Malibu Boats, Inc. Annual Report 2020

FY2020 Annual Report · Malibu Boats, Inc.

Loading PDF…

Financial Highlights

Malibu Boats, Inc. (Nasdaq: MBUU) is a leading designer, manufacturer and marketer of a diverse range of recreational
powerboats, including performance sport boats, sterndrive and outboard boats under four brands—Malibu, Axis, Cobalt, and
Pursuit. We have the #1 market share position in the United States in the performance sport boat category through our Malibu and
Axis brands and the #1 market share position in the United States in the 24’—29’ segment of the sterndrive category through our
Cobalt brand, and we are among the leading market share positions in the fiberglass outboard fishing boat market with our Pursuit
brand. Our product portfolio of premium brands are used for a broad range of recreational boating activities including, among
others, water sports such as water skiing, wakeboarding and wake surfing, as well as general recreational boating and fishing. Our
passion for consistent innovation, which has led to propriety technology such as Surf Gate, has allowed us to expand the market for
our products by introducing consumers to new and exciting recreational activities. We design products that appeal to an expanding
range of recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key aspect of their
lifestyle and provide consumers with a better customer-inspired experience. With performance, quality, value and multi-purpose
features, our product portfolio has us well positioned to broaden our addressable market and achieve our goal of increasing our
market share in the expanding recreational boating industry.

We sell our boats under four brands—Malibu, Axis, Cobalt and Pursuit. Our flagship Malibu boats offer our latest innovations in
performance, comfort and convenience, and are designed for consumers seeking a premium performance sport boat experience.
Our Axis boats appeal to consumers who desire a more affordable performance sport boat product but still demand high
performance, functional simplicity and the option to upgrade key features. Our Cobalt boats consist of mid to large-sized luxury
cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality. Our Pursuit boats expand
our product offerings into the saltwater outboard fishing market and includes center console, dual console and offshore models.
Retail prices for our boat models range from $60,000 to $800,000.

As of July 1, 2020, our distribution channel consisted of over 350 dealer locations globally. Our dealer base is an important part of
our consumers’ experience, our marketing efforts and our brands. We devote significant time and resources to find, develop and
improve the performance of our dealers and believe our dealer network gives us a distinct competitive advantage.

For more information about Malibu, visit our website at www.malibuboats.com.

Net Sales
(In Thousands)

Volume

6
1
0
,
4
8
6
$

3
6
1
,
3
5
6
$

2
0
0
,
7
9
4
$

2
6
3
,
7

4
4
4
,
6

2
9
2
,
6

9
6
5
,
3

5
1
8
,
3

5
6
9
,
2
5
2
$

7
3
9
,
1
8
2
$

Adjusted Fully Distributed
Net Income
(In Thousands)

Average Net Sales Per Unit
(In Thousands)

4
3
0
,
2
8
$

2
5
1
,
1
7
$

1
7
$

4
7
$

9
7
$

1
0
1
$

3
9
$

2
6
0
,
6
5
4 $
9
9
,
9
2
$

7
9
5
,
5
2
$

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

(Dollars in thousands, except per share data)
Volume

Net sales

Average Sales per unit

Gross profit

Operating income

Net income

Adjusted fully distributed net income (1)

Adjusted fully distributed net income per share (1)
Adjusted EBITDA (1)

Adjusted EBITDA margin (1)

2016
3,569

252,965

66,820

35,904

20,295

25,597

1.32
48,231

19.1%

$
$

2017
3,815

281,937

75,038

39,438

31,075

29,994

1.56
55,721

19.8%

2018
6,292

497,002

120,342

70,067

30,969

56,062

2.60
92,718

18.7%

$
$

2019
7,362

684,016

2020
6,444

653,163

101

166,270 $

149,270

98,112

69,701

82,034

3.76
125,895

18.4%

$
$

85,310

64,656

71,152

3.29
110,947

17.0%

$
$

(1) Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — GAAP Reconciliation of Non-GAAP Financial
Measures” included in (i) our annual report on Form 10-K for the fiscal year ended June 30, 2020 for the definition of Adjusted fully distributed net income,
Adjusted fully distributed net income per share, Adjusted EBITDA and Adjusted EBITDA margin and a reconciliation of net income as reported under GAAP to
each of these measures for fiscal years 2020, 2019 and 2018 and (ii) our annual report on Form 10-K for the fiscal year ended June 30, 2018 for a reconciliation of
net income as reported under GAAP to each of these measures for fiscal years 2017 and 2016.

Dear Shareholder:

The 2020 fiscal year was challenging but rewarding.
In the 2020 year, we successfully navigated the
United Auto Workers’ strike at the General Motor
plants that threatened to disrupt supply and an
ongoing COVID-19 crisis that was completely
unexpected and impactful. Our ability to successfully
navigate these very different challenges is a
testament to the strength of our entire organization
and our ability to plan and execute in a volatile and
uncertain environment.

We would like to thank our employees, our dealers
and our customers for their unwavering support and
commitment to Malibu. We delivered excellent
performance during fiscal year 2020, despite a fourth
quarter that saw plants at our brands voluntarily shut
down for an average of five weeks. Our performance
has been driven by the strength of our brands,
industry-leading innovation, foresight in navigating a
global pandemic, and our strategic and operational
expertise. Despite unprecedented challenges during
the year, Malibu outperformed against the broader
industry to close our year strong. Our year-over-year
results reflect the plant closures and key financial
metrics are shown below:

•

Net sales decreased 4.5% to $653.2 million;

Unit volume decreased 12.5% to 6,444 boats;

Net sales per unit increased 9.1% to $101,360;

Gross profit decreased 10.2% to $149.3 million;

Adjusted EBITDA decreased 11.9% to $110.9
million; and

Adjusted fully distributed net income per share
decreased 12.5% to $3.29 per share on a fully
distributed weighted average share count of
21.6 million shares of Class A common stock.

Our strong employee-first culture at Malibu has
always been a competitive advantage, and this year
was no exception. While facing a never-before-seen
environment with the COVID-19 pandemic, our
operational prowess supported by our strong teams at
each brand allowed us, in the fourth quarter, to
immediately return to pre-shutdown daily production
rates upon resuming operations. We believe this
enabled us to be better positioned than almost all
other boat manufacturers to meet the accelerated
demand levels seen in the marine industry in April,
May and June as consumers turned to boating as a
form of outdoor socially distanced recreation during

the COVID-19 pandemic. In addition, our vertical
integration and strong vendor relationships
minimized supply chain challenges. As a result, we
were able to maximize cash generation and produce a
better than expected fourth quarter.

Over the years, we have heard concerns from
investors about the impact of an economic cycle on
Malibu. We have consistently communicated that
given our highly variable cost structure and vertical
integration allowing us to control much more of our
supply chain, we believe that even in a 25% down
cycle, we can produce Adjusted EBITDA margin
percentages in the mid-teens. The pandemic
confirmed our belief. In a fourth quarter that saw
Malibu revenues down over 40%, we generated just
under a 15% Adjusted EBITDA margin. This
confirms our belief that with adequate planning in a
25% down environment, we expect that Malibu will
generate 15% Adjusted EBITDA margins or better.

The global pandemic has fundamentally shifted the
way people are living – consumers are opting to stay
close to home, spend more time with friends and
family, and find activities that allow them to be
outdoors. As a result, we have seen a growing
number of first-time boaters enter the space and those
that have been away from boating return, as their
over-committed lives have subsided. We believe this
shift is permanent for many families and will sustain
the market at these slightly higher growth rates and
even position it for further growth. We believe
Malibu is extremely well positioned to capitalize on
this growth.

As an innovator in the industry, we also made a
strategic decision to expedite our model year 2021
launch for all brands to June 1, 2020. This allowed
our brands to have the freshest products on the
market in this flourishing retail environment while
also reducing 2020 channel inventories even more
rapidly. Our early 2021 model year introduction will
support what should be a strong fiscal year 2021 as
we introduce new innovations and products to
strengthen our market-leading portfolio.

In fiscal year 2020, we continued the velocity of new
product introductions. Malibu introduced four new
boats for fiscal year 2020, more than any other
competitor. We also continued our introduction of
more new features and options than any other
competitor. As an example of our cross-brand
vertical integration, Malibu added the patented Flip-
Down Swim Step designed and introduced by Cobalt

Boats in 2011. This high demand feature has been a
favorite of customers for Cobalt and now Malibu.
Cobalt, while bringing new product to market in
2020, prepared for an unprecedented delivery of new
product in fiscal year 2021. In addition, the patented
Splash-and-Stow feature has been very popular with
families and will be added as an optional feature for
many new Cobalt boats that will be introduced over
the next couple of years. Pursuit introduced four new
boats in fiscal year 2020, two above 30 feet and two
below 30 feet as we continue to introduce new
product across our product spectrum and into product
white spaces that exist in the portfolio.

Fiscal year 2021 will continue our high velocity
design and introduction of brand new products to
consumers. In July, Malibu introduced the all-new
Malibu Wakesetter 23 LSV, the best-selling boat in
the history of performance boats. This introduction
was followed by three more new boats, the 24 MXZ,
the A24 for Axis and the new Malibu M220, sibling
to our ultra-premium Malibu M240. The demand for
all four of these new boats is well ahead of plan with
orders extending into the third quarter of fiscal year
2021.

All of our model year 2021 Malibu and Axis boats
are, of course, powered by our Malibu Monsoon
engines. Our Malibu Monsoon engine boasts direct-
injection technology and works alongside our latest
innovations to make what we believe to be the
highest performing, most reliable, and cleanest
engines in the watersports’ world.

Cobalt continues to deliver strong performance and
market leadership. As we prepare to bring seven new
boats to market in fiscal year 2021, including three
new outboard models in 15 months, which will
double our current number of outboard offerings, we
expect market share in the sterndrive category to
continue to grow. We have already introduced the R6
Standard and the R6 Outboard, the newest models in
the R Series of Cobalt boats. These boats provide a
suite of luxurious and convenient features, including
maximum interior space, enhanced audio output, and
the Cobalt-patented Swim Step technology for easy
water access. In addition, we announced our new
automated E-Step in August 2020, which
electronically automates our patented Flip-Down
Swim Step for even easier usage and deployment.

The phase 1 and phase 2 expansions of our cruiser
plant and small boat plant at Cobalt are complete.
The third and last phase of our plant improvement is

now underway. This third phase is the expansion and
modernization of our gelcoat and lamination
departments. Once complete, this will finalize our
capability of building more products with even better
quality, while improving efficiency.

Pursuit also continues to perform very well, and the
product development engine is hitting on all
cylinders. Pursuit will introduce another four new
boats in fiscal year 2021 with a couple filling
important product white spaces we have identified.
The S428 was brought to market in September 2020
as the first new model release for fiscal year 2021
and three additional models will be announced
quarter-by-quarter in fiscal year 2021. These new
models are infused with Pursuit DNA and are
expected to significantly drive profitability and
market share in the fiberglass outboard fishing boat
category.

As of mid-June 2020, the new Pursuit large boat
plant is up and running. Boats 32 feet and larger,
including the S378 and S428 will be manufactured in
this plant. This greenfield build of a new plant, in a
pandemic environment, in just twelve months was
another confirmation of our capabilities. The
expansion at Pursuit not only helps us to increase our
capacity, but it also allows us to grow our distribution
as well, further increasing the value of this already
powerful brand.

Our vertical integration strategy continues to be a
competitive differentiator across all of our brands,
driving overall growth and profitability. As we have
discussed, Malibu drives vertical integration in two
ways. First, we vertically integrate by taking features
and components that a supplier provides to us.
Towers, trailers, stainless billet and engines are
examples of external vertical integration. We also
engage cross-brand vertical integration. We take
vertical integration from one of our brands and
extend it to our other brands. Examples of cross-
brand vertical integration include Malibu
manufacturing towers for Cobalt, extending our grip
flooring integration from Malibu and Axis to Cobalt
and incorporating Cobalt’s Flip-Down Swim Step
into Malibu boats. Both methods of vertical
integration provide us with the ability to control a
greater portion of our supply chain, quality, and input
costs. Each vertical integration initiative provides an
attractive profitability profile and gives the customer
greater optionality and flexibility.

Our financial position remains strong. Robust cash
flow generation and unprecedented demand
supported our decision to pay back $110 million in
June 2020 on our revolver while maintaining ample
liquidity, with cash on hand today in excess of $40
million and approximately $110 million available for
borrowing under our revolver. This leaves us well
positioned to continue to pursue strategic investment
opportunities and advance our long-term growth plan
in fiscal year 2021 and beyond.

In conclusion, in fiscal year 2020, we overcame a
volatile operating environment to deliver solid
financial and operational performance. Our
operational excellence and strong supply chain
management, along with the strength of our balance
sheet, allowed us to respond quickly and effectively
to the rapidly changing environment to meet the
heightened demand and deliver strong results. As we
meet the continued strong demand in our retail
markets, we remain confident in our ability to drive

further market share gains and profitability in each of
the markets we serve. Our proven, consistent
execution is demonstrated in all that we do, and we
believe our premium brands have proven their ability
to excel in whatever market conditions that exist. As
a result, we expect Malibu will continue to be
successful in driving growth, enhancing margins, and
creating value for our shareholders.

Sincerely,

Michael Hooks
Chairman of the Board

Jack Springer
Chief Executive Officer

Forward Looking Statements

This letter includes forward-looking statements (as such term is defined in the Private Securities Litigation
Reform Act of 1995). Forward-looking statements can be identified by such words and phrases as “believes,”
“anticipates,” “expects,” “intends,” “estimates,” “may,” “will,” “should,” “continue” and similar expressions,
comparable terminology or the negative thereof, and includes statements in this letter regarding our expectations
for our Adjusted EBITDA margins; our expectation for market growth in the marine industry and Malibu’s
ability to capitalize on such growth; our expectation for a strong fiscal year 2021; our expected pace of
introduction of products at Cobalt and Pursuit; the expected demand and acceptance for our model year 2021
offerings; the expected benefits of our vertical integration initiatives; our expectation for continued strong
demand in our retail markets and ability to drive further market share gains and profitability in each of the
markets we serve; and our expectation to continue to drive growth, enhance margins and create value for our
shareholders.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the forward-looking statements, including, but not limited to: the
effects of the COVID-19 pandemic on us; general industry, economic and business conditions; our ability to
grow our business through acquisitions and integrate such acquisitions to fully realize their expected benefits; our
reliance on our network of independent dealers and increasing competition for dealers; our large fixed cost base;
intense competition within our industry; increased consumer preference for used boats or the supply of new boats
by competitors in excess of demand; the successful introduction of new products; our ability to execute our
manufacturing strategy successfully; the success of our engines integration strategy; and other factors affecting
us detailed from time to time in our filings with the Securities and Exchange Commission. Many of these risks
and uncertainties are outside our control, and there may be other risks and uncertainties which we do not
currently anticipate because they relate to events and depend on circumstances that may or may not occur in the
future. Although we believe that the expectations reflected in any forward-looking statements are based on
reasonable assumptions at the time made, we can give no assurance that our expectations will be achieved.
Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof.
We undertake no obligation (and we expressly disclaim any obligation) to update or supplement any forward-
looking statements that may become untrue because of subsequent events, whether because of new information,
future events, changes in assumptions or otherwise. Comparison of results for current and prior periods are not
intended to express any future trends or indications of future performance, unless expressed as such, and should
only be viewed as historical data.

Use and Definition of Non-GAAP Financial Measures

This letter includes the following financial measures defined as non-GAAP financial measures by the SEC:
Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Fully Distributed Net Income and Adjusted Fully
Distributed Net Income per Share. Please see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations — GAAP Reconciliation of Non-GAAP Financial Measures” included in
our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and “Reconciliation of Non-GAAP
Financial Measures” included in our Press Release included as Exhibit 99.1 to our Current Report on Form 8-K
dated August 27, 2020, for the definition of these measures and a reconciliation of our net income as determined
in accordance with GAAP to Adjusted EBITDA and Adjusted EBITDA Margin, and the numerator and
denominator for our net income available to Class A Common Stock per share to Adjusted Fully Distributed Net
Income per share of Class A Common Stock.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the fiscal year ended June 30, 2020
OR

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the transition period to
Commission file number: 001-36290

MALIBU BOATS, INC.

(Exact Name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

5075 Kimberly Way
Loudon, Tennessee 37774
(Address of principal executive offices,
including zip code)
(865) 458-5478
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Symbol(s)
MBUU

46-4024640
(I.R.S. Employer
Identification No.)

