares under the Repurchase Program and may suspend or discontinue it at any time.

During the fiscal year ended June 30, 2017, no additional shares were repurchased under the previous program, which expired on February 8, 2017.

As of June 30, 2019 no shares have been repurchased under the existing Repurchase Program.

During the fiscal year ended June 30, 2020, we repurchased 483,679 shares of Class A Common Stock for $ 13.8 million in cash including related fees and expenses.

During the fiscal year ended June 30, 2019, no shares were repurchased under the existing Repurchase Program.

The program expired on July 1, 2020.

On August 27, 2020, our Board of Directors authorized a new stock repurchase program (the "New Repurchase Program") for the repurchase of up to $ 50,000 of Class A Common Stock and the LLC Units for the period from September 2, 2020 to July 1, 2021.

No shares have been repurchased under the New Repurchase Program.

Class A Common Stock and Class B Common Stock

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On July 6, 2017, in connection with the acquisition of Cobalt, the Company issued 39,262 shares of Class A Common Stock to the William Paxson St.

Clair, Jr., a former owner of Cobalt, now director to the Company's Board of Directors and President of Cobalt, as equity consideration.

Clair, Jr., a former owner of Cobalt, as equity consideration.

Refer to Note 4 for more information on the acquisition.

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The Company's board of directors may also designate the rights, preferences and privileges of the holders of each such series of preferred stock, any or all of which may be greater than or senior to those granted to the holders of common stock.

Though the actual effect of any such issuance on the rights of the holders of common stock will not be known until the Company's board of directors determines the specific rights of the holders of preferred stock, the potential effects of such an issuance include:

Though the actual effect of any such issuance on the rights of the holders of common stock will not be known until the

Company's board of directors determines the specific rights of the holders of preferred stock, the potential effects of such an issuance include:

• diluting the voting power of the holders of common stock;

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Incentive stock awards authorized under the Incentive Plan including unrestricted shares of Class A Common Stock, stock options, SARs, restricted stock, restricted stock units, dividend equivalent awards and performance awards.

As of June 30, 2019 , there were 854,287 shares available for future issuance under Incentive Plan.

On November 4, 2016, the Company granted 130,500 restricted stock units and restricted stock awards to certain key employees.

The grant date fair value of these awards was $2,039 based on a stock price of $ 15.62 per share on the date of grant.

Under the terms of the agreements, approximately 63% of the awards vest in substantially equal annual installments over a four year period, and the remaining 37% of the awards vest in tranches based on the achievement of annual performance targets.

Compensation costs associated with performance based awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation .

On June 29, 2017, the Company granted 104,000 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $25.85 per share.

The term of the options commence on June 29, 2017 and will expire on June 28, 2023, the day before the sixth anniversary of the grant date.

Under the terms of the agreements, the awards will vest 25% ratably on each anniversary of their grant date.

At June 30, 2017, the fair value of the option awards was $866 and is estimated using the Black-Scholes option-pricing model with the following assumptions:

risk-free rate of 2.1% , expected volatility of 36.1% , expected term of 4.25 years, and no dividends.

Stock-based compensation expense attributable to these options is amortized on a straight-line basis over the requisite service period.

As of June 30, 2020, there were 713,346 shares available for future issuance under the Incentive Plan.

On November 6, 2017, the Company granted 78,900 restricted stock units and restricted stock awards to certain key employees.

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risk-free rate of 2.0 %, expected volatility of 37.1 %, expected term of 4.25 years, and no dividends.

Stock-based compensation expense attributable to the time based options is amortized on a straight-line basis over the requisite service period.

Stock-based compensation expense attributable to the time based options is amortized on a straight-line basis over the requisite

service period.

Compensation costs associated with performance based option awards are recognized over the requisite service period based on probability of achievement.

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Expected volatility.

The Company determined expected volatility based on its historical volatility calculated using daily observations of the closing price of its publicaly traded common stock.

The Company determined expected volatility based on its historical volatility calculated using daily observations of the closing price of its publicly traded common stock.