Title of each class
Class A Common Stock, par value $0.01

Name of each exchange on which registered
Nasdaq Global Select Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes Í No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Í
Large accelerated filer
‘
Non-accelerated filer
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by a check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. Í
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í
As of December 31, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate value of the
registrant’s common stock held by non-affiliates was approximately $830.9 million, based on the number of shares of Class A common stock
held by non-affiliates as of December 31, 2019 and the closing price of the registrant’s Class A common stock on the Nasdaq Global Select
Market on December 31, 2019. Shares held by each executive officer, director and by each person who owns 10% or more of the outstanding
Class A common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant’s Class A common stock, par
value $0.01 per share, and Class B common stock, par value $0.01, as of August 28, 2020 was 20,620,752 and 13, respectively.

‘
Accelerated filer
Smaller reporting company ‘

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated into Part III of this Annual Report
on Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the
registrant’s fiscal year ended June 30, 2020.

Page

1
1
18
40
40
40
40

41
43
45
70
71
122
122
122

123
123
123

124
124
127

128

TABLE OF CONTENTS

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

PART II
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Controls and Procedures
Item 9A.
Other Information
Item 9B.

PART III
Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

PART IV
Item 15.
Item 16.

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Exhibits, Financial Statement Schedules
Form 10-K Summary

SIGNATURES

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. All statements other than

statements of historical facts contained in this Form 10-K are forward-looking statements, including statements
regarding the effects of the COVID-19 pandemic on us; demand for our products and expected industry trends,
our business strategy and plans, our prospective products or products under development, our vertical integration
initiatives, our acquisition strategy and management’s objectives for future operations. In particular, many of the
statements under the headings “Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Item 1.”

Business” constitute forward-looking statements. In some cases, you can identify forward-looking

statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “continue,” the negative of these terms, or by other similar expressions that
convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements
are only predictions, involving known and unknown risks, uncertainties and other factors that may cause our or
our industry’s actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by these forward-looking
statements. Such factors include, but are not limited to: the effects of the COVID-19 pandemic on us; general
industry, economic and business conditions; significant fluctuations in our annual and quarterly financial results;
unfavorable weather conditions, policies impacting access to waterways and shelter-in-place orders; our reliance
on our network of independent dealers and increasing competition for dealers; the financial health of our dealers
and their continued access to financing; our obligation to repurchase inventory of certain dealers; the success of
our engine integration strategy; our reliance on certain suppliers for our engines and outboard motors; our
reliance on third-party suppliers for raw materials and components and any interruption of our informal supply
arrangements; our ability to meet our manufacturing workforce needs; exposure to workers’ compensation claims
and other workplace liabilities; our ability to grow our business through acquisitions and integrate such
acquisitions to fully realize their expected benefits; our growth strategy which may require us to secure
significant additional capital; our large fixed cost base; intense competition within our industry; increased
consumer preference for used boats or the supply of new boats by competitors in excess of demand; the
successful introduction of new products; competition with other activities for consumers’ scarce leisure time; the
continued strength of our brands; our ability to execute our manufacturing strategy successfully; our exposure to
claims for product liability and warranty claims; our dependence on key personnel; our ability to protect our
intellectual property; disruptions to our network and information systems; risks inherent in operating in foreign
jurisdictions; rising concern regarding international tariffs; changes in currency exchange rates; an increase in
energy and fuel costs; any failure to comply with laws and regulations including environmental and other
regulatory requirements; a natural disaster, global pandemic or other disruption at our manufacturing facilities;
increases in income tax rates or changes in income tax laws; covenants in our credit agreement governing our
revolving credit facility and term loan which may limit our operating flexibility; our variable rate indebtedness
which subjects us to interest rate risk; and any failure to maintain effective internal control over financial
reporting or disclosure controls or procedures.

We discuss many of these factors, risks and uncertainties in greater detail under the heading “Item 1A. Risk

Factors” and elsewhere in this Form 10-K. These factors expressly qualify as forward-looking statements
attributable to us or persons acting on our behalf.

You should not rely on forward-looking statements as predictions of future events. Although we believe that

the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed under “Item 1A. Risk Factors” in this
Form 10-K. Except as required by law, we assume no obligation to update forward-looking statements for any
reason after the date of this Form 10-K to conform these statements to actual results or to changes in our
expectations.

PART I.

Item 1. Business

Unless otherwise expressly indicated or the context otherwise requires, in this Annual Report on Form 10-K:

•

we use the terms “Malibu Boats,” the “Company,” “we,” “us,” “our” or similar references to refer
(1) prior to the consummation of our IPO on February 5, 2014, to Malibu Boats Holdings, LLC, or the
LLC, and its consolidated subsidiaries and (2) after our IPO, to Malibu Boats, Inc. and its consolidated
subsidiaries;

we refer to our initial public offering of Class A common stock on February 5, 2014, as our “IPO”;

we refer to the owners of membership interests in the LLC immediately prior to the consummation of
the IPO, collectively, as our “pre-IPO owners”;

we refer to owners of membership interests in the LLC (the “LLC Units”), collectively, as our “LLC
members”;

references to “fiscal year” refer to the fiscal year of Malibu Boats, which ends on June 30 of each year;

we refer to our Malibu branded boats as “Malibu”, our Axis Wake Research branded boats as “Axis”,
our Cobalt branded boats as “Cobalt”, and our Pursuit branded boats as “Pursuit”;

we use the term “recreational powerboat industry” to refer to our industry group, which includes
performance sport boats, sterndrive and outboard boats;

we use the term “performance sport boat category” to refer to the industry category, consisting
primarily of fiberglass boats equipped with inboard propulsion and ranging from 19 feet to 26 feet in
length, which we believe most closely corresponds to (1) the inboard ski/wakeboard category, as
defined and tracked by the National Marine Manufacturers Association, or NMMA, and (2) the inboard
skiboat category, as defined and tracked by Statistical Surveys, Inc., or SSI;

we use the terms “sterndrive” and “outboard” to refer to the industry category, consisting primarily of
sterndrive and outboard boats ranging from 20 feet to 40 feet, which most closely corresponds to
(1) the sterndrive and outboard categories, as defined and tracked by NMMA, and (2) the sterndrive
and outboard propulsion categories, as defined and tracked by SSI; and

references to certain market and industry data presented in this Form 10-K are determined as follows:
(1) U.S. boat sales and unit volume for the overall powerboat industry and any powerboat category
during any calendar year are based on retail boat market data from the NMMA; (2) U.S. market share
and unit volume for the overall powerboat industry and any powerboat category during any fiscal year
ended June 30 or any calendar year ended December 31 are based on comparable same-state retail boat
registration data from SSI, as reported by the 50 states for which data was available as of the date of
this Form 10-K; and (3) market share among U.S. manufacturers of exports to international markets of
boats in any powerboat category for any period is based on data from the Port Import Export Reporting
Service, available through March 31, 2020, and excludes such data for Australia and New Zealand.

This Annual Report on Form 10-K includes our trademarks, such as “Surf Gate,” “Wakesetter,”

“SurfBand,” “Swim Step,” and “TrueWave” which are protected under applicable intellectual property laws and
are the property of Malibu Boats. This Form 10-K also contains trademarks, service marks, trade names and
copyrights of other companies, which are the property of their respective owners. Solely for convenience,
trademarks and trade names referred to in this Form 10-K may appear without the ® or TM symbols, but such
references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable
law, our rights or the right of the applicable licensor to these trademarks and trade names.

Our Company

We are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats,
including performance sport boats, sterndrive and outboard boats under four brands—Malibu, Axis, Cobalt, and

Pursuit. We have the #1 market share position in the United States in the performance sport boat category
through our Malibu and Axis brands and the #1 market share position in the United States in the 24’—29’
segment of the sterndrive category through our Cobalt brand, and we are among the leading market share
positions in the fiberglass outboard fishing boat market with our Pursuit brand. Our product portfolio of premium
brands are used for a broad range of recreational boating activities including, among others, water sports such as
water skiing, wakeboarding and wake surfing, as well as general recreational boating and fishing. Our passion for
consistent innovation, which has led to propriety technology such as Surf Gate, has allowed us to expand the
market for our products by introducing consumers to new and exciting recreational activities. We design products
that appeal to an expanding range of recreational boaters and water sports enthusiasts whose passion for boating
and water sports is a key aspect of their lifestyle and provide consumers with a better customer-inspired
experience. With performance, quality, value and multi-purpose features, our product portfolio has us well
positioned to broaden our addressable market and achieve our goal of increasing our market share in the
expanding recreational boating industry.

Our flagship Malibu boats offer our latest innovations in performance, comfort and convenience, and are

designed for consumers seeking a premium performance sport boat experience. Our Axis boats appeal to
consumers who desire a more affordable performance sport boat product but still demand high performance,
functional simplicity and the option to upgrade key features. Our Cobalt boats consist of mid to large-sized
luxury cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality.
Our Pursuit boats expand our product offerings into the saltwater outboard fishing market and include center
console, dual console and offshore models. Retail prices for our boat models range from $60,000 to $800,000.

Our boats are constructed of fiberglass, available in a range of sizes, hull designs and propulsion systems
(i.e., inboard, sterndrive and outboard). We employ experienced product development and engineering teams that
enable us to offer a range of models across each of our brands while consistently introducing innovative features
in our product offerings. Our engineering teams closely collaborate with our manufacturing personnel in order to
improve product quality and process efficiencies. The results of this collaboration are reflected in our receipt of
numerous industry awards, including the Boating Industry Magazine’s “Top Product” award for the Malibu
M240 in 2020, Pursuit S 378 in 2020, Malibu 25 LSV in 2019, Surf Band in 2018 and for our Integrated Surf
Platform (“ISP”) in 2016, as well as the Boating Industry’s Best New and Innovative Products in 2019 for the
Cobalt A29. We have also been recognized as Sounding Trade Only Today’s “2019 Top Most Innovative Marine
Companies,” and we earned the honors of “WSIA Innovation of Year” award for our Malibu M240 M-Line Hull
with Surf Gate Fusion in 2020, Malibu Monsoon Engines in 2019 and our Malibu Command Center in 2017.

We sell our boats through a dealer network that we believe is the strongest in the recreational powerboat
industry. As of July 1, 2020, our distribution channel consisted of over 350 dealer locations globally. Our dealer
base is an important part of our consumers’ experience, our marketing efforts and our brands. We devote
significant time and resources to find, develop and improve the performance of our dealers and believe our dealer
network gives us a distinct competitive advantage.

Impact of COVID-19 Pandemic

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

States and world, and it had a significant impact on our operations and financial results for fiscal year 2020. On
March 24, 2020, we elected to suspend operations at all of our facilities, and we subsequently resumed operations
at our facilities in late April and May 2020. As a result of the suspension of our production of boats, our net sales
declined by $30.9 million, or 4.5%, and our unit sales decreased by 918 units, or 12.5%, for fiscal year 2020
compared to fiscal 2019. However, sales at our dealers, while impacted negatively by COVID-19 in late March
and through April, improved materially from May through July 2020 and that increase has depleted inventory at
our dealers.

For more information on how the COVID-19 pandemic has impacted us and may continue to impact us, see
the risk factor “The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect,

our operations, and those of our dealers and suppliers, thereby adversely affecting our business, financial
condition and results of operations.” under Part I. Item 1A. of this Form 10- K, and “Management’s Discussion
and Analysis of Financial Conditions and Results of Operations— Impact of the COVID-19 Pandemic” under
Part I., Item 7. of this Form 10-K.

Our Market Opportunity

During calendar year 2019, retail sales of new recreational powerboats in the United States totaled

$11.3 billion. Of the recreational powerboat categories defined and tracked by the NMMA, we serve the top three
categories of outboard, sterndrive and performance sport boat representing an addressable market of nearly
$9.8 billion in retail sales through our Malibu, Axis, Cobalt, and Pursuit brands. The following table illustrates
the size of our addressable market in units and retail sales for calendar year 2019:

Recreational Powerboat Category

Unit Sales

Retail Sales

Outboard
Sterndrive
Performance sport boat
Jet boat
Cruisers

Total addressable market

172,700
10,100
11,100
5,900
1,600

201,400

(Dollars in millions)
$ 7,656
883
1,232
289
1,269

$11,329

Our Strengths

Leading Market Share Positions. According to SSI, we have held the number one market share position,
based on unit volume, in the United States among manufacturers of performance sport boats for each calendar
year since 2010 including 2019. We have grown our U.S. market share in this category through our Malibu and
Axis brands from 24.5% in 2010 to 32.7% in 2019. Furthermore, we also hold the number one market share
position in the 24’—29’ segment of the sterndrive boat category, through our Cobalt brand according to SSI.
Cobalt has expanded its market share in this segment from 14.2% in 2010 to 35.0% in 2019. With our Pursuit
brand we hold the number two market share position in the offshore boat category for calendar year 2019. Pursuit
has expanded its market share in this segment from 17.7% in 2010 to 18.8% in 2019.

Industry-leading Product Design and Innovation. We believe that our innovation in the design of new boat

models and new features has been a key to our success, helping us increase our market share within our
categories and generally broaden the appeal of our products among recreational boaters. As a result of the
features we have introduced, such as our Integrated Surf Platform which includes patented Surf Gate and Power
Wedge technology along with tailored swim steps and hard tank ballast, our boats can be used for an increasingly
wide range of activities. At the same time they are increasingly easier to use, while maintaining the highest level
of performance characteristics that consumers expect. Additionally, by introducing new boat models across our
portfolio of brands in a range of price points, sizes, bow and hull designs, engine propulsion, and optional
performance features, we believe we have enhanced consumers’ ability to select a boat suited to their individual
preferences. Our commitment to developing new boat models and introducing new features are reflected in the
fact we consistently and successfully bring multiple new model introductions year after year.

Focus on Vertical Integration Opportunities. We have vertically integrated a number of key components of

our manufacturing process, including the manufacturing of our own engines, boat trailers, towers and tower
accessories, machined and billet parts, and tooling. We began including our engines, branded as Malibu Monsoon
engines, in our Malibu and Axis boats for model year 2019. We believe our engine marinization initiative will
reduce our reliance on our previous engine suppliers for our Malibu and Axis brands while reducing the risk that
a change in cost or production from any engine supplier for such brands could adversely affect our business.

Recently we began producing soft grip flooring for our Malibu, Axis and new Cobalt models. Vertical integration
of key components of our boats gives us the ability to increase incremental margin per boat sold by reducing our
cost base and improving the efficiency of our manufacturing process. Additionally, it allows us to have greater
control over design, consumer customization options, construction quality, and our supply chain. We continually
review our manufacturing process to identify opportunities for additional vertical integration investments across
our portfolio of premium brands.

Intellectual Property. A key element of our growth and increased market share has been our intellectual

property, which we believe is the best in our industry. Among the most innovative and sought after features on
our boats has been Surf Gate. Together with Power Wedge and Surf Band, we believe that these patented
technologies will continue to drive demand for our products and increase margins across our brands. In fiscal
2018 we acquired Swim Step, through our acquisition of Cobalt which further increases the appeal of our product
portfolio. Consequently, there is an increased need to vigorously defend our patents and other intellectual
property to ensure we maintain our competitive edge. Because of the appeal of these technologies, we have
entered into agreements to license them to other manufacturers within the performance sport boat category. We
believe licensing our products provides us with a significant strategic advantage over our competitors by
allowing us to expand into other markets and broadening the appeal of these technologies into segments that
would not otherwise have them, thereby eventually creating a path to a Malibu purchase.

Strong Dealer Network. We have worked diligently with our dealers to cultivate one of the strongest
distribution networks in the recreational powerboat industry. We believe that our distribution network allows us
to distribute our products more broadly and effectively than our competitors. We continually review our
geographic coverage to identify opportunities for expansion and improvement, and will, where necessary, add
dealer locations to address previously underserved markets or replace underperforming dealers.

Highly Recognized Brands. We believe our Malibu, Axis, Cobalt and Pursuit brands are widely recognized
in the recreational powerboat industry, which helps us reach a growing number of target consumers. For over 30
years, our Malibu brand has generated a loyal following of recreational boaters and water sports enthusiasts who
value the brand’s premium performance and features, while our Axis brand has grown rapidly as consumers have
been drawn to its more affordable price point and available optional features. We also acquired two well-known
brands in Cobalt and Pursuit. Cobalt has developed into one of the industry’s most recognizable and respected
brands over its 50-year history. For over the past 40 years, Pursuit has established a premium brand through its
extensive dealer network and longstanding commitment to customers. We build on our brand recognition and
support through a series of marketing initiatives coordinated with our dealers or executed directly by us. Our
marketing efforts are conducted using an array of strategies, which include digital advertising, social media
engagement, advertisements in endemic media and the sponsorship of grass-roots boating and watersport events.
Additionally, our boats, their innovative features, our sponsored athletes and our dealers all frequently win
industry awards, which we believe further boosts our brand recognition and reputation for excellence. We believe
our marketing strategies and accomplishments enhance our profile in the industry, strengthen our credibility with
consumers and dealers, and increase the appeal of our brands.

Diverse Product Offering. We are able to engage consumers across multiple categories within the
recreational powerboat industry. Malibu and Axis are market leaders in the performance sport boat category,
Cobalt operates in the sterndrive category and has also expanded into wake surfing and outboard product lines,
and Pursuit competes in the saltwater outboard fishing boat market with center console, dual console and
offshore models.

Our Strategy

We intend to capitalize on the recovery in the recreational powerboat industry through the following

strategies:

Continue to Develop New and Innovative Products in Our Categories. We intend to continue developing

and introducing new and innovative products—both new boat models to better address a broader range of
consumers and new features to deliver better performance, functionality, convenience, comfort and safety to our
consumers. We believe that new products and features are important to the growth of our market share, the
continued expansion of our categories and our ability to maintain attractive margins.

Our product development strategy consists of a two-pronged approach. First, we seek to introduce new boat

models to target unaddressed or underserved segments of the recreational powerboat industry, while also
updating and refreshing our existing boat models regularly. Second, we seek to develop and integrate innovative
new or enhanced optional feature offerings into our boats. For our Malibu and Axis brands this includes Surf
Gate, Malibu Command Center, Power Wedge III, Tower Mister, Fast Fill Ballast System, G5 Tower and
integrated flip down Swim Step. For Cobalt, it includes outboard propulsion models to expand its addressable
market. Cobalt has been able to achieve growth in recent years partly by pivoting and expanding into the
sterndrive surfing category through its Cobalt Surf series, which now features Surf Gate. In addition, other new
features have included Splash and Stow and a new electronic flip down Swim Step for model year 2021 boats.
For the Pursuit brand, the focus has been on expanding our award winning Dual Console, Sport and Offshore
product offerings that continue to combine innovative features and dependable performance in refined designs
that accommodate a broad array of activities on the water, including the Electric Sliding Entertainment Center on
the new S 378. We intend to continue releasing new products and features multiple times during the year, which
we believe enhances our reputation as a leading-edge boat manufacturer and provides us with a competitive
advantage.

Further Strengthen Our Dealer Network. Our goal is to achieve and maintain leading market share in each

of the categories in which we operate. We continually assess our distribution network and believe we take the
actions necessary to achieve our goal. We intend to strengthen our current footprint by selectively recruiting
market-leading dealers who currently sell our competitors’ products. In addition, we plan to continue expanding
our dealer network in certain geographic areas to increase consumer access and service in strategic markets. We
believe our targeted initiatives to enhance and grow our dealer network across all of our brands will increase unit
sales in the future.

Continue to Seek Vertical Integration Opportunities. Over the past several years, we have focused on
expanding our vertical integration capabilities, having brought in-house the production of towers and tower
accessories, trailers, machined and billet parts, and, most recently, producing our own engines for our Malibu and
Axis boats and soft grip flooring for our Malibu, Axis and new Cobalt models. Additional vertical integration
opportunities exist across our product portfolio and we are aggressively monitoring these opportunities.

Selectively Pursue Strategic Acquisitions. One of our growth strategies is to drive growth in our business

through targeted acquisitions that add value while considering our existing brands and product portfolio. We
have focused on growth through acquisitions both domestically and abroad, as evidenced by our acquisition of
Pursuit in October 2018, our acquisition of Cobalt in July 2017 and our acquisition of our Australian licensee in
October 2014. The primary objectives of our acquisitions are to expand our presence in new or adjacent
categories, to expand into other product lines and business that may benefit from our operating strengths, and to
increase the size of our addressable market. When we identify potential acquisitions, we attempt to target
companies with a leading market share, strong cash flows, and an experienced management team and workforce
that provide a fit with our existing operations. After completing an acquisition, we focus on integrating the
company with our existing business to provide additional value to the combined entity through cost savings and
revenue synergies, such as the optimization of manufacturing operations, improved processes around product

development, enhancement of our existing dealer distribution network, administrative cost savings, shared
procurement, vertical integration and cross-selling opportunities.

Our Products and Brands

We design, manufacture and sell recreational powerboats, including performance sport boats, sterndrive and

outboard boats across four world-renowned brands: Malibu, Axis, Cobalt and Pursuit. We believe we deliver
superior performance for general recreational purposes with a significant focus on water sports, including
wakeboarding, water skiing and wake surfing as well as general recreational boating and fishing. In addition, we
also offer various accessories and aftermarket parts. The following table provides an overview of our product
offerings by brand:

Brand

Number of
Models

Lengths

Retail Price
Range
(In thousands)

Malibu

20’-25’

$60-$210

Axis

20’-24’

$65-$115

Description

Founded in 1982, Malibu targets consumers seeking a premium
boating experience with our latest innovations in performance,
comfort and convenience. Malibu is comprised of three product
lines:

• Wakesetter Series - Our line of highly-customizable boats
offering our most innovative technologies and premium
features, with the newest color options and interior finishes.

• M Series - Our line of ultra-premium towboats, featuring the
Malibu M240, loaded with every technologically innovative
feature we offer including our Integrated Surf Platform,
premium luxury interiors, most advanced helm in the
industry, and our most powerful engine.

• Response Series - Our line of high-performance water ski

focused towboats completely redesigned in 2017.

Launched in 2009, Axis was formed to target a younger
demographic by providing a more affordably priced, high quality,
entry-level boat with high performance, functional simplicity and
the option to upgrade key features such as Surf Gate. Axis
currently features five models.

Cobalt

20’-36’

$60-$450

Founded in 1967, Cobalt is a premium luxury sterndrive and
outboard boat manufacturer available in five product lines:

• Gateway Series - Our entry level fiberglass sterndrive

sporting the refined quality of Cobalt boats. The Gateway
series is designed to allow for the comfort, convenience, and
performance typically found on much larger Cobalt boats
while allowing for an “athletic” use.

• R Series - Our mid-range premium fiberglass sterndrive boat
in the largest segment that has a sleek, powerful look with a
smooth ride and exceptional performance.

• A Series - Our super premium fiberglass sterndrive boat that
blends yacht-like qualities with a unique, powerful look as
well as a smooth ride and exceptional performance.

•

SC Series - Our line of outboard boats designed for increased
saltwater durability and ease of maintenance.

•

Surf Series - Focused on watersports and based on our Gateway Series
and R Series. Features a sport tower for higher tow point, storage racks,
integrated billet board racks, optional tower lights, ballast, surf systems
and directional speakers with a look designed to appeal to our younger
customers

Pursuit

22’-44’

$80-$800 Launched in 1977, Pursuit is a premium brand of saltwater outboard fishing

boats available in three product lines:

•

Sport Center Console Series - Our center console series provides a
central helm and open hull to provide 360-degree access to the water
and is ideal for fishing.

• Dual Console Series - Our dual console series offers a versatile design

ideal for casual cruising and entertainment provided by the superior and
comfortable seating yet makes for an ideal fishing boat.

• Offshore Series - Our offshore series combines seaworthiness and
fishability with the luxury of a cruiser and is designed for the
conditions of the open sea and rigged with equipment for offshore
fishing trips.

Innovative Features

In addition to the standard features included on all of our boats, we offer consumers a full selection of
innovative optional features designed to enhance performance, functionality and the overall boating experience.
We believe our innovative features drive our high average selling prices. Among our most successful and most
innovative has been Surf Gate. Introduced in July 2012 and initially patented in September 2013, Surf Gate is
available as an optional feature on all Malibu Wakesetter models and Axis brand boats. Surf Gate has
revolutionized the increasingly popular sport of wake surfing. Prior to Surf Gate, boaters needed to empty ballast
tanks on one side of the boat and shift passengers around to lean the boat to create a larger, more pronounced
surf-quality wake. By employing precisely engineered and electronically controlled panels, Surf Gate alleviates
this time-consuming and cumbersome process, allowing boaters to easily surf behind an evenly weighted boat
without the need to wait for ballast changes. For the 2016 model year, we introduced our patented Surf Band
technology that allows the rider to control the surf wave, shape, size and side. Some of our other notable
innovations include Power Wedge III, G5/GX Tower, Electronic Dashboard Controls, Swim Step, Tower Mister,
Splash and Stow and TrueWave. We won the Boating Industry Magazine’s “Top Product” award for the Malibu
M240 in 2020, Pursuit S 378 in 2020, Malibu 25 LSV in 2019, Surf Band in 2018 and for our Integrated Surf
Platform (“ISP”) in 2016, as well as the Boating Industry’s Best New and Innovative Products in 2019 for the
Cobalt A29. We have also been recognized as Sounding Trade Only Today’s “2019 Top Most Innovative Marine
Companies,” and we earned the honors of “WSIA Innovation of Year” award for the Malibu M240 M-Line Hull
with Surf Gate Fusion in 2020, Malibu Monsoon Engines in 2019 and our Malibu Command Center in 2017.

We also offer an array of less technological, but nonetheless value-added boat features such as gelcoat
upgrades, upholstery upgrades, engine drivetrain enhancements (such as silent exhaust tips, propeller upgrades
and closed cooling engine configuration), sound system upgrades, bimini tops, boat covers and trailers which
further increase the level of customization afforded to consumers.

Our Dealer Network

We rely on independent dealers to sell our products. We establish performance criteria that our dealers must

meet as part of their dealer agreements to ensure our dealer network remains the strongest in the industry. As a
member of our network, dealers in North America may qualify for floor plan financing programs, rebates,

seasonal discounts, promotional co-op payments and other allowances. In Europe, dealers may qualify for floor
plan financing programs. We expect this will strengthen our dealers ability to sell our products in Europe. We
believe our dealer network is the most extensive in the market.

North America

As of July 1, 2020, our dealer network consisted of over 250 dealer locations servicing the performance

sport boat, sterndrive, and outboard markets strategically located throughout the U.S. and Canada.
Approximately 50% of our dealer locations have been with us, or with Cobalt and Pursuit prior to our acquisition
of them, for over ten years. Our top ten dealers represented 38.5%, 39.6% and 37.8%, of our net sales for fiscal
year 2020, 2019 and 2018, respectively. The top ten dealers for each of Malibu, Cobalt and Pursuit represented
approximately 45.8%, 45.3% and 82.7%, respectively, of net sales in fiscal year 2020. The top ten dealers for
each segment are not the same across all segments. 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 fiscal years 2020,
2019, and 2018 respectively including approximately 7.6%, 15.7% and 34.5% of consolidated sales in fiscal year
2020 for Malibu, Cobalt and Pursuit, respectively.

We consistently review our distribution network to identify opportunities to expand our geographic footprint
and improve our coverage of the market. We believe that our diverse product offering and strong market position
in each region of the United States helped us capitalize on growth opportunities as our industry recovered from
the economic downturn. We have the ability to opportunistically add new dealers and new dealer locations to
previously underserved markets and use data and performance metrics to monitor dealer performance. We
believe our outstanding dealer network allows us to distribute our products more efficiently than our competitors.

International

We have an extensive international distribution network for our Malibu, Axis, Cobalt and Pursuit brands. As
of July 1, 2020, our dealer network consisted of over 100 dealer locations throughout Europe, Asia, Middle East,
South America, South Africa, and Australia/New Zealand. We service our independent dealers in the Australian
and New Zealand markets who sell our Malibu and Axis brand boats through our Australian operations acquired
in October 2014.

Dealer Management

Our relationship with our dealers is governed through dealer agreements. Each dealer agreement has a finite

term lasting between one and three years. Our dealer agreements also are typically terminable without cause by
the dealer with 60 days’ prior notice and by us for a dealer failing to meet performance criteria. We may also
generally terminate these agreements immediately for cause upon certain events. Pursuant to our dealer
agreements, the dealers typically agree to, among other things:

•

represent our products at specified boat shows;

• market our products only to retail end users in a specific geographic territory;

•

promote and demonstrate our products to consumers;

place a specified minimum number of orders of our products during the term of the agreement in
exchange for rebate or discount eligibility that varies according to the level of volume they commit to
purchase;

provide us with regular updates regarding the number and type of our products in their inventory;

• maintain a service department to service our products, and perform all appropriate warranty service and

repairs; and

•

indemnify us for certain claims.

Our dealer network, including all additions, renewals, non-renewals or terminations, is managed by our

sales personnel. Our sales teams operate using a semi-annual dealer review process involving our senior
management team. Each individual dealer is reviewed semi-annually with a broad assessment across multiple
key elements, including the dealer’s geographic region, market share and customer service ratings, to identify
underperforming dealers for remediation and to manage the transition process when non-renewal or termination
is a necessary step.

We have developed a system of financial incentives for our dealers based on customer satisfaction and
achievement of best practices. Our brands employ dealer incentive programs that have been refined through
decades of experience at each brand and may, from time to time, include the following elements:

• Rebates and Discounts. Our domestic dealers agree to volume commitments that are used to determine
applicable rebates or discounts. The structure of the dealer incentive depends on the brand represented.
If a dealer meets its volume commitments as well as other terms of the dealer performance program,
the dealer is entitled to the specified amounts subject to full compliance with our programs. Failure to
meet the commitment volume or other terms of the program may result in partial or complete forfeiture
of the dealer’s rebate or discount.

• Co-op. Dealers of the Malibu, Axis and Pursuit product line may earn certain co-op reimbursements

upon reaching a specified level of qualifying expenditures.

• Free flooring. Our dealers that take delivery of current model year boats in the offseason, typically July
through April, are entitled to have us pay the interest to floor the boat until the earlier of (1) the retail
sale of the unit or (2) a date near the end of the current model year. This program is an additional
incentive to encourage dealers to order in the offseason and helps us balance our seasonal production.

Our dealer incentive programs are structured to promote more evenly distributed ordering throughout the

fiscal year, which allows us to achieve better level-loading of our production and thereby generate plant
operating efficiencies. In addition, these programs may offer further rewards for dealers who are exclusive to our
brands.

Floor Plan Financing

Our North American dealers often purchase boats through floor plan financing programs with third-party
floor plan financing providers. During fiscal year 2020, approximately 85% of our North American shipments
were made pursuant to floor plan financing programs through which our dealers participate. These programs
allow dealers across our brands to establish lines of credit with third-party lenders to purchase inventory. Under
these programs, a dealer draws on the floor plan facility upon the purchase of our boats and the lender pays the
invoice price of the boats. As is typical in our industry, we have entered into repurchase agreements with certain
floor plan financing providers to our dealers. Under the terms of these arrangements, in the event a lender
repossesses a boat from a dealer that has defaulted on its floor financing arrangement and is able to deliver the
repossessed boat to us, we are obligated to repurchase the boat from the lender. Our obligation to repurchase such
repossessed products for the unpaid balance of our original invoice price for the boat is subject to reduction or
limitation based on the age and condition of the boat at the time of repurchase, and in certain cases by an
aggregate cap on repurchase obligations associated with a particular floor financing program.

Our exposure under repurchase agreements with third-party lenders is mitigated by our ability to reposition

inventory with a new dealer in the event that a repurchase event occurs. The primary cost to us of a repurchase
event is any margin loss on the resale of a repurchased unit. Historically, we have been able to resell repurchased
boats at an amount that exceeds our cost. In addition, the historical margin loss on the resale of repurchased units
has often been below 10% of the repurchased amount. For fiscal year 2020, we repurchased two units from a
lender of one of our 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, we repurchased eight units from a lender of two of our former
dealers and those units were subsequently resold in fiscal year 2020 above their cost and at minimal margin loss.
For fiscal year 2018, we did not repurchase any boats under our repurchase agreements.

Marketing and Sales

We believe that providing a high level of service to our dealers and end consumers is essential to

maintaining our reputation. Our sales personnel receive training on the latest Malibu, Axis, Cobalt, and Pursuit
products and technologies, as well as training on our competitors’ products and technologies, and attend trade
shows to increase their market knowledge. This training is then passed along to our dealers to ensure a consistent
marketing message and leverage our marketing expenditures. Malibu, Axis, Cobalt and Pursuit enjoy strong
brand awareness, as evidenced by our substantial market share in their respective categories.

Our marketing strategy focuses on strengthening and promoting Malibu and Axis brands in the performance

sport boat marketplace and the Cobalt and Pursuit brands in the outboard and sterndrive marketplaces. In
addition to the Malibu, Axis, Cobalt, and Pursuit websites and traditional marketing channels such as print
advertising and tradeshows, we maintain an active digital advertising and social media platform for all brands,
including use of Facebook and Twitter to increase brand awareness, foster loyalty and build a community of
users. In addition, we benefit from various Malibu, Axis, Cobalt and Pursuit user-generated videos and photos
that are uploaded to websites including YouTube, Vimeo and Instagram.