Expected dividend.

The Company has not estimated any dividend yield as the Company currently does not pay a dividend and does not anticipate paying a dividend over the expected term.

On November 22, 2019, under the Incentive Plan, the Company granted approximately 43,000 restricted service-based stock units and 28,000 restricted service based stock awards to key employees under the Incentive Plan.

The grant date fair value of these awards was $ 2,714 based on a stock price of $ 38.05 per share on the date of grant.

Under the terms of the agreements, approximately 60 % of the awards will vest ratably over three years beginning on November 6, 2019 and approximately 40 % of the awards will vest ratably over four years beginning on November 6, 2019.

Stock-based compensation expense attributable to the service based units and awards is amortized on a straight-line basis over the requisite service period.

On November 22, 2019, under the Incentive Plan, the Company granted to key employees a target amount of approximately 21,000 restricted stock awards with a performance condition.

The number of shares that will ultimately be issued, if any, is based on the attainment of a specified amount of earnings during the fiscal year ending June 30, 2022.

The maximum number of shares that can be issued if an elevated earnings target is met is approximately 32,000 .

The grant date fair value of the awards were estimated to be $ 810 , based on a stock price of $ 38.05 .

Compensation costs associated with the performance awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation .

On November 22, 2019, under the Incentive Plan, the Company granted to key employees a target amount of approximately 21,000 stock awards with a market condition.

The number of shares that will ultimately be issued, if any, is

based on a total shareholder return ("TSR") computation that involves comparing the movement in the Company's stock price to movement in a market index from the grant date through November 22, 2022.

The maximum number of shares that can be issued if an elevated TSR target is met is approximately 42,000 .

The grant date fair value of the awards were estimated to be $ 1,039 , which is estimated using a Monte Carlo simulation.

The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair market value for the stock award.

Compensation costs are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation .

The following table presents the number, grant date stock price per share, and weighted-average exercise price per share of the Company’s employee option awards:

Fiscal Year Ended June 30,

Weighted Average Exercise Price/Share

2020 2019 2018

Shares Weighted Average Exercise Price/Share Shares Weighted Average Exercise Price/Share Shares Weighted Average Exercise Price/Share

Total outstanding Options at beginning of year 185,473 $ 32.51 144,000 $ 27.24 104,000 $ 25.85

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Equity awards issued to directors are fully vested at the date of grant.

Directors receiving restricted stock units as compensation for services have no rights as a stockholder of the Company, no dividend rights (except with respect to dividend

equivalent rights), and no voting rights until Class A Common Stock is actually issued to them upon separation from service or change in control as defined in the Incentive Plan.

Directors receiving restricted stock units as compensation for services have no rights as a stockholder of the Company, no dividend rights (except with respect to dividend equivalent rights), and no voting rights until Class A Common Stock is actually issued to them upon separation from service or change in control as defined in the Incentive Plan.

If dividends are paid by the Company to its stockholders, directors would be entitled to receive an equal number of restricted stock units based on their proportional interest.

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Fiscal Year Ended June 30,

Number of Restricted Stock Units and Restricted Stock Awards Outstanding

Weighted Average Grant Date Fair Value

Number of Restricted Stock Units and Restricted Stock Awards Outstanding

Weighted Average Grant Date Fair Value

Number of Restricted Stock Units and Restricted Stock Awards Outstanding

Weighted Average Grant Date Fair Value

2020 2019 2018

Number of Restricted Stock Units and Restricted Stock Awards Outstanding Weighted Average Grant Date Fair Value Number of Restricted Stock Units and Restricted Stock Awards Outstanding Weighted Average Grant Date Fair Value Number of Restricted Stock Units and Restricted Stock Awards Outstanding Weighted Average Grant Date Fair Value

Total Non-vested Restricted Stock Units and Restricted Stock Awards at beginning of year 226,240 $ 29.64 227,154 $ 20.84 225,854 $ 15.77

Granted 168,048 37.49 107,321 41.63 102,738 30.80

Vested ( 112,084 ) 26.89 ( 103,811 ) 22.98 ( 99,613 ) 19.57

Forfeited ( 4,508 ) 34.27 ( 4,424 ) 25.00 ( 1,825 ) 22.58

Total Non-vested Restricted Stock Units and Restricted Stock Awards at end of year 277,696 $ 35.43 226,240 $ 29.64 227,154 $ 20.84

As of June 30, 2020, the weighted-average years non-vested for service period awards and performance target awards was approximately 0.8 years and 0.5 year, respectively.