Product Development and Engineering

We are strategically and financially committed to innovation, as reflected in our dedicated product

development and engineering teams located in Tennessee, Kansas, California, and Florida and evidenced by our
track record of new product introduction. These individuals bring to our product development efforts significant
expertise across core disciplines, including boat design, trailer design, computer-aided design, electrical
engineering and mechanical engineering. They are responsible for execution of all facets of our new product
strategy, including designing new and refreshed boat models and new features, engineering these designs for
manufacturing and integrating new features into our boats. In addition, our Chief Executive Officer and Chief
Operating Officer are actively involved in the product development process and integration into manufacturing.

We take a disciplined approach to the management of our product development strategy. We use a

formalized phase gate process, overseen by a dedicated project manager, to develop, evaluate and implement new
product ideas for both boat models and innovative features. Application of the phase gate process requires
management to establish an overall timeline that is sub-divided into milestones, or “gates,” for product
development. Setting milestones at certain intervals in the product development process ensures that each phase
of development occurs in an organized manner and enables management to become aware of and address any
issues in a timely fashion, which facilitates on-time, on-target release of new products with expected return on
investment. Extensive testing and coordination with our manufacturing group are important elements of our
product development process, which we believe enable us to minimize the risk associated with the release of new
products. Our phase gate process also facilitates our introduction of new boat models and features throughout the
year, which we believe provides us with a competitive advantage in the marketplace. Finally, in addition to our
process for managing new product introductions in a given fiscal year, we also engage in longer-term product life
cycle and product portfolio planning.

Manufacturing

Malibu has five manufacturing facilities located in four U.S. states and Australia. We produce performance

sport boats through our Malibu and Axis brands at our Tennessee and Australia manufacturing facilities and
sterndrive and outboard boats through our Cobalt brand at our Kansas manufacturing facility and our Pursuit
brand in Fort Pierce, Florida. We completed expansion projects at our facilities in Kansas and Florida during
fiscal year 2020. For our Malibu and Axis brands, we manufacture towers, tower accessories and stainless steel
and aluminum billet at our California facility and engines and trailers at our Tennessee facility.

Our boats are built through a continuous flow manufacturing process that encompasses fabrication,
assembly, quality management and testing. Each boat is produced on an established cycle depending on model

that includes the fabrication of the hull and deck through gelcoat application and fiberglass lamination, grinding
and hole cutting, installation of components, rigging, finishing, detailing and on-the-water testing. Production of
cruisers occurs on a dedicated line that allows for the increased time needed to add the additional content
required for production of larger boats. Trailers are also produced in a continuous flow manufacturing process
involving cutting and bending of the main frame from raw top grade carbon steel, painting using our state of the
art system and installation of components. We manufacture certain components and subassemblies for our boats,
such as upholstery, stainless steel and aluminum billet and towers. We procure other components, such as
electronic controls, from third-party vendors and install them on the boat. As noted elsewhere, we are marinizing
our own engines for our Malibu and Axis brands. Our tower-related manufacturing in California uses multiple
computer-controlled machines to cut all of the aluminum parts required for tower assembly. We are the only
performance sport boat company that manufacturers towers in-house. We believe that the vertical integration of
these components is a distinct competitive advantage that allows us to control key design elements of our boats
and generate higher margins.

We are committed to continuous improvement in our operations, and we believe our efforts in this regard

have resulted in higher gross margins. Specifically, we have increased labor efficiency and reduced cost of
materials. Our production engineers evaluate and seek to optimize the configuration of our production line given
our production volumes and model mix. We use disciplined mold maintenance procedures to maintain the usable
life of our molds and to reduce surface defects that would require rework. We have instituted scrap material
reduction and recovery processes, both internally and with our supplier base, helping to manage our material
costs. Finally, we have implemented a quality management system to ensure that proper procedures and control
measures are in place to deliver consistent, high-quality product, especially as our production volumes have
increased.

Suppliers

We purchase a wide variety of raw materials from our supplier base, including resins, fiberglass,
hydrocarbon feedstocks and steel, as well as product parts and components, such as engines and electronic
controls, through a sales order process. The most significant component used in manufacturing our boats, based
on cost, are engines. Through our vertical integration initiative to marinize our own engines, we entered into an
engine supply agreement with General Motors LLC (“General Motors”) in November 2016 for the supply of
engine blocks to use in our Malibu and Axis brand boats which began in our model year 2019 and will continue
through model year 2023. We adopted this strategy in order to more directly control product path (design,
innovation, calibration and integration) of our largest dollar procured part, to differentiate our product from our
competitors, and to increase our ability to respond to ongoing changes in the marketplace.

Pursuant to the engine supply agreement, we will submit purchase orders for engines to General Motors and,

so long as we are not in breach of the engine supply agreement, General Motors will deliver engines pursuant to
the purchase orders. No minimum amount of engines is required to be ordered by us and the parties must discuss
any potential capacity increases above 7,000 engines annually.

The engine supply agreement will expire on November 14, 2023, unless terminated earlier by either party as

permitted under the terms of the agreement. General Motors may terminate the engine supply agreement due to
market conditions with at least eighteen (18) months’ advanced written notice. Either party may terminate the
agreement as a result of a change of control of Malibu Boats, Inc., as defined in the agreement, with at least
eighteen (18) months’ advanced written notice. Either party may also terminate the engine supply agreement due
to breach of the other party upon written notice and after providing 60 days to cure any breach. General Motors
may also suspend engine deliveries to Malibu Boats in the event of a force majeure, as defined in the engine
supply agreement.

General Motors will provide up to a one-year warranty on the engines supplied to us and we have agreed to
indemnify General Motors for claims and costs arising from or relating to the engines resulting from our actions.

In September 2019, in response to the United Auto Workers’ (“UAW”) strike against General Motors, we

entered into purchase agreements with two suppliers for additional engines to supplement our inventory as
General Motors suspended delivery of engine blocks to us during the UAW strike. These agreements were
fulfilled and completed during fiscal year 2020 and we have since continued the agreement with General Motors
once their operations resumed after the labor strike.

In August 2018, in connection with our acquisition of Pursuit, we entered into a joint marketing agreement

with Yamaha Motor Corporation, U.S.A., or Yamaha. Under our agreement with Yamaha, in exchange for
certain incentives we have agreed to purchase Yamaha outboard engines for use in at least 90% of all Pursuit and
Cobalt branded boats that are pre-equipped with outboard motors when sold by us. We must pay penalties to
Yamaha if we do not achieve pre-determined purchase volume targets for each year of the agreement and for the
entire term of the agreement, which is scheduled to expire on June 30, 2023, unless renewed by both parties. No
such penalties have been paid to date.

We have not experienced any material shortages in any of our raw materials, product parts or components.

Temporary shortages, when they do occur, usually involve manufacturers of these products adjusting model
mixes, introducing new product lines or limiting production in response to an industry-wide reduction in boat
demand.

Insurance and Product Warranties

We carry various insurance policies, including policies to cover general products liability, workers’
compensation and other casualty and property risks, to protect against certain risks of loss consistent with the
exposures associated with the nature and scope of our operations. Our policies are generally based on our safety
record as well as market trends in the insurance industry and are subject to certain deductibles, limits and policy
terms and conditions.

Our Malibu and Axis brand boats have a limited warranty for a period up to five years. Our 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. Pursuit brand boats have a (1) 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.

Intellectual Property

We rely on a combination of patent, trademark and copyright protection, trade secret laws, confidentiality

procedures and contractual provisions to protect our rights in our brand, products and proprietary technology.
This is an important part of our business and we intend to continue protecting our intellectual property. We
currently hold 36 U.S. patents, four Australian patents, one Canadian patent and one Japanese patent. We also
have eight pending U.S. patent applications and one pending European patent application.

We own 45 registered trademarks in various countries around the world, including 21 U.S. trademarks, five

Australian trademarks, six Canadian trademarks and three European trademarks, all owned by Malibu.
Additionally, Cobalt owns six U.S. trademarks and Pursuit owns four U.S. trademarks. Such trademarks may
endure in perpetuity on a country-by-country basis, provided that we comply with all statutory maintenance
requirements, including continued use of each trademark in each such country. We also have nine pending
trademark applications in the U.S.

Competition

The recreational powerboat industry, including the performance sport boat, sterndrive and outboard
categories, is highly competitive for consumers and dealers. Competition affects our ability to succeed in the
markets we currently serve and new markets that we may enter in the future. We compete with several large
manufacturers that may have greater financial, marketing and other resources than we do. We compete with large
manufacturers who are represented by dealers in the markets in which we now operate and into which we plan to
expand. We also compete with a wide variety of small, independent manufacturers. Competition in our industry
is based primarily on brand name, price and product performance.

Environmental, Safety and Regulatory Matters

Our operations and products are subject to extensive environmental, health and safety regulation under
various federal, commonwealth, state, and local statutes, ordinances, rules and regulations in the United States
and Australia where we manufacture our boats, and in other foreign jurisdictions where we sell our products. We
believe we are in material compliance with those requirements. However, we cannot be certain that costs and
expenses required for us to comply with such requirements in the future, including for any new or modified
regulatory requirements, or to address newly discovered environmental conditions, will not have a material
adverse effect on our business, financial condition, operating results, or cash flow. The regulatory programs to
which we are subject include the following:

Hazardous Materials and Waste

Certain materials used in our manufacturing, including the resins used in production of our boats, are toxic,

flammable, corrosive or reactive and are classified as hazardous materials by the national, state and local
governments in those jurisdictions where we manufacture our products. The handling, storage, release, treatment
and recycling or disposal of these substances and wastes from our operations are regulated in the United States
by the United States Environmental Protection Agency (“USEPA”), and state and local environmental agencies.
The handling, storage, release, treatment and recycling or disposal of these substances and wastes from our
operations are regulated in Australia by the Australian Department of Environment and Energy, the New South
Wales Environmental Protection Agency and other state and local authorities. Failure by us to properly handle,
store, release, treat, recycle or dispose of our hazardous materials and wastes could result in liability for us,
including fines, penalties, or obligations to investigate and remediate any contamination originating from our
operations or facilities. We are not aware of any material contamination at our current or former facilities for
which we could be liable under environmental laws or regulations, and we currently are not undertaking any
remediation or investigation activities in connection with any contamination. Future spills or accidents or the
discovery of currently unknown conditions or non-compliance could, however, could give rise to investigation
and remediation obligations or related liabilities.

Air Quality

In the United States, the federal Clean Air Act (“CAA”) and corresponding state and local laws and rules

regulate emissions of air pollutants. Because our manufacturing operations involve molding and coating of
fiberglass materials, which involves the emission of certain volatile organic compounds, hazardous air pollutants,
and particulate matter, we are required to maintain and comply with a CAA operating permit (Title V permit) for
our Tennessee, Kansas and Florida facilities and local air permits for our California facilities. Our air permits
generally require us to monitor our emissions and periodically certify that our emissions are within specified
limits. To date, we have not had material difficulty complying with those limits.

The USEPA and the California Air Resources Board (“CARB”) have adopted regulations stipulating that
many marine propulsion engines and watercraft meet certain air emission standards. Some of these standards
require fitting a catalytic converter to the engine. These regulations also require, among other things, that engine

manufacturers provide a warranty that their engines meet USEPA and CARB emission standards. The engines
used in our products are subject to these regulations. CARB recently adopted an evaporative emissions regulation
that applies to all spark-ignition marine watercraft with permanently installed fuel tanks sold in California. The
new regulation requires subject boat manufacturers to use specific CARB-certified components for the fuel
systems in their boats, or to certify the boat meets a related performance standard. The USEPA and CARB
emissions regulations have increased the cost to manufacture our products.

OSHA

In the United States, the Occupational Safety and Health Administration (“OSHA”) standards address
workplace safety generally, and limit the amount of emissions to which an employee may be exposed without the
need for respiratory protection or upgraded plant ventilation. Our facilities are regularly inspected by OSHA and
by state and local inspection agencies and departments. We believe that our facilities comply in all material
aspects with these regulations. Although capital expenditures related to compliance with environmental and
safety laws are expected to increase, we do not currently anticipate any material expenditure will be required to
continue to comply with existing OSHA environmental or safety regulations in connection with our existing
manufacturing facilities.

At our New South Wales, Australia (“NSW”) facility, employee health and safety is regulated by SafeWork

NSW, which also has requirements that limit the amount of certain emissions to which an employee may be
exposed without the need for respiratory protection or upgraded plant ventilation. In addition, SafeWork NSW
provides licensing and registration for potentially dangerous work, investigates workplace incidents, and enforces
work health and safety laws in NSW. Our NSW facilities can be routinely inspected by SafeWork NSW. We
believe that our facilities comply in all material aspects with these requirements.

Boat Design and Manufacturing Standards

Powerboats sold in the United States must be manufactured to meet the standards of certification required
by the United States Coast Guard. In addition, boats manufactured for sale in the European Community must be
certified to meet the European Community’s imported manufactured products standards. These certifications
specify standards for the design and construction of powerboats. We believe that all of our boats meet these
standards. In addition, safety of recreational boats in the United States is subject to federal regulation under the
Boat Safety Act of 1971, which requires boat manufacturers to recall products for replacement of parts or
components that have demonstrated defects affecting safety. We have instituted recalls for defective component
parts produced by certain of our third-party suppliers, including a recall on our fuel pumps supplied by a third
party during fiscal year 2019. None of our recalls have had a material adverse impact on us.

Employees

As of July 31, 2020, 2019 and 2018, we had approximately 1,795, 1,835 and 1,345 employees worldwide,

respectively. None of our employees are party to a collective bargaining agreement. We believe that our relations
with our employees are good.

Organizational Structure

Malibu Boats, Inc. was incorporated as a Delaware corporation on November 1, 2013 in anticipation of our
IPO to serve as a holding company that owns only an interest in Malibu Boats Holdings, LLC. Immediately after
the completion of our IPO and the recapitalization we completed in connection with our IPO, Malibu Boats, Inc.
held approximately 49.3% of the economic interest in the LLC, which has since increased to approximately
96.6% of the economic interest in the LLC as of June 30, 2020.

The certificate of incorporation of Malibu Boats, Inc. authorizes two classes of common stock, Class A
Common Stock and Class B Common Stock. Holders of our Class A Common Stock and our Class B Common

Stock have voting power over Malibu Boats, Inc., the sole managing member of the LLC, at a level that is
consistent with their overall equity ownership of our business. In connection with our IPO and the
recapitalization we completed in connection with our IPO, Malibu Boats, Inc. issued to each pre-IPO owner, for
nominal consideration, one share of Class B Common Stock of Malibu Boats, Inc., each of which provides its
owner with no economic rights but entitles the holder to one vote on matters presented to stockholders of Malibu
Boats, Inc. for each LLC Unit held by such holder. Pursuant to our certificate of incorporation and bylaws, each
share of Class A Common Stock entitles the holder to one vote with respect to each matter presented to our
stockholders on which the holders of Class A Common Stock are entitled to vote. Each holder of Class B
Common Stock is entitled to the number of votes equal to the total number of LLC units held by such holder
multiplied by the exchange rate specified in the exchange agreement with respect to each matter presented to our
stockholders on which the holders of Class B Common Stock are entitled to vote. Accordingly, the holders of
LLC Units collectively have a number of votes that is equal to the aggregate number of LLC Units that they hold.
As the LLC members sell LLC Units to us or subsequently exchange LLC Units for shares of Class A Common
Stock of Malibu Boats, Inc. pursuant to the exchange agreement described below, the voting power afforded to
them by their shares of Class B Common Stock is automatically and correspondingly reduced. Subject to any
rights that may be applicable to any then outstanding preferred stock, our Class A and Class B Common Stock
vote as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise
provided in our certificate of incorporation or bylaws or required by applicable law. In addition, subject to
preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our Class A
Common Stock are entitled to share equally, identically and ratably in any dividends or distributions (including
in the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs) that our board
of directors may determine to issue from time to time, while holders of our Class B Common Stock do not have
any right to receive dividends or other distributions.

As noted above, Malibu Boats, Inc. is a holding company with a controlling equity interest in the LLC.

Malibu Boats, Inc., as sole managing member of the LLC, operates and controls all of the business and affairs
and consolidates the financial results of the LLC. The limited liability company agreement of the LLC provides
that it may be amended, supplemented, waived or modified by the written consent of Malibu Boats, Inc., as
managing member of the LLC, in its sole discretion without the approval of any other holder of LLC Units,
except that no amendment may materially and adversely affect the rights of a holder of LLC Units, other than on
a pro rata basis with other holders of LLC Units, without the consent of such holder (unless more than one holder
is so affected, then the consent of a majority of such affected holders is required). Pursuant to the limited liability
company agreement of the LLC, Malibu Boats, Inc. has the right to determine when distributions (other than tax
distributions) will be made to the members of the LLC and the amount of any such distributions. If Malibu Boats,
Inc. authorizes a distribution, such distribution will be made to the members of the LLC (including Malibu Boats,
Inc.) pro rata in accordance with the percentages of their respective LLC Units.