Stock compensation expense attributable to all of the Company's equity awards was $2,607 , $1,973 and $1,396 for fiscal years 2019 , 2018 and 2017 , respectively, including $283 of expense related to profit interest awards previously granted prior to the IPO under the former LLC agreement for fiscal year 2017 and is included in general and administrative expense in the Company's consolidated statement of operations and comprehensive income.

Stock compensation expense attributable to all of the Company's equity awards was $ 3,042 , $ 2,607 and $ 1,973 for fiscal years 2020, 2019 and 2018, respectively, is included in general and administrative expense in the Company's consolidated statement of operations and comprehensive income.

The cash flow effects resulting from all equity awards were reflected as noncash operating activities.

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Diluted net income per share of Class A Common Stock is computed similarly to basic net income per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents using the treasury method, if dilutive.

The Company’s restricted LLC Units and non-qualified stock option are considered common stock equivalents for this purpose.

The Company’s LLC Units and non-qualified stock options are considered common stock equivalents for this purpose.

The number of additional shares of Class A Common Stock related to these common stock equivalents and stock options are calculated using the treasury stock method.

Stock awards with a performance condition that are based on the attainment of a specified amount of earnings are only included in the computation of diluted earnings per share to the extent that the performance condition would be achieved based on the current amount of earnings, and only if the effect would be dilutive.

Stock awards with a market condition that are based on the performance of the Company's stock price in relation to a market index over a specified time period are only included in the computation of diluted earnings per share to the extent that the shares would be issued based on the current market price of the Company's stock in relation to the market index, and only if the effect would be dilutive.

Basic and diluted net income per share of Class A Common Stock has been computed as follows (in thousands, except share and per share amounts):

Fiscal Year Ended June 30,

2020 2019 2018

Net income attributable to Malibu Boats, Inc.

$ 61,562 $ 66,066 $ 27,613

Shares used in computing basic net income per share:

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Net income attributable to Malibu Boats, Inc.

$ 61,562 $ 66,066 $ 27,613

Shares used in computing diluted net income per share:

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Weighted-average stock options convertible into Class A Common Stock 15,721 14,618 266

Weighted-average market performance awards convertible into Class A Common Stock 42,576 — —

Diluted weighted-average shares outstanding 1

20,852,361 20,966,539 20,281,210

Diluted net income per share $ 2.95 $ 3.15 $ 1.36

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The reserve methodology used to record an estimated expense and loss reserve in each accounting period is based upon an analysis of likely repurchases based on current field inventory and likelihood of repurchase.

Subsequent to the inception of the repurchase commitment, the Company evaluates the likelihood of repurchase and adjusts the estimated returns reserve and related consolidated statement of operations accounts accordingly.

Subsequent to the inception of the repurchase commitment, the Company evaluates the likelihood of repurchase and adjusts the estimated loss reserve accordingly.

When a potential loss reserve is recorded it is presented in accrued liabilities in the accompanying consolidated balance sheet.

If the Company were obligated to repurchase a significant number of units under any repurchase agreement, its business, operating results and financial condition could be adversely affected.

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Repurchases and subsequent sales are recorded as a revenue transaction.

During fiscal year ended June 30, 2019 , the Company agreed to accept a return associated with the repurchase of eight units from the lender of two of its former dealers.

In fiscal 2020, these boats were resold above their cost.

In 2018 and 2017, no units were repurchased.