The diagram below depicts our current organizational structure, as of June 30, 2020:

LLC Unit Holders

Class A Stockholders

Class B Common Stock
•
Voting rights only
•
One vote for each LLC
Unit held by such owner
•
3.4% of voting power in
Malibu Boats, Inc.

LLC Units
•

3.4% of total outstanding Units
and economic interests in Malibu
Boats Holdings, LLC
Not publicly traded
Economic rights only, subject to
certain limited approval rights
Exchangeable on 1-for-1 basis for
shares of Class A Common Stock

•
•
•

•

Malibu Boats, Inc.

Class A Common Stock
•

96.6% of voting power in
Malibu Boats, Inc.
100.0% of economic interests
in Malibu Boats, Inc.,
representing a 96.6%
economic interest in Malibu
Boats Holdings, LLC

Sole Managing Member and LLC Units
•

96.6% of total outstanding Units and economic
interests in Malibu Boats Holdings, LLC
Number of units held equals number of
outstanding shares of Class A Common Stock
100% of voting power in Malibu Boats
Holdings, LLC, subject to certain limited
exceptions

•

Malibu Boats
Holdings, LLC

Operating Entities

Our organizational structure allows the LLC members to retain their equity ownership in the LLC, an entity

that is classified as a partnership for U.S. federal income tax purposes, in the form of LLC Units. Holders of
Class A Common Stock, by contrast, hold their equity ownership in Malibu Boats, Inc., a Delaware corporation
that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of Class A Common
Stock. The holders of LLC Units, including Malibu Boats, Inc., will incur U.S. federal, state and local income
taxes on their proportionate share of any taxable income of the LLC. Net profits and net losses of the LLC will
generally be allocated to the LLC’s members (including Malibu Boats, Inc.) pro rata in accordance with the
percentages of their respective limited liability company interests. The limited liability company agreement
provides for cash distributions to the holders of LLC Units if Malibu Boats, Inc. determines that the taxable
income of the LLC will give rise to taxable income for its members. In accordance with the limited liability
company agreement, we intend to cause the LLC to make cash distributions to the holders of LLC Units for
purposes of funding their tax obligations in respect of the income of the LLC that is allocated to them. Generally,
these tax distributions will be computed based on our estimate of the taxable income of the LLC allocable to such
holder of LLC Units multiplied by an assumed tax rate equal to the highest effective marginal combined U.S.
federal, state and local income tax rate prescribed for an individual or corporate resident in Los Angeles,
California (taking into account the nondeductibility of certain expenses and the character of our income). For
purposes of determining the taxable income of the LLC, such determination will be made by generally
disregarding any adjustment to the taxable income of any member of the LLC that arises under the tax basis

adjustment rules of the Internal Revenue Code of 1986, as amended, or the Code and is attributable to the
acquisition by such member of an interest in the LLC in a sale or exchange transaction.

Exchanges and Other Transactions with Holders of LLC Units

In connection with our IPO and the recapitalization we completed in connection with our IPO, we entered

into an exchange agreement with the pre-IPO owners of the LLC under which (subject to the terms of the
exchange agreement) each pre-IPO owner (or its permitted transferee) has the right to exchange its LLC Units for
shares of our Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments
for stock splits, stock dividends and reclassifications, or, at our option, except in the event of a change in control,
for a cash payment equal to the market value of the Class A Common Stock. The exchange agreement provides,
however, that such exchanges must be for a minimum of the lesser of 1,000 LLC Units, all of the LLC Units held
by the holder, or such amount as we determine to be acceptable. The exchange agreement also provides that an
LLC member will not have the right to exchange LLC Units if Malibu Boats, Inc. determines that such exchange
would be prohibited by law or regulation or would violate other agreements with Malibu Boats, Inc. to which the
LLC member may be subject or any of our written policies related to unlawful or insider trading. The exchange
agreement also provides that Malibu Boats, Inc. may impose additional restrictions on exchanges that it
determines to be necessary or advisable so that the LLC is not treated as a “publicly traded partnership” for U.S.
federal income tax purposes. In addition, pursuant to the limited liability company agreement of the LLC, Malibu
Boats, Inc., as managing member of the LLC, has the right to require all members of the LLC to exchange their
LLC Units for Class A Common Stock in accordance with the terms of the exchange agreement, subject to the
consent of the holders of a majority of outstanding LLC Units other than those held by Malibu Boats, Inc.

As a result of exchanges of LLC Units into Class A Common Stock and purchases by Malibu Boats, Inc. of

LLC Units from holders of LLC Units, Malibu Boats, Inc. will become entitled to a proportionate share of the
existing tax basis of the assets of the LLC at the time of such exchanges or purchases. In addition, such
exchanges and purchases of LLC Units are expected to result in increases in the tax basis of the assets of the LLC
that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that
Malibu Boats, Inc. would otherwise be required to pay in the future. 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. We have entered into a tax receivable agreement with the pre-IPO owners (or
their permitted assignees) that provides for the payment by Malibu Boats, Inc. to the pre-IPO owners (or their
permitted assignees) of 85% of the amount of the benefits, if any, that Malibu Boats, Inc. is deemed to realize as
a result of (1) increases in tax basis and (2) certain other tax benefits related to our entering into the tax
receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. These
payment obligations are obligations of Malibu Boats, Inc. and not of the LLC.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act are available on our web site at www.malibuboats.com, free of charge, as
soon as reasonably practicable after the electronic filing of these reports with, or furnishing of these reports to,
the Securities and Exchange Commission, or the SEC. In addition, the SEC maintains a web site at www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, including us.

Item 1A. Risk Factors

The following describes the risks and uncertainties that could cause our actual results to differ materially

from those presented in our forward-looking statements. The risks and uncertainties described below are not the
only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our
business.

Risks Related to Our Business

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations,
and those of our dealers and suppliers, thereby adversely affecting our business, financial condition and results
of operations.

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

States and the world. Consumer fear about becoming ill with the virus and recommendations and/or mandates
from federal, state and local authorities to avoid large gatherings of people or self-quarantine have been imposed.

We suspended operations at all of our facilities on March 24, 2020. We resumed operations at our Loudon,
Tennessee facility (Malibu and Axis boats) on April 20, 2020, our Neodesha, Kansas facility (Cobalt boats) on
April 27, 2020 and our Fort Pierce, Florida facility (Pursuit boats) on May 4, 2020. Our temporary closure
resulted in a reduction in our production of boats that we were not able to fully recover during fiscal year 2020
and resulted in corresponding delays for delivery of our boats to dealers. As a result, our net sales and unit
volume decreased 39.1% and 43.9%, respectively, during the fourth quarter of fiscal year 2020 compared to the
fourth quarter of fiscal year 2019. For the fiscal year ended June 30, 2020, we recognized a decrease in net sales
of $30.9 million, or 4.5%, and a decrease of 918 units, or 12.5%, in unit volume compared to fiscal year 2019.

While a number of government measures and recommendations have since been lifted or scaled back since

the beginning of the pandemic, intermittent or sustained resurgence of COVID-19 in the United States may result
in the reinstatement of certain restrictions or voluntary operational halts in response to efforts to reduce the
spread of COVID-19. It is unclear how long these restrictions or halting of operations may remain in place and
they may remain in place in some form for an extended period of time. As a result, our manufacturing facilities,
our dealers, or our suppliers may have to suspend operations again, whether voluntarily or as a result of federal,
state or local mandates, and such closures could extend for a longer term than the prior shutdown of our facilities.
If such shutdowns occur, the COVID-19 pandemic could negatively impact our financial results in fiscal year
2021.

While we cannot predict the ultimate impact of the COVID-19 virus on our business at this time, the

pandemic and related efforts to mitigate the pandemic have impacted and may continue to impact our business in
a number of ways, including but not limited to:

•

decreasing consumer confidence as a result of the economic impact of the pandemic, which could
result in a decrease in consumer demand for recreational boats;

disrupting our manufacturing processes, as has already occurred with the temporary closures of our
facilities and the delay of supplies being received;

adversely impacting the financial health of our dealers who typically require financing to purchase our
boats;

adversely impacting the business of our suppliers, which could result in among other things, delays for
delivery of raw materials and components needed for the production of our boats;

impacting our ability to maintain our workforce during this uncertain time;

increasing employee absenteeism due to fear of infection;

•

increasing possible lawsuits or regulatory actions due to COVID-19 spread in the workplace;

suffering from reputational risk if we experience COVID-19 spread in our workplace;

increasing the possibility of cybersecurity-related events such as COVID-19 themed phishing attacks
and other security challenges resulting from a number of our employees and suppliers working
remotely; and

adversely impacting the productivity of management and our employees that are working remotely,
including impacting our ability to maintain our financial reporting processes and related controls and
our ability to manage complex accounting issues presented by the COVID-19 pandemic.

Any or all of these items may occur, which individually or in the aggregate, may have a material adverse
effect on our business, financial condition, results of operations and cash flows. These risks could accelerate or
intensify depending on the severity and length of the pandemic. In addition, the United States could experience a
resurgence of the COVID-19 virus and if the rate of infections continue to rise, these factors likely will be
exacerbated.

In late March 2020, we elected to draw the then remaining available funds of $98.8 million from our

revolving credit facility to ensure we maintained financial flexibility in light of the uncertainty resulting from the
COVID-19 pandemic. We have since repaid $110 million and as of August 27, 2020, we have approximately
$110.0 million available for borrowing under our revolving credit facility, along with $49.9 million of cash on
hand. We may need to borrow more under our revolving credit facility depending on the severity and length of
the pandemic. Our cash position will depend on multiple factors, including our ability to continue operations and
production of boats, the COVID-19 pandemic’s effects on our dealers and customers, the availability of
sufficient amounts of financing, and our operating performance. Further, our dealers may seek credit support or
other assurances from us that could affect our costs of doing business or liquidity. As a result of the impacts of
the COVID-19 pandemic, we may be required to raise additional capital and such additional debt financing may
not be available on commercially reasonable terms, if at all.

As a result of the COVID-19 outbreak, we may be required to record future impairment charges to long-
lived assets depending on future events. In addition, depending on the ongoing impact of the pandemic, we may
also be required to reserve for credit losses and/or repurchase commitments. Any material increase in our
reserves could have a corresponding effect on our results of operations.

The ultimate magnitude of COVID-19, including the extent of its impact on our financial condition and
results of operations, which could be material, will depend on all of the factors noted above, including other
factors that we may not be able to forecast at this time. While we expect the impacts of COVID-19 to have an
adverse effect on our business, financial condition and results of operations, we are unable to predict the extent of
these impacts at this time.

Any potential government crisis relief assistance to help mitigate the adverse impacts of the COVID-19 pandemic
could impose significant limitations on our corporate activities, may dilute our stockholders and may not be on
terms favorable to us.

Numerous government-sponsored crisis relief programs have been implemented in an effort to mitigate the

adverse impacts of the COVID-19 pandemic and others are being considered. If any government agrees to
provide crisis relief assistance that we accept, it may impose certain requirements on the recipients of the aid
including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt,
limitations on debt, and other similar restrictions that will apply for a period of time after the aid is repaid or
redeemed in full. We cannot assure you that any such government crisis relief assistance will not significantly
limit our corporate activities or be on terms that are favorable to us. Such restrictions and terms could adversely
impact our business and operations. In addition, such funding could involve the issuance of warrants, which will
be dilutive to our stockholders.

Weak general economic conditions, particularly in the United States, can negatively impact our industry, demand
for our products, and our business and results of operations.

Demand for new recreational powerboats can be negatively influenced by weak economic conditions, low

consumer confidence and high unemployment, especially in the United States, and by increased market volatility
worldwide. The COVID-19 pandemic has caused a significant economic slowdown and the beginning of a global
recession, which could be of an unknown duration. We recognized a decrease in net sales in the fourth quarter of
fiscal year 2020 as a result of facility closures related to the pandemic, but retail sales of our boats have remained
strong during this period as consumers have turned to boating and other outdoor activities for leisure and
entertainment alternatives during the pandemic. If, however, the economic slowdown continues for an extended
duration or worsens, sales of our boats could be negatively impacted during fiscal year 2021. In times of
economic uncertainty and contraction, like we are currently experiencing, consumers tend to have less
discretionary income and defer or avoid expenditures for discretionary items, such as boats. Sales of our products
are highly sensitive to personal discretionary spending levels, and our success depends on general economic
conditions and overall consumer confidence and personal income levels, especially in the United States and in
the specific regional markets where we sell our products. Any deterioration in general economic conditions that
diminishes consumer confidence or discretionary income is likely to reduce our sales and adversely affect our
business, financial condition and results of operations. If general economic conditions deteriorate further, for
instance, due to the increased severity or length of the pandemic, it may exacerbate the impact on our business
and may delay significantly any potential economic recovery.

In addition, consumers often finance purchases of our boats and accordingly, consumer credit market
conditions can influence demand for our boats. If credit conditions worsen, which could occur in response to the
COVID-19 pandemic, and adversely affect the ability of consumers to finance potential purchases at acceptable
terms and interest rates, it could result in a decrease in the sales of our products.

Our annual and quarterly financial results are subject to significant fluctuations depending on various factors,
many of which are beyond our control.

Our sales and operating results can vary significantly from quarter to quarter and year to year depending on

various factors, many of which are beyond our control. These factors include, but are not limited to:

•

seasonal consumer demand for our products;

discretionary spending habits;

changes in pricing in, or the availability of supply in, the used powerboat market;

failure to maintain a premium brand image;

disruption in the operation of our manufacturing facilities, such as our temporary shutdown of facilities
due to the COVID-19 pandemic;

variations in the timing and volume of our sales;

the timing of our expenditures in anticipation of future sales;

sales promotions by us and our competitors;

changes in competitive and economic conditions generally;

changes in trade policy or the imposition of additional tariffs;

consumer preferences and competition for consumers’ leisure time; and

changes in the cost or availability of our labor.

As a result, our results of operations may decline quickly and significantly in response to changes in order
patterns or rapid decreases in demand for our products. We anticipate that fluctuations in operating results will
continue in the future.

In addition to the factors noted above, unfavorable weather conditions, policies impacting access to waterways
and shelter-in- place orders may have a material adverse effect on our business, financial condition, and results
of operations, especially during the peak boating season.

Adverse weather conditions in any year in any particular geographic region may adversely affect sales in
that region, especially during the peak boating season. Sales of our products are generally stronger just before
and during spring and summer, which represent the peak boating months in most of our markets, and favorable
weather during these months generally has a positive effect on consumer demand. Conversely, unseasonably cool
weather, excessive rainfall, reduced rainfall levels, or drought conditions during these periods may close area
boating locations or render boating dangerous or inconvenient, thereby generally reducing consumer demand for
our products. Our annual results would be materially and adversely affected if our net sales were to fall below
expected seasonal levels during these periods. We may also experience more pronounced seasonal fluctuation in
net sales in the future as we continue to expand our businesses. Additionally, to the extent that unfavorable
weather conditions are exacerbated by global climate change or otherwise, our sales may be affected to a greater
degree than we have previously experienced. There can be no assurance that weather conditions will not have a
material effect on the sales of any of our products.

Many of our customers use our Malibu, Axis and Cobalt boats for recreational water activities and our
Pursuit boats for fishing. Regulatory or commercial policies and practices impacting access to water, including
availability of slip locations and/ or the ability to transfer boats among different waterways, access to fisheries, or
the ability to fish in some areas could negatively affect demand for our products. Further, in response to the
COVID-19 pandemic shelter-in-place orders were in effect for part of spring 2020 and social distancing policies
continue to be in effect during the summer months. These policies and regulations resulted in the closure of our
facilities and closure of our dealers and sales of our boats were negatively impacted during the fourth quarter of
fiscal year 2020. Sales of our boats could be impacted during fiscal year 2021 as a result of the continuation and
in some cases reinstatement of shelter-in-place orders and social distancing policies.

We depend on our network of independent dealers, face increasing competition for dealers and have little control
over their activities.

Substantially all of our sales are derived from our network of independent dealers. We have agreements with
the dealers in our network that typically provide for one-year terms, although some agreements have a term of up
to three years. Our top ten dealers represented 38.5%, 39.6% and 37.8%, of our net sales for fiscal year 2020,
2019 and 2018, respectively. The top ten dealers for each of Malibu, Cobalt and Pursuit represented
approximately 45.8%, 45.3% and 82.7%, respectively, of net sales in fiscal year 2020. The top ten dealers for
each segment are not the same across all segments. 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 fiscal years 2020,
2019, and 2018 respectively including approximately 7.6%, 15.7% and 34.5% of consolidated sales in fiscal year
2020 for Malibu, Cobalt and Pursuit, respectively. The loss of a significant number of these dealers could have a
material adverse effect on our financial condition and results of operations. The number of dealers supporting our
products and the quality of their marketing and servicing efforts are essential to our ability to generate sales.