The net difference between the repurchase price and the resale price is recorded against the loss reserve and presented in cost of sales in the accompanying consolidated statements of operations and comprehensive income.

For fiscal year 2020, the Company repurchased two units from a lender of one of its former dealers and those units were subsequently resold in fiscal year 2020 above their cost and at a minimal margin loss.

For fiscal year 2019, the Company repurchased eight units from a lender of two of its former dealers and those units were subsequently resold in fiscal year 2020 above their cost and at minimal margin loss.

For fiscal year 2018, the Company did not repurchase any units under its repurchase agreements.

Accordingly, the Company did not carry a reserve for repurchases as of June 30, 2020 and 2019, respectively.

Lease Commitments

In connection with a sale-leaseback transaction as of March 2008, the Company now leases its manufacturing and office facilities for $171 per month with periodic inflationary adjustments, plus the payment of property taxes, normal maintenance, and insurance on the property under an agreement which expires March 2028, with three 10 -year options to extend, at the Company’s discretion.

Refer to Note 6 for more information.

The Company also has various other leases for operating facilities in both the U.S.

and Australia and machinery and equipment under operating leases that expire over the next twelve months.

The total rental expense for fiscal years ended June 30, 2019 , 2018 and 2017 was $2,746 , $2,568 , and $2,384 , respectively.

Future minimum lease payments under noncancelable operating leases as of June 30, 2019 , are as follows:

As of June 30, 2019

The Company has collateralized receivables financing arrangements with a third-party floor plan financing provider for European dealers.

Under terms of these arrangements, the Company transfers the right to collect a trade receivable to the financing provider in exchange for cash but agrees to repurchase the receivable if the dealer defaults.

Since the transfer of the

receivable to the financing provider does not meet the conditions for a sale under ASC Topic 860, Transfers and Servicing , the Company continues to report the transferred trade receivable in other current assets with an offsetting balance recorded as a secured obligation in accrued expenses in the Company's consolidated balance sheet.

As of June 30, 2020 and 2019, the Company had financing receivables of $ 375 and $ 768 , respectively, recorded in other current assets and accrued expenses related to these arrangements.

Contingencies

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If the assessment indicates that a potentially material loss contingency is not probable but reasonably estimable, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

If the assessment of a contingency deemed to be both probable and reasonably estimable involves a range of possible losses, the amount within the range that appears at the time to be a better estimate than any other amount within the range would be accrued.

When no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued even though the minimum amount in the range is not necessarily the amount of loss that will be ultimately determined.

Estimates of potential legal fees and other directly related costs associated with contingencies are not accrued but rather are expensed as incurred.

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Legal Proceedings

On June 29, 2015, the Company filed suit against MasterCraft Boat Company, LLC, or "MasterCraft," in the U.S.

District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief.

The Company's complaint alleged MasterCraft's infringement of a utility patent related to wake surfing technology (U.S.

The Court had issued a scheduling order setting deadlines for discovery and other events in the litigation, leading up to a trial beginning on August 14, 2017.

On February 16, 2016, the Company filed a second suit against MasterCraft in the U.S.

District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief.

The Company’s complaint alleges MasterCraft’s infringement of another utility patent related to wake surfing technology (U.S.

The Court had issued a scheduling order setting deadlines for discovery and other events in the litigation, leading up to a trial beginning on October 30, 2017.

On May 18, 2016, MasterCraft filed two petitions with the U.S.

Patent and Trademark Office, or “PTO,” requesting institution of Inter Partes Review, or “IPR,” of the Company’s U.S.

8,578,873, the patent at issue in the first Tennessee lawsuit.

On August 23, 2016, the Company filed its preliminary responses to the IPR petitions.

On November 16, 2016, the PTO declined to institute IPR in response to either of the two petitions.

On September 26, 2016, MasterCraft filed a request with the PTO for Ex Parte Reexamination of the Company’s U.S.

9,260,161, the patent at issue in the second Tennessee lawsuit.

On November 18, 2016, the PTO granted that request for ex parte reexamination, and on February 16, 2017, the PTO issued a Non-Final Office Action.

On April 17, 2017, the Company filed a Response to the Non-Final Office Action.

On May 2, 2017, the Company and MasterCraft entered into a Settlement Agreement (the “MasterCraft Settlement Agreement”) to settle lawsuits filed by the Company in the U.S.

District Court for the Eastern District of Tennessee alleging infringement by MasterCraft of two of the Company’s utility patents.

Under the terms of the MasterCraft Settlement Agreement, MasterCraft made a one-time payment of $2,500 during the fourth quarter of fiscal year ended June 30, 2017, and entered into a license agreement for the payment of future royalties for boats sold by MasterCraft using the licensed technology.

The parties agreed to dismiss all claims in the patent litigation.

On April 22, 2014, Marine Power Holding, LLC ("Marine Power"), a former supplier of engines to the Company, initiated a lawsuit against the Company in the U.S.

District Court for the Eastern District of Tennessee seeking monetary damages.

On July 10, 2015, the Company filed an Answer and Counterclaim in the lawsuit filed by Marine Power.

The Company denied any liability arising from the causes of action alleged by Marine Power.

The lawsuit proceeded to trial on August 8, 2016 and on August 18, 2016, a judgment was rendered by the jury against the Company in the litigation with Marine Power resulting in the Company taking a charge of $3,268 during the fiscal year ended June, 30, 2016.

The Company subsequently prevailed on post-judgment motions and, on December 15, 2016, the court amended the judgment in the lawsuit for monetary damages to $1,938 .

On December 23, 2016, Marine Power filed a notice of appeal contesting the court's decision to reduce the amount of the original judgment.

On January 6, 2017, the Company filed a notice of cross appeal, pursuant to which the Company appealed the amended final judgment and other rulings of the court.

On May 27, 2017, the Company and Marine Power entered into a final settlement agreement whereby the Company agreed to pay $2,175 to settle all claims related to the litigation (the "Settlement").

The Settlement was paid in full on May 30, 2017.

On June 9, 2017, a joint motion to withdraw appeals was submitted by the parties and their respective appeals were subsequently dismissed.

Accordingly, no further losses were accrued as of June 30, 2017.

On July 6, 2017, Marine Power filed an acknowledgment of satisfaction in the trial court, in which it stipulated that the amended final judgment entered on December 15, 2016 had been compromised and satisfied without any admission, agreement or acknowledgment of liability or fault by any party.

On August 26, 2016, Wizard Lake Marine Inc.

and Wizard Lake Marine (B.C.) Inc., collectively “Wizard Lake”, a former dealer of the Company’s, initiated a lawsuit against the Company in the Court of Queen’s Bench of Alberta, Canada seeking monetary damages.

The suit alleges breach of contract, wrongful termination, misrepresentation, breach of duty of good faith, and intentional interference.

Wizard Lake is asking for damages exceeding $5,000 .

The Company denies any liability arising from the causes of action alleged by Wizard Lake and is vigorously defending the lawsuit, including commencing a counterclaim against Wizard Lake.

The lawsuit is early in the discovery phase.

On January 21, 2015, Cobalt, a wholly owned indirect subsidiary of the Company, filed a patent infringement lawsuit against the Brunswick Corporation and its subsidiary Sea Ray Boats, Inc.

alleging that certain of the Sea Ray's branded boats infringed upon Cobalt's patented submersible swim step technology (U.S.

On October 31, 2017, the US District Court in the Eastern District of Virginia entered an amended judgment on the jury verdict in favor of Cobalt.

The Company has filed two actions against Skier’s Choice, Inc., or "Skier’s Choice," in the U.S.

On January 12, 2018, the Company filed suit against Skier’s Choice, Inc., or "Skier’s Choice," in the U.S.

District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief.

On January 12, 2018, the Company filed a complaint alleging Skier’s Choice’s infringement of three utility patents - U.S.