Competition for dealers among recreational powerboat manufacturers continues to increase based on the
quality, price, value and availability of the manufacturers’ products, the manufacturers’ attention to customer
service and the marketing support that the manufacturer provides to the dealers. We face intense competition
from other recreational powerboat manufacturers in attracting and retaining dealers, and we cannot assure you
that we will be able to attract or retain relationships with qualified and successful dealers. We cannot assure you
that we will be able to maintain or improve our relationship with our dealers or our market share position. In
addition, independent dealers in the recreational powerboat industry have experienced significant consolidation
in recent years, which could result in the loss of one or more of our dealers in the future if the surviving entity in
any such consolidation purchases similar products from a competitor. A substantial deterioration in the number
of dealers or quality of our network of dealers would have a material adverse effect on our business, financial
condition and results of operations.

Our success depends, in part, upon the financial health of our dealers and their continued access to financing.

Because we sell nearly all of our products through dealers, the financial health of our dealers is critical to
our success. Our business, financial condition and results of operations may be adversely affected if the financial
health of the dealers that sell our products suffers. Their financial health may suffer for a variety of reasons,
including a downturn in general economic conditions, rising interest rates, higher rents, increased labor costs and
taxes, compliance with regulations and personal financial issues. In addition, our dealers have experienced
disruptions to their operations during the pandemic, including temporary closures during which they were either
unable or significantly limited in their ability to sell our boats. Our dealers may experience closures again if there
are further federal, state or local mandates to suspend operations in light of the increasing rate of infections of
COVID-19 in the United States.

Our dealers also require adequate liquidity to finance their operations, including purchases of our boats.
Dealers are subject to numerous risks and uncertainties that could unfavorably affect their liquidity positions,
including, among other things, continued access to adequate financing sources on a timely basis on reasonable
terms. These sources of financing are vital to our ability to sell products through our distribution network. Access
to floor plan financing generally facilitates our dealers’ ability to purchase boats from us, and their financed
purchases reduce our working capital requirements. If floor plan financing were not available to our dealers, our
sales and our working capital levels would be adversely affected. The availability and terms of financing offered
by our dealers’ floor plan financing providers may be influenced by:

•

their ability to access certain capital markets and to fund their operations in a cost-effective manner;

changes in interest rates;

the performance of their overall credit portfolios;

their willingness to accept the risks associated with lending to dealers; and

the overall creditworthiness of those dealers.

The COVID-19 pandemic has the potential to cause a strain on some of our dealers’ liquidity and depending

on the length and severity of the pandemic, it may result in financing sources becoming less available to our
dealers on reasonable terms, or at all.

We may be required to repurchase inventory of certain dealers.

Many of our dealers have floor plan financing arrangements with third-party finance companies that enable

the dealers to purchase our products. In connection with these agreements, we may have an obligation to
repurchase our products from a finance company under certain circumstances, and we may not have any control
over the timing or amount of any repurchase obligation nor have access to capital on terms acceptable to us to
satisfy any repurchase obligation. This obligation is triggered if a dealer defaults on its debt obligations to a
finance company, the finance company repossesses the boat and the boat is returned to us. Our obligation to
repurchase a repossessed boat for the unpaid balance of our original invoice price for the boat is subject to
reduction or limitation based on the age and condition of the boat at the time of repurchase, and in certain cases
by an aggregate cap on repurchase obligations associated with a particular floor plan financing program. If our
dealers suffer material economic harm during the COVID-19 pandemic, the dealers may no longer be able to
continue in business or, even if they are, they may not be able to maintain their payment obligations under their
floor plan financing arrangements and the boats could be repossessed by the floor plan financing provider and
returned to us. If boats are returned to us, it would have an adverse impact on our net sales and could result in
downward pressure on pricing of our boats. For fiscal year 2020, we repurchased two units from a lender of one
of our 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, we repurchased eight units from a lender of two of our former dealers
and those units were subsequently resold in fiscal year 2020 above their cost and at minimal margin loss.

One or more dealers may default on the terms of a credit line in the future. In addition, applicable laws

regulating dealer relations may also require us to repurchase our products from our dealers under certain
circumstances, and we may not have any control over the timing or amount of any repurchase obligation nor have
access to capital on terms acceptable to us to satisfy any repurchase obligation. If we are required to repurchase a
significant number of units under any repurchase agreement or under applicable dealer laws, our business,
operating results and financial condition could be adversely affected.

We rely solely on General Motors for the supply of Malibu and Axis engines, which we integrate for marine use.

The availability and cost of engines used in the manufacture of our boats are critical. We purchase engines

from General Motors LLC that we then prepare for marine use for our Malibu and Axis boats. Our current
agreement with General Motors LLC provides us with engines through model year 2023. If we are required to
replace General Motors as our engine supplier for any reason, it could cause a decrease in products available for
sale or an increase in our cost of sales, either of which could adversely affect our business, financial condition
and results of operations. During fiscal year 2020 we experienced interruption to our engine supply as a result of
the United Auto Workers’ strike against General Motors. During the UAW strike, General Motors suspended
delivery of engine blocks to us and we incurred $2.6 million in costs by entering into purchase agreements with
two suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.
General Motors and Unifor, which represents the Canadian autoworkers, have a labor agreement which expires in
September 2020 and the parties are currently in negotiations. If the Canadian autoworkers were to strike against
General Motors upon expiration of the labor agreement we could experience another interruption to our engine
supply which could cause a decrease in products available for sale or an increase in our cost of sales, either of
which could adversely affect our business, financial condition and results of operations.

We have agreed to purchase substantially all of our outboard motors from Yamaha, which makes us reliant on
Yamaha for our supply of outboard engines.

In August 2018, we entered into a joint marketing agreement with Yamaha Motor Corporation, U.S.A., or

Yamaha, that became effective upon completion of our acquisition of Pursuit. Under our agreement with
Yamaha, in exchange for certain incentives, we have agreed to purchase Yamaha outboard engines for use in at
least 90% of all Pursuit and Cobalt branded boats that are pre-equipped with outboard motors when sold by us.
While we believe that this agreement with Yamaha will provide the engines we need for our Cobalt boats and
Pursuit boats, Yamaha could potentially exert significant bargaining power over quality, warranty claims, or
other terms relating to the outboard engines we use. We also must pay penalties to Yamaha if we do not achieve
pre-determined purchase volume targets for each year of the agreement and for the entire term of the agreement,
which is scheduled to expire on June 30, 2023, unless extended by both parties. We may not be able to meet the
purchase volume targets, which would require us to pay penalties to Yamaha.

In addition to General Motors and Yamaha, we rely on other third-party suppliers and may be unable to obtain
adequate raw materials and components.

We depend on third-party suppliers to provide components and raw materials essential to the construction of

our boats. Historically, we have not entered into long-term agreements with our suppliers, but have developed
90-day forecast models with our major suppliers to minimize disruptions in our supply chain. While we believe
that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present
production demand, we cannot assure you that these relationships will continue or that the quantity or quality of
materials available from these suppliers will be sufficient to meet our future needs.

Any number of factors, including labor disruptions, catastrophic weather events, the occurrence of a
pandemic or contagious disease, contractual or other disputes, unfavorable economic or industry conditions,
delivery delays or other performance problems or financial difficulties or solvency problems, could disrupt our
suppliers’ operations and lead to uncertainty in our supply chain or cause supply disruptions for us, which could,

in turn, disrupt our operations. During the COVID-19 pandemic, many of our suppliers experienced temporary
closures, with the potential to delay our ability to receive certain components and materials that are essential to
the construction of our boats. In addition, the temporary shutdown of our facilities resulted in an inability for us
to receive supplies from our vendors. If we do not receive sufficient supplies of materials for production of our
boats or if we are required to replace one or more suppliers of any key components or raw materials, it could
cause a disruption to our production schedule or cause us to alter productions schedules or suspend production
entirely, thereby decreasing products available for sale or causing an increase in the cost of sales, either of which
could adversely affect our business, financial condition and results of operations.

In addition to the above factors, our suppliers could face increased costs or an inability to meet required

production levels due to the tariffs the U.S. has imposed on certain foreign goods, including raw materials and
components used in our manufacturing process. This could negatively impact our cost of sales, by increasing the
price of raw materials and components used in our supply chain.

Termination or interruption of informal supply arrangements could have a material adverse effect on our
business or results of operations.

We have informal supply arrangements with many of our suppliers. In the event of a termination of the

supply arrangement, there can be no assurance that alternate supply arrangements will be made on satisfactory
terms. If we need to enter into supply arrangements on unsatisfactory terms, or if there are any delays to our
supply arrangements, it could adversely affect our business and operating results.

Our ability to meet our manufacturing workforce needs is crucial to our results of operations and future sales
and profitability.

We rely on the existence of an available hourly workforce to manufacture our boats. We cannot assure you
that we will be able to attract and retain qualified employees to meet current or future manufacturing needs at a
reasonable cost, or at all. For instance, although there are currently high unemployment rates in the regions where
we have manufacturing facilities, it is difficult to retain skilled employees. Also, although none of our employees
are currently covered by collective bargaining agreements, we cannot assure you that our employees will not
elect to be represented by labor unions in the future. Additionally, competition for qualified employees could
require us to pay higher wages to attract a sufficient number of employees. Significant increases in
manufacturing workforce costs could materially adversely affect our business, financial condition or results of
operations.

As a result of the COVID-19 pandemic, we suspended operations at all our facilities on March 24, 2020.

While we have resumed operations at all our facilities, we have continued to implement safety precautions,
including enhanced and more frequent cleaning of our facilities, providing facemasks to each employee,
enforcing social distancing guidelines and screening employees for potential symptoms. These additional safety
precautions have resulted in increases in manufacturing workforce costs and may also impact the productivity
and profitability at our facilities. In addition, we may experience higher levels of absenteeism during the
pandemic due to the fear of becoming ill, which may further impact our manufacturing operations.

The nature of our business exposes us to workers’ compensation claims and other workplace liabilities.

Certain materials we use require our employees to handle potentially hazardous or toxic substances. While
our employees who handle these and other potentially hazardous or toxic materials receive specialized training
and wear protective clothing, there is still a risk that they, or others, may be exposed to these substances.
Exposure to these substances could result in significant injury to our employees and damage to our property or
the property of others, including natural resource damage. Our personnel are also at risk for other workplace-
related injuries, including slips and falls. We have in the past been, and may in the future be, subject to fines,
penalties, and other liabilities in connection with any such injury or damage. While we have implemented safety

precautions at our facilities following their reopening after the temporary closures in March 2020 due to the
COVID-19 pandemic, we may also be subject to possible lawsuits or regulatory actions or suffer from
reputational risk if we experience COVID-19 spread in our workplace. We may be unable to maintain insurance
for these potential liabilities on acceptable terms or such insurance may not provide adequate protection against
potential liabilities.

We have grown our business through acquisitions; however we may not be successful in completing future
acquisitions or integrating future acquisitions in a way that fully realizes their expected benefits to our business.

A key part of our growth strategy, as shown by our acquisition of Pursuit in 2018, of Cobalt in 2017 and of
our Australian licensee in 2014, has been to acquire other companies that expand our consumer base, enter new
product categories or obtain other competitive advantages. We expect to continue to acquire companies as an
element of our growth strategy; however, we may not be able to identify future acquisition candidates or strategic
partners as part of our growth strategy that are suitable to our business, or we may not be able to obtain financing
on satisfactory terms to complete such acquisitions.

Acquisitions also involve special risks, including risks associated with unanticipated challenges, liabilities
and contingencies, and diversion of management attention and resources from our existing operations. If we fail
to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at target
companies, or fail to recognize incompatibilities or other obstacles to successful integration. Our inability to
successfully integrate future acquisitions within the intended timeframes or at all could impede us from realizing
all of the benefits of those acquisitions and could severely weaken our business operations. The integration
process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits
expected by us and could harm our results of operations. In addition, the overall integration of the combining
companies may result in unanticipated problems, expenses, liabilities and competitive responses and may cause
our stock price to decline. Even if the operations of an acquisition are integrated successfully, we may not realize
the full benefits of the acquisition, including the synergies, cost savings or growth opportunities that we expect.

Our growth strategy may require us to secure significant additional capital, the amount of which will depend
upon the size, timing, and structure of future acquisitions or vertical integrations and our working capital and
general corporate needs.

Our growth strategy includes the possible acquisition of other businesses, such as our acquisitions of Cobalt

and Pursuit, and the potential integration of new product lines or related products to our boats, such as our
initiatives to integrate the production of our own engines and trailers for our Malibu and Axis models. These
actions may require us to secure significant additional capital through the borrowing of money or the issuance of
equity. Any borrowings made to finance future strategic initiatives could make us more vulnerable to a downturn
in our operating results, a downturn in economic conditions, or increases in interest rates on borrowings that are
subject to interest rate fluctuations. If our cash flow from operations is insufficient to meet our debt service
requirements, we could then be required to sell additional equity securities, refinance our obligations or dispose
of assets in order to meet our debt service requirements. Adequate financing may not be available if and when we
need it or may not be available on terms acceptable to us. The failure to obtain sufficient financing on favorable
terms and conditions could have a material adverse effect on our growth prospects.

Further, we could choose to finance acquisitions or other strategic initiatives, in whole or in part through the

issuance of our Class A Common Stock or securities convertible into or exercisable for our Class A Common
Stock. If we do so, existing stockholders will experience dilution in the voting power of their Class A Common
Stock and earnings per share could be negatively impacted. The extent to which we will be able and willing to
use our Class A Common Stock for acquisitions and other strategic initiatives will depend on the market value of
our Class A Common Stock and the willingness of potential third parties to accept our Class A Common Stock as
full or partial consideration. Our inability to use our Class A Common Stock as consideration, to generate cash
from operations, or to obtain additional funding through debt or equity financings in order to pursue our strategic
initiatives could materially limit our growth.

We have a large fixed cost base that will affect our profitability if our sales decrease.

The fixed cost levels of operating a recreational powerboat manufacturer can put pressure on profit margins

when sales and production decline. Our profitability depends, in part, on our ability to spread fixed costs over a
sufficiently large number of products sold and shipped, and if we make a decision to reduce our rate of
production, gross or net margins could be negatively affected. Consequently, decreased demand or the need to
reduce production can lower our ability to absorb fixed costs and materially impact our financial condition or
results of operations.

Our industry is characterized by intense competition, which affects our sales and profits.

The recreational powerboat industry, and in particular the performance sport boat category, is highly
competitive for consumers and dealers. We also compete against consumer demand for used boats. Competition
affects our ability to succeed in the markets we currently serve, including the saltwater outboard fishing boat
market in which Pursuit competes, and new markets that we may enter in the future. Competition is based
primarily on brand name, price, product selection and product performance. We compete with several large
manufacturers that may have greater financial, marketing and other resources than we do and who are
represented by dealers in the markets in which we now operate and into which we plan to expand. We also
compete with a variety of small, independent manufacturers. We cannot assure you that we will not face greater
competition from existing large or small manufacturers or that we will be able to compete successfully with new
competitors. Our failure to compete effectively with our current and future competitors would adversely affect
our business, financial condition and results of operations.

Our sales may be adversely impacted by increased consumer preference for used boats or the supply of new
boats by competitors in excess of demand.

During the economic downturn that commenced in 2008, we observed a shift in consumer demand toward

purchasing more used boats, primarily because prices for used boats are typically lower than retail prices for new
boats. If this were to occur again, especially in light of the current economic downturn caused by the COVID-19
pandemic, it could have the effect of reducing demand among retail purchasers for our new boats. Also, while we
have taken steps designed to balance production volumes for our boats with demand, our competitors could
choose to reduce the price of their products, which could have the effect of reducing demand for our new boats.
Reduced demand for new boats could lead to reduced sales by us, which could adversely affect our business,
results of operations or financial condition.

Our sales and profitability depend, in part, on the successful introduction of new products.

Market acceptance of our products depends on our technological innovation and our ability to implement
technology in our boats. Our sales and profitability may be adversely affected by difficulties or delays in product
development, such as an inability to develop viable or innovative new products. Our failure to introduce new
technologies and product offerings that our markets desire could adversely affect our business, financial
condition and results of operations. Also, we believe we have been able to achieve higher margins in part as a
result of the introduction of new features or enhancements to our existing boat models. If we fail to introduce
new features or those we introduce fail to gain market acceptance, our margins may suffer.