The Company's complaint alleges Skier’s Choice’s infringement of three utility patents - U.S.

9,260,161, 8,578,873, and 9,199,695 - related to wake surfing technology.

On June 19, 2019, the Company filed a second action alleging Skier’s Choice’s infringement of a fourth utility patent - U.S.

10,322,777 - also related to wake surfing technology.

In both actions, Skier’s Choice denied liability arising from the causes of action alleged in the Company's complaint and filed counterclaims alleging invalidity of the asserted patents.

The parties are currently engaged in discovery.

Skier’s Choice denied liability arising from the causes of action alleged in the Company's complaint and filed counterclaims alleging invalidity of the asserted patents.

On June 19, 2019, the Company filed a second action against Skier’s Choice in the U.S.

District Court for the Eastern District of Tennessee, seeking monetary and injunctive relief.

The Company’s complaint alleges Skier’s Choice’s surf systems on its Moomba and Supra lines of boats infringe U.S.

10,322,777, a patent related to wake surfing technology.

Skier’s Choice denied liability arising from the causes of action alleged in the Company's complaint and filed counterclaims alleging invalidity of the asserted patents.

On June 27, 2019, Skier’s Choice filed a motion to consolidate these two actions, and to continue deadlines in the earlier case for nine months, which the Company opposed.

On August 22, 2019, the motion for consolidation was referred by Judge Thomas Varlan to Magistrate Judge Bruce Guyton, and the two cases were stayed pending resolution of that motion.

On November 27, 2019, Judge Guyton ordered the two cases to be consolidated.

On January 7, 2020, the consolidated cases were reassigned to Judge Jon McCalla.

On January 23, 2020, Judge McCalla issued a Scheduling Order, scheduling trial on the consolidated cases to begin on September 29, 2020.

On August 25, 2020, Judge McCalla issued a claim construction order and set a scheduling conference for August 27, 2020, for purposes of resetting the pretrial calendar and trial dates.

The Company intends to vigorously pursue this litigation to enforce its rights in its patented technology and believes that Skier’s Choice’s counterclaims are without merit.

Trial in the first action is set for January 21, 2020.

Trial in the second action has not yet been set.

Related Party Transactions

As of June 30, 2019, there were two non-employee members of the Company's board of directors that are also shareholders of the Company and receive an annual retainer as compensation for services rendered.

On November 2, 2018, one non-employee member of the Company's board of directors that is also a shareholder departed from the board.

As of June 30, 2020, there were two non-employee members of the Company's board of directors that are also original shareholders of the Company and receive an annual retainer as compensation for services rendered.

On November 2, 2018, one non-employee member of the Company's board of directors that is also an original shareholder departed from the board.

For the fiscal years ended June 30, 2020, 2019 and 2018, $ 310 , $ 347 and $ 421 , respectively, was paid to these directors in both cash and equity for their services.

Of the amount paid, $51 and $75 was a prepayment for services through the 2019 and 2018 annual meetings for each of the years ended June 30, 2019 and 2018 , respectively.

Of the amount paid, $ 51 was a prepayment for services through the 2020 and 2019 annual meetings for both of the years ended June 30, 2020 and 2019 .

Segment Reporting

The Company has three reportable segments, Malibu, Cobalt and Pursuit.

The Malibu segment participates in the manufacturing, distribution, marketing and sale of Malibu and Axis performance sports boats throughout the world.

The Cobalt and Pursuit segments participate in the manufacturing, distribution, marketing and sale of Cobalt and Pursuit boats, respectively, throughout the world.

The Company revised its segment reporting effective July 1, 2019 to conform to changes in its internal management reporting based on the Company’s boat manufacturing operations.

Prior to this change in reporting segments, the Company had four reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit.

The Company now aggregates Malibu U.S.

and Malibu Australia into one reportable segment as they have similar economic characteristics and qualitative factors.

All segment information in the accompanying consolidated financial statements has been revised to conform to the Company’s current reporting segments for comparison purposes.

The following table presents financial information for the Company’s reportable segments for fiscal years ended June 30, 2020, 2019, and 2018.

Fiscal Year Ended June 30, 2020

Malibu Australia

Affiliate (or intersegment) sales

Net sales to external customers

Malibu Cobalt Pursuit 1

Net sales $ 354,769 $ 174,768 $ 123,626 $ 653,163

Depreciation and amortization 8,809 5,258 4,313 18,380

2 unchanged sentences

Long-lived assets 49,771 121,508 114,196 285,475

Total assets $ 194,502 $ 153,820 $ 129,024 $ 477,346

Fiscal Year Ended June 30, 2019

Malibu Australia

Affiliate (or intersegment) sales

Net sales to external customers

Malibu Cobalt Pursuit 1

Net sales $ 374,611 $ 206,598 $ 102,807 $ 684,016

Depreciation and amortization 7,674 5,252 3,034 15,960

2 unchanged sentences

Long-lived assets 49,207 117,702 96,312 263,221

Total assets $ 185,154 $ 151,481 $ 114,679 $ 451,314

Fiscal Year Ended June 30, 2018

Malibu Australia

Affiliate (or intersegment) sales

Net sales to external customers

Malibu Cobalt Pursuit 1

Net sales $ 316,687 $ 180,315 $ — $ 497,002

Depreciation and amortization 7,468 5,386 — 12,854

2 unchanged sentences

Long-lived assets 48,784 118,512 — 167,296

1 Represents the results of the Cobalt since the acquisition on July 6, 2017 .

2 Represents the results of the Pursuit since the acquisition on October 15, 2018 .

Sales to our dealers under common control of OneWater Marine, Inc.

represented approximately 15% of consolidated net sales in fiscal year 2019, which included sales of Malibu U.S., Cobalt and Pursuit.

Total assets $ 208,152 $ 157,616 — $ 365,768

1 Represents the results of Pursuit since the acquisition on October 15, 2018 .

Quarterly Financial Reporting (Unaudited)

Quarter Ended

Fiscal Year Ended

June 30, 2019

Quarter Ended Fiscal Year Ended

June 30, 2020

March 31, 2019

December 31, 2018

September 30, 2018

June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

Net sales $ 118,661 $ 182,310 $ 180,112 $ 172,080 $ 653,163

Gross profit 23,552 45,849 39,868 40,001 149,270

Operating income 8,907 30,133 23,587 22,683 85,310

Net income 6,510 23,866 17,598 16,682 64,656

Net income attributable to non-controlling interest 307 1,088 876 823 3,094

Net income attributable to Malibu Boats, Inc.

$ 6,203 $ 22,778 $ 16,722 $ 15,859 $ 61,562

Basic net income per share $ 0.30 $ 1.11 $ 0.81 $ 0.76 $ 2.98

Diluted net income per share $ 0.29 $ 1.09 $ 0.81 $ 0.76 $ 2.95

Quarter Ended

Fiscal Year Ended

June 30, 2018

Quarter Ended Fiscal Year Ended

June 30, 2019

March 31, 2018

December 31, 2017

September 30, 2017

June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018

Net sales $ 194,822 $ 199,918 $ 165,793 $ 123,483 $ 684,016

Gross profit 47,732 49,722 38,315 30,501 166,270

Operating income 29,854 30,562 20,944 16,752 98,112

Net income (loss)

Net income 20,485 22,203 14,998 12,015 69,701

Net income income attributable to non-controlling interest 1,073 1,104 741 717 3,635

Net income (loss) attributable to Malibu Boats, Inc.

Basic net income (loss) per share

Diluted net income (loss) per share

Net income attributable to Malibu Boats, Inc.

$ 19,412 $ 21,099 $ 14,257 $ 11,298 $ 66,066

Basic net income per share $ 0.93 $ 1.01 $ 0.68 $ 0.55 $ 3.17

Diluted net income per share $ 0.92 $ 1.01 $ 0.68 $ 0.54 $ 3.15

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data