In addition, some of our direct competitors and indirect competitors may have significantly more resources
to develop and patent new technologies. It is possible that our competitors will develop and patent equivalent or
superior technologies and other products that compete with ours. They may assert these patents against us and we
may be required to license these patents on unfavorable terms or cease using the technology covered by these
patents, either of which would harm our competitive position and may materially adversely affect our business.

We also cannot be certain that our products or technologies have not infringed or will not infringe the
proprietary rights of others. Any such infringement could cause third parties, including our competitors, to bring
claims against us, resulting in significant costs and potential damages.

We compete with a variety of other activities for consumers’ scarce leisure time.

Our boats are used for recreational and sport purposes, and demand for our boats may be adversely affected
by competition from other activities that occupy consumers’ leisure time and by changes in consumer life style,
usage pattern or taste. Similarly, an overall decrease in consumer leisure time may reduce consumers’
willingness to purchase and enjoy our products.

Our success depends upon the continued strength of our brands - Malibu, Axis, Cobalt and Pursuit - and the
value of our brands and sales of our products could be diminished if we, the athletes who use our products or the
sports and activities in which our products are used, are associated with negative publicity.

We believe that our brands - Malibu, Axis, Cobalt and Pursuit - are significant contributors to the success of
our business and that maintaining and enhancing our brands are important to expanding our consumer and dealer
base. Failure to continue to protect our brands may adversely affect our business, financial condition and results
of operations.

Negative publicity, including that resulting from recalls or from severe injuries or accidents occurring in the

sports and activities in which our products are used, could negatively affect our reputation and result in
restrictions or bans on the use of our products. For instance, during fiscal year 2019 we announced a recall with
respect to fuel pumps supplied to us by a third- party vendor and used in certain Malibu and Axis models. While
the recall also impacted other manufacturers in the recreational powerboat industry, our announcement of the
recall could adversely impact the reputation of our brands.

In addition, actions taken by athletes associated with our products that harm the reputations of those athletes

could also harm our brand image and adversely affect our financial condition. If the popularity of the sports and
activities for which we design, manufacture and sell products were to decrease as a result of these risks or any
negative publicity, sales of our products could decrease, which could have an adverse effect on our net revenue,
profitability and operating results. Further, if we become exposed to additional claims and litigation relating to
the use of our products, our reputation may be adversely affected by such claims, whether or not successful,
including by generating potential negative publicity about our products, which could adversely impact our
business and financial condition.

We may not be able to execute our manufacturing strategy successfully, which could cause the profitability of our
products to suffer.

Our manufacturing strategy is designed to improve product quality and increase productivity, while
reducing costs and increasing flexibility to respond to ongoing changes in the marketplace. To implement this
strategy, we must be successful in our continuous improvement efforts, which depend on the involvement of
management, production employees and suppliers.

As part of our manufacturing strategy, we commenced an initiative in 2016 to produce our own supply of
engines for our Malibu and Axis models. Our engines, branded as Malibu Monsoon engines, were in all Malibu
and Axis boats for model year 2020. This strategy required significant additional capital, increased the fixed
costs of our operations, and may still require further capital investment. Because the integration of engines into
our manufacturing process is new to us, we must be successful in continuous improvement efforts, which depend
on the involvement of management, production employees and suppliers. We are in the early stages of this
strategy and if we are not successful in implementing our engine integration strategy, it could adversely impact
the profitability of our products and our ability to deliver desirable products to our consumers.

Any inability to achieve our objectives under our manufacturing strategy could adversely impact the

profitability of our products and our ability to deliver desirable products to our consumers.

Product liability, warranty, personal injury, property damage and recall claims may materially affect our
financial condition and damage our reputation.

We are engaged in a business that exposes us to claims for product liability and warranty claims in the event

our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to
result, in property damage, personal injury or death.

Our Malibu and Axis brand boats have a limited warranty for a period up to five years. Prior to fiscal year
2016, we provided a limited warranty for a period of up to three years for our Malibu brand boats and two years
for our Axis boats. We expect the extension of our warranty coverage period to increase our obligations to cover
warranty claims over time resulting in an increase in our reserve to cover these warranty claims.

Our 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. 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 year (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.

Our standard warranties require us or our dealers to repair or replace defective products during such

warranty periods at no cost to the consumer. Although we maintain product and general liability insurance of the
types and in the amounts that we believe are customary for the industry, we are not fully insured against all such
potential claims. We may experience legal claims in excess of our insurance coverage or claims that are not
covered by insurance, either of which could adversely affect our business, financial condition and results of
operations. Adverse determination of material product liability and warranty claims made against us could have a
material adverse effect on our financial condition and harm our reputation. In addition, if any of our products are,
or are alleged to be, defective, we may be required to participate in a recall of that product if the defect or alleged
defect relates to safety. For example, in fiscal year 2019 we had to announce a recall on fuel pumps supplied to
us by a third-party vendor and used in certain Malibu and Axis boats. While this recall has not had a material
impact on our business, financial condition or results of operations, future recalls or other claims we face could
be costly to us and require substantial management attention.

We depend on key personnel and we may not be able to retain them or to attract, assimilate, and retain highly
qualified employees in the future.

Our future success will depend in significant part upon the continued service of our senior management and

our continuing ability to attract, assimilate, and retain highly qualified and skilled managerial, product
development, manufacturing, and marketing and other personnel. The loss of services of any members of our
senior management or key personnel or the inability to hire or retain qualified personnel in the future could
adversely affect our business, financial condition, and results of operations.

Our reliance upon patents, trademark laws and contractual provisions to protect our proprietary rights may not
be sufficient to protect our intellectual property from others who may sell similar products and may lead to costly
litigation. We are currently, and may be in the future, party to lawsuits and other intellectual property rights
claims that are expensive and time-consuming.

We hold patents and trademarks relating to various aspects of our products and believe that proprietary
technical know- how is important to our business. Proprietary rights relating to our products are protected from

unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or
trademarks or are maintained in confidence as trade secrets. We cannot be certain that we will be issued any
patents from any pending or future patent applications owned by or licensed to us or that the claims allowed
under any issued patents will be sufficiently broad to protect our technology. In the absence of enforceable patent
or trademark protection, we may be vulnerable to competitors who attempt to copy our products, gain access to
our trade secrets and know-how or diminish our brand through unauthorized use of our trademarks, all of which
could adversely affect our business. Accordingly, we may need to engage in future litigation to enforce
intellectual property rights, to protect trade secrets or to determine the validity and scope of proprietary rights of
others.

We also rely on unpatented proprietary technology. It is possible that others will independently develop the
same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets
and other proprietary information, we require employees, consultants, advisors and collaborators to enter into
confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for
our trade secrets, know-how, or other proprietary information in the event of any unauthorized use,
misappropriation, or disclosure of such trade secrets, know-how, or other proprietary information. If we are
unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

In addition, others may initiate litigation or other proceedings to challenge the validity of our patents, or

allege that we infringe their patents, or they may use their resources to design comparable products that do not
infringe our patents. We may incur substantial costs if our competitors initiate litigation to challenge the validity
of our patents, or allege that we infringe their patents, or if we initiate any proceedings to protect our proprietary
rights. If the outcome of any litigation challenging our patents is unfavorable to us, our business, financial
condition and results of operations could be adversely affected.

We rely on network and information systems and other technologies for our business activities and certain
events, such as computer hackings, viruses or other destructive or disruptive software or activities may disrupt
our operations, which could have a material adverse effect on our business, financial condition and results of
operations.

Network and information systems and other technologies are important to our business activities and
operations. Network and information systems-related events, such as computer hackings, cyber threats, security
breaches, viruses, or other destructive or disruptive software, process breakdowns or malicious or other activities
could result in a disruption of our services and operations or improper disclosure of personal data or confidential
information, which could damage our reputation and require us to expend resources to remedy any such
breaches. Moreover, the amount and scope of insurance we maintain against losses resulting from any such
events or security breaches may not be sufficient to cover our losses or otherwise adequately compensate us for
any disruptions to our businesses that may result, and the occurrence of any such events or security breaches
could have a material adverse effect on our business and results of operations. The risk of these systems- related
events and security breaches occurring has intensified, in part because we maintain certain information necessary
to conduct our businesses in digital form stored on cloud servers. While we develop and maintain systems
seeking to prevent systems-related events and security breaches from occurring, the development and
maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and
efforts to overcome security measures become more sophisticated. Despite these efforts, there can be no
assurance that disruptions and security breaches will not occur in the future. Moreover, we may provide certain
confidential, proprietary and personal information to third parties in connection with our businesses, and while
we obtain assurances that these third parties will protect this information, there is a risk that this information may
be compromised. The occurrence of any of such network or information systems-related events or security
breaches could have a material adverse effect on our business, financial condition and results of operations.

Additionally, there is an increased risk that we may experience cybersecurity-related events such as COVID-19
themed phishing attacks and other security challenges as a result of most of our employees and our service
providers working remotely from non-corporate managed networks during the ongoing COVID-19 pandemic and
potentially continuing working remotely even after the COVID-19 pandemic has subsided.

We are also subject to laws and regulations in the United States and other countries concerning the handling

of personal information, including laws that require us to notify governmental authorities and/or affected
individuals of data breaches involving certain personal information. These laws and regulations include, for
example, the European General Data Protection Regulation (GDPR), effective May 25, 2018, and the California
Consumer Privacy Act (CCPA), effective January 1, 2020. Regulatory actions or litigation seeking to impose
significant penalties could be brought against us in the event of a data breach or alleged non-compliance with
such laws and regulations.

We are planning to begin the implementation of a new enterprise resource planning (ERP) system and if we are
not able to successfully develop and manage that implementation, it could adversely affect our business or results
of operations.

We are planning to begin the process of designing and implementing a new ERP system. This project will
require significant capital and human resources, the re-engineering of many processes of our business, and the
attention of our management and other personnel who would otherwise be focused on other aspects of our
business. The implementation may be more expensive and take longer to fully implement than we originally
plan, resulting in increased capital investment, higher fees and expenses of third parties, delayed deployment
scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to
estimate the ultimate costs and schedules. If for any reason portions of the implementation are not successful, we
could be required to expense rather than capitalize related amounts.

Our international markets require significant management attention, expose us to difficulties presented by
international economic, political, legal and business factors, and may not be successful or produce desired levels
of sales and profitability.

We currently sell our products throughout the world. Our total sales outside North America were less than

10% of our total revenue for fiscal years 2020, 2019 and 2018. International markets have been, and will
continue to be, a focus for sales growth. We believe many opportunities exist in the international markets, and
over time we intend for international sales to comprise a larger percentage of our total revenue. Several factors,
including weakened international economic conditions and the strength of the U.S. dollar, could adversely affect
such growth. The expansion of our existing international operations and entry into additional international
markets require significant management attention. Some of the countries in which we market and our distributors
sell our products are to some degree subject to political, economic or social instability. Our international
operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign
jurisdictions. These risks include, but are not limited to:

•

the strength of the U.S. dollar could make our products more expensive in international markets and
thereby reduce consumer demand;

increased costs of customizing products for foreign countries;

economic and social instability, and public health crises, including the outbreak of pandemic or
contagious disease such as COVID-19;

unfamiliarity with local demographics, consumer preferences and discretionary spending patterns;

difficulties in attracting customers due to a reduced level of customer familiarity with our brand;

competition with new, unfamiliar competitors;

•

the imposition of additional foreign governmental controls or regulations, including rules relating to
environmental, health and safety matters and regulations and other laws applicable to publicly-traded
companies, such as the Foreign Corrupt Practices Act, or the FCPA;

new or enhanced trade restrictions and restrictions on the activities of foreign agents, representatives
and distributors, including the imposition of additional or new tariffs;

the imposition of increases in costly and lengthy import and export licensing and other compliance
requirements, customs duties and tariffs, license obligations and other non-tariff barriers to trade;

laws and business practices favoring local companies;

longer payment cycles and difficulties in enforcing agreements and collecting receivables through
certain foreign legal systems; and

difficulties in enforcing or defending intellectual property rights.

Our international operations may not produce desired levels of total sales, or one or more of the foregoing

factors may harm our business, financial condition or results of operations.

Rising concern regarding international tariffs could materially and adversely affect our business and results of
operations.

The current political landscape has introduced significant uncertainty with respect to future trade

regulations, including the imposition by the U.S. of tariffs and penalties on products manufactured outside the
U.S., and existing international trade agreements, as shown by Brexit in Europe. The institution of global trade
tariffs (including, but not limited to, the Trump Administration’s tariffs on Europe and Canada on certain
products from the U.S.), trade sanctions, new or onerous trade restrictions, embargoes and other stringent
government controls carries the risk of negatively affecting global economic conditions, which could have a
negative impact on our business and results of operations. In addition, certain foreign governments have imposed
tariffs on certain U.S. goods and may take additional retaliatory trade actions stemming from the tariffs, which
could increase the pricing of our products and result in decreased consumer demand for our products outside of
the United States, which could materially and adversely affect our business and results of operations.

Changes in currency exchange rates can adversely affect our results.

A portion of our sales are denominated in a currency other than the U.S. dollar. Consequently, a strong U.S.

dollar may adversely affect reported revenues. We also maintain a portion of our manufacturing operations in
Australia which partially mitigates the impact of a strengthening U.S. dollar in that country. A portion of our
selling, general and administrative costs are transacted in Australian dollars as a result. We also sell U.S.
manufactured products into certain international markets in U.S. dollars, including the sale of products into
Canada, Europe and Latin America. Demand for our products in these markets may also be adversely affected by
a strengthening U.S. dollar. We do not currently use hedging or other derivative instruments to mitigate our
foreign currency risks.

An increase in energy and fuel costs may adversely affect our business, financial condition and results of
operations.

Higher energy costs result in increases in operating expenses at our manufacturing facility and in the
expense of shipping products to our dealers. In addition, increases in energy costs may adversely affect the
pricing and availability of petroleum- based raw materials, such as resins and foams, that are used in our
products. Also, higher fuel prices may have an adverse effect on demand for our boats, as they increase the cost
of ownership and operation.

We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and
regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and
regulations could subject us to civil, criminal and administrative penalties and harm our reputation.

Doing business on a worldwide basis requires us to comply with the laws and regulations of various foreign

jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners and
investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade
control laws and regulations, such as the FCPA, export controls and economic sanctions programs, including
those administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or the OFAC. As a
result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of
violating anti-corruption and trade control laws and sanctions regulations.

The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or
retaining business or securing any improper business advantage. It also requires us to keep books and records that
accurately and fairly reflect our transactions.

Economic sanctions programs restrict our business dealings with certain sanctioned countries, persons and

entities. In addition, because we act through dealers and distributors, we face the risk that our dealers, distributors
or consumers might further distribute our products to a sanctioned person or entity, or an ultimate end-user in a
sanctioned country, which might subject us to an investigation concerning compliance with OFAC or other
sanctions regulations.

Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil
penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government
contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We cannot
assure you that all of our local, strategic or joint partners will comply with these laws and regulations, in which
case we could be held liable for actions taken inside or outside of the United States, even though our partners
may not be subject to these laws. Such a violation could materially and adversely affect our reputation, business,
results of operations and financial condition. Our continued international expansion, including in developing
countries, and our development of new partnerships and joint venture relationships worldwide, could increase the
risk of FCPA or OFAC violations in the future.

If we are unable to comply with environmental and other regulatory requirements, our business may be exposed
to material liability or fines.

We are subject to extensive regulation, including product safety, environmental and health and safety
requirements under various federal, state, local and foreign statutes, ordinances and regulations. We believe that
we are in material compliance with all such requirements. Continued compliance with regulatory requirements
could increase the cost of our products, which in turn, may reduce consumer demand, or could materially
increase the cost of operations. The failure to comply with applicable regulatory requirements could cause us to
incur significant fines or penalties, impose obligations to conduct remedial or corrective actions, or, in extreme
circumstances, result in revocation of our permits or injunctions preventing some or all of our operations. In
addition, the components of our boats must meet certain regulatory standards, including air emission standards
for boat engines and fuel systems. Failure to meet these standards could result in an inability to sell our boats in
key markets, which would adversely affect our business. In addition, legal requirements are constantly evolving,
and changes in laws, regulations or policies, or changes in interpretations of the foregoing, could result in
compliance shortfalls, increase our costs or create liabilities where none exists today.

As with boat construction in general, our manufacturing processes involve the use, handling, storage and
contracting for recycling or disposal of hazardous substances and wastes. The failure to manage or dispose of
such hazardous substances and wastes properly could expose us to material liability or fines, including liability
for personal injury or property damage due to exposure to hazardous substances, damages to natural resources, or
for the investigation and remediation of environmental conditions. Under certain environmental laws, we may be
liable for remediation of contamination at sites where our hazardous wastes have been disposed or at our current

or former facilities, regardless of whether such facilities are owned or leased or whether we caused the condition
of contamination. We have not been notified of and are otherwise currently not aware of any contamination at
our current or former facilities, or at any other location, for which we could have any material liability under
environmental laws or regulations, and we currently are not undertaking any remediation or investigation
activities in connection with any contamination. Also, the components in our boats may become subject to more
stringent environmental regulations. For example, boat engines and other emission producing components may
be subject to more stringent emissions standards, which could increase the cost of our engines, components and
our products, which, in turn, may reduce consumer demand for our products.

The Occupational Safety and Health Administration (OSHA) imposes standards of conduct for and regulates

workplace safety, including physical safety and limits on the amount of emissions to which an employee may be
exposed without the need for respiratory protection or upgraded plant ventilation. Our facilities are regularly
inspected by OSHA and by state and local inspection agencies and departments. We believe that our facilities
comply in all material aspects with these regulations.

A natural disaster, global pandemic or other disruption at our facilities could adversely affect our business,
financial condition and results of operations.

We rely on the continuous operation of our facilities in Tennessee, Kansas, California, Florida and
Australia. Any natural disaster, global pandemic or other serious disruption to our facilities due to fire, flood,
earthquake or any other unforeseen circumstances could adversely affect our business, financial condition and
results of operations. The COVID-19 pandemic has significantly impacted health and economic conditions
throughout the United States. As a result of the pandemic, we suspended operations at all of our facilities on
March 24, 2020. We have since resumed operations at all our facilities. The disruption we experienced during
our temporary closure resulted in a reduction in our production of boats that we were not able to fully recover
during fiscal year 2020. The temporary shutdown of our facilities also resulted in delays for delivery of our boats
to dealers and inability to receive supplies from our vendors. We cannot assure you that we will not have to
suspend our operations again, whether voluntarily or as a result of federal, state or local mandates, and such
closures could extend for a longer term than the prior shutdown of our facilities.

Changes in climate could also adversely affect our operations by limiting or increasing the costs associated

with equipment or fuel supplies. In addition, adverse weather conditions, such as increased frequency and/or
severity of storms, or floods could impair our ability to operate by damaging our facilities and equipment or
restricting product delivery to customers. The occurrence of any disruption at our facilities, even for a short
period of time, may have an adverse effect on our productivity and profitability, during and after the period of the
disruption. These disruptions may also cause personal injury and loss of life, severe damage to or destruction of
property and equipment and environmental damage. Although we maintain property, casualty and business
interruption insurance of the types and in the amounts that we believe are customary for the industry, we are not
fully insured against all potential natural disasters or other disruptions to our facilities.

Increases in income tax rates or changes in income tax laws or enforcement could have a material adverse
impact on our financial results.

Changes in domestic and international tax legislation could expose us to additional tax liability and could

impact the amount of our tax receivable agreement liability. Although we monitor changes in tax laws and work
to mitigate the impact of proposed changes, such changes may negatively impact our financial results. In
addition, any increase in individual income tax rates, such as those implemented in the United States at the
beginning of 2013, would negatively affect our potential consumers’ discretionary income and could decrease the
demand for our products.

The credit agreement governing our revolving credit facility and term loan contains restrictive covenants which
may limit our operating flexibility and may impair our ability to access sufficient capital to operate our business.

We have relied on and continue to rely on our term loan and revolving credit facility to provide us with
adequate liquidity to operate our business. Our credit agreement governing our revolving credit facility and term
loan contains restrictive covenants that limit our ability to, among other things, incur additional debt and
additional liens on property and make future payments of dividends or distributions on our capital stock. Further,
the credit agreement requires compliance with financial covenants, including a minimum ratio of EBITDA to
fixed charges and a maximum ratio of total debt to EBITDA.

These covenants may affect our ability to operate and finance our business as we deem appropriate.

Violation of these covenants could constitute an event of default under the credit agreement governing our
revolving credit facility and term loan. If there were an event of default under the credit agreement, our lenders
could reduce or terminate our access to amounts under our credit facilities or declare all of the indebtedness
outstanding under our revolving credit facility and term loan immediately due and payable. We may not have
sufficient funds available, or we may not have access to sufficient capital from other sources, to continue funding
our operations or to repay any accelerated debt. Even if we could obtain additional financing, the terms of the
financing may not be favorable to us. In addition, substantially all of our assets are subject to liens securing our
revolving credit facility and term loan. If amounts outstanding under the revolving credit facility or term loan
were accelerated, our lenders could foreclose on these liens and we could lose substantially all of our assets. Any
event of default under the credit agreement governing our revolving credit facility and term loan could have a
material adverse effect on our business, financial condition and results of operations.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to
increase significantly.

Borrowings under our revolving credit facility and term loan are at variable rates of interest and expose us to

interest rate risk. Interest rates are currently at relatively low levels. If interest rates increase, our debt service
obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same,
and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly
decrease. We previously managed our exposure to interest rate movements on our term loan through the use of an
interest rate swap agreement on a notional amount of $39.3 million, which matured on March 31, 2020. In the
future, we may enter into similar interest rate swaps that involve the exchange of floating for fixed rate interest
payments in order to reduce future interest rate volatility on our term loan; however, there is no guarantee we
may take such action and we may not fully mitigate our interest rate risk. A hypothetical 1% increase in the
London Interbank Offered Rate, or LIBOR could increase our annual interest expense and related cash flows by
approximately $0.8 million based on the amounts outstanding under our credit facility as of June 30, 2020.

The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has
announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR
after 2021. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not
be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021. All
of our $83.8 million of debt outstanding under our credit agreement as of June 30, 2020 bears interest at a
floating rate that uses LIBOR as the applicable reference rate to calculate the interest. Our credit agreement
provides that, if the administrative agent has determined that adequate means do not exist for ascertaining
LIBOR or that LIBOR does not adequately and fairly reflect the cost to lenders for making, funding or
maintaining their loans, then all of our outstanding loans under the credit agreement will be converted into loans
that accrue interest at the alternative base rate on the last day of such interest period that determination is made.
Further, the lenders under our credit agreement will no longer be obligated to make loans using LIBOR as the
applicable reference rate. In addition, our tax receivable agreement provides that, if for any reason the LLC is not
able to make a tax distribution in an amount that is sufficient to make any required payment under the tax
receivable agreement or we otherwise lack sufficient funds, interest would accrue on any unpaid amounts at

LIBOR plus 500 basis points until they are paid. Our tax receivable agreement, however, does not provide for an
alternative reference rate to LIBOR and, while we do not currently anticipate failing to pay any amounts owed
under our tax receivable agreement, it is unclear how we would determine interest on any such amounts should
we fail to pay as required under our tax receivable agreement.

If the rate used to calculate interest on our outstanding floating rate debt under our credit agreement that
currently uses LIBOR were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use
of the alternative base rate, we would expect to incur additional interest expense on such indebtedness as of
June 30, 2020 of approximately $0.8 million on an annualized basis. While we do not expect the potential impact
of any LIBOR transition to have a material effect on our financial results based on our currently outstanding
debt, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates
or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR
as the applicable reference rate. In addition, any alternative reference rates to LIBOR may result in interest that
does not correlate over time with the payments that would have been made on our indebtedness if LIBOR was
available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an
alternative reference rate may result in the increase in the cost of future indebtedness, which could have a
material adverse effect on our financial condition, cash flow and results of operations. We intend to closely
monitor the financial markets and the use of fallback provisions and alternative reference rates in 2020 in
anticipation of the discontinuance or modification of LIBOR by the end of 2021.

Failure to maintain effective internal control over financial reporting or disclosure controls and procedures
could have a material adverse effect on our business and stock price.

Section 404 of the Sarbanes-Oxley Act requires us to provide an annual management assessment of the
effectiveness of our internal control over financial reporting and also requires our independent registered public
accounting firm to attest to the effectiveness of our internal control over financial reporting. Management is
similarly required to review disclosure controls, which are controls established to ensure that information
required to be disclosed in SEC reports is recorded, processed, summarized and reported in a timely manner.

If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or
amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have
effective internal control over financial reporting. The existence of any material weakness could require
management to devote significant time and incur significant expense to remediate any such material weakness
and management may not be able to remediate any such material weakness in a timely manner. The existence of
any material weakness in our internal control over financial reporting could also result in errors in our financial
statements that could require us to restate our financial statements, cause us to fail to meet our reporting
obligations, and cause stockholders to lose confidence in our reported financial information, all of which could
materially and adversely affect our business and stock price. In addition, if our independent registered public
accounting firm is unable to provide an unqualified attestation report on our internal controls, investors could
lose confidence in our financial information and the price of our stock could decline.

Risks Related to Our Organizational Structure

Our only material asset is our interest in the LLC, and we are accordingly dependent upon distributions from the
LLC to pay taxes, make payments under the tax receivable agreement or pay dividends.

Malibu Boats, Inc. is a holding company and has no material assets other than our ownership of LLC Units.

Malibu Boats, Inc. has no independent means of generating revenue. We intend to cause the LLC to make
distributions to its unit holders in an amount sufficient to cover all applicable taxes at assumed tax rates,
payments under the tax receivable agreement and dividends, if any, declared by us. To the extent that we need
funds, and the LLC is restricted from making such distributions under applicable law or regulation or under the
terms of its financing arrangements, or is otherwise unable to provide such funds, it could materially adversely

affect our liquidity and financial condition. For example, our credit agreement generally prohibits the LLC,
Malibu Boats, LLC, Malibu Australian Acquisition Corp., Cobalt Boats, LLC and PB Holdco, LLC from paying
dividends or making distributions. Our credit agreement permits, however, (i) distributions based on a member’s
allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax receivable
agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or employees of
loan parties or payments pursuant to stock option and other benefit plans up to $2.0 million in any fiscal year,
and (iv) share repurchase payments up to $35.0 million in any fiscal year subject to one-year carry forward and
compliance with other financial covenants. In addition, the LLC may make dividends and distributions of up to
$10.0 million in any fiscal year, subject to compliance with other financial covenants.

We will be required to pay the pre-IPO owners (or any permitted assignee) for certain tax benefits pursuant to
our tax receivable agreement with them, and the amounts we may pay could be significant.

We entered into a tax receivable agreement with the pre-IPO owners (or their permitted assignees) that
provides for the payment by us to the pre-IPO owners (or any permitted assignee) of 85% of the tax benefits, if
any, that we are deemed to realize as a result of (1) the increases in tax basis resulting from our purchases or
exchanges of LLC Units and (2) certain other tax benefits related to our entering into the tax receivable
agreement, including tax benefits attributable to payments under the tax receivable agreement. These payment
obligations are our obligations and not of the LLC. For purposes of the agreement, the benefit deemed realized
by us will be computed by comparing our actual income tax liability (calculated with certain assumptions) to the
amount of such taxes that we 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 we not entered into the tax receivable
agreement. Estimating the amount of payments that may be made under the tax receivable agreement is by its
nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual
increase in tax basis, as well as the amount and timing of any payments under the agreement, will vary depending
upon a number of factors, including:

•

the timing of purchases or exchanges - for instance, the increase in any tax deductions will vary
depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of
the LLC at the time of each purchase or exchange;

the price of shares of our Class A Common Stock at the time of the purchase or exchange - the increase
in any tax deductions, as well as the tax basis increase in other assets, of the LLC is directly related to
the price of shares of our Class A Common Stock at the time of the purchase or exchange;

the extent to which such purchases or exchanges are taxable - if an exchange or purchase is not taxable
for any reason, increased deductions will not be available; and

the amount and timing of our income - the corporate taxpayer will be required to pay 85% of the
deemed benefits as and when deemed realized. If we do not have taxable income, we generally will not
be required (absent a change of control or other circumstances requiring an early termination payment)
to make payments under the tax receivable agreement for that taxable year because no benefit will have
been realized. However, any tax benefits that do not result in realized benefits in a given tax year will
likely generate tax attributes that may be utilized to generate benefits in previous or future tax years.
The utilization of such tax attributes will result in payments under the tax receivable agreement.

For more information see Note 3 to our audited consolidated financial statements included elsewhere in this

Annual Report.

We expect that the payments that we may make under the tax receivable agreement may be substantial.

Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all
tax benefits that are subject to the agreement, we expect that future payments under the tax receivable agreement
relating to the purchases by Malibu Boats, Inc. of LLC Units will be approximately $49.7 million over the next

seventeen (17) years. Future payments to pre-IPO owners (or their permitted assignees) in respect of subsequent
exchanges or purchases would be in addition to these amounts and are expected to be substantial. The foregoing
numbers are merely estimates and the actual payments could differ materially. It is possible that future
transactions or events, such as changes in tax legislation, could increase or decrease the actual tax benefits
realized and the corresponding tax receivable agreement payments. For example, 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 our U.S. corporate tax rate from 35% to 21%,
effective January 1, 2018. The Tax Act lowered the estimated tax rate used to compute our future tax obligations
and, in turn, reduced the future tax benefit expected to be realized by us related to increased tax basis from
previous sales and exchanges of LLC Units by pre-IPO owners of the LLC.

Further, there may be a material negative effect on our liquidity if distributions to us by the LLC are not

sufficient to permit us to make payments under the tax receivable agreement after we have paid taxes. For
example, we may have an obligation to make tax receivable agreement payments for a certain amount while
receiving distributions from the LLC in a lesser amount, which would negatively affect our liquidity. The
payments under the tax receivable agreement are not conditioned upon the pre- IPO owners’ (or any permitted
assignees’) continued ownership of us.

We are required to make a good faith effort to ensure that we have sufficient cash available to make any
required payments under the tax receivable agreement. The limited liability company agreement of the LLC
requires the LLC to make “tax distributions” which, in the ordinary course, will be sufficient to pay our actual
tax liability and to fund required payments under the tax receivable agreement. If for any reason the LLC is not
able to make a tax distribution in an amount that is sufficient to make any required payment under the tax
receivable agreement or we otherwise lack sufficient funds, interest would accrue on any unpaid amounts at
LIBOR, plus 500 basis points until they are paid.

In certain cases, payments under the tax receivable agreement to the pre-IPO owners (or any permitted
assignees) of LLC Units may be accelerated or significantly exceed the actual benefits we realize in respect of
the tax attributes subject to the tax receivable agreement.

The tax receivable agreement provides that, in the event that we exercise our right to early termination of

the tax receivable agreement, or in the event of a change in control or a material breach by us of our obligations
under the tax receivable agreement, the tax receivable agreement will terminate, and we will be required to make
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, which lump-sum payment would be based on certain assumptions,
including those relating to our future taxable income. The change in control payment and termination payments
to the pre-IPO owners (or any permitted assignees) could be substantial and could exceed the actual tax benefits
that we receive as a result of acquiring the LLC Units because the amounts of such payments would be calculated
assuming that we would have been able to use the potential tax benefits each year for the remainder of the
amortization periods applicable to the basis increases, and that tax rates applicable to us would be the same as
they were in the year of the termination. In these situations, our obligations under the tax receivable agreement
could have a substantial negative impact on our liquidity. There can be no assurance that we will be able to
finance our obligations under the tax receivable agreement.

Payments under the tax receivable agreement will be based on the tax reporting positions that we determine.
Although we are not aware of any issue that would cause the Internal Revenue Service, or the IRS, to challenge a
tax basis increase, Malibu Boats, Inc. will not be reimbursed for any payments previously made under the tax
receivable agreement. As a result, in certain circumstances, payments could be made under the tax receivable
agreement in excess of the benefits that Malibu Boats, Inc. actually realizes in respect of (1) the increases in tax
basis resulting from our purchases or exchanges of LLC Units and (2) certain other tax benefits related to our
entering into the tax receivable agreement, including tax benefits attributable to payments under the tax
receivable agreement.

Risks Related to Our Class A Common Stock

Our stock price may be volatile and stockholders may be unable to sell shares at or above the price at which they
purchased them.

Our stock price ranged from $18.02 per share to $56.93 per share during fiscal year 2020. The market price
of our Class A Common Stock could be subject to wide fluctuations in response to the many risk factors listed in
this section, and others beyond our control, including:

•

the impact of COVID-19 on our operations, consumer demand and general economic conditions;

actual or anticipated fluctuations in our financial condition and results of operations;

addition or loss of consumers or dealers;

actual or anticipated changes in our rate of growth relative to our competitors;

additions or departures of key personnel;

failure to introduce new products, or for those products to achieve market acceptance;

disputes or other developments related to proprietary rights, including patents, litigation matters and
our ability to obtain intellectual property protection for our technologies;

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;

fluctuations in the valuation of companies perceived by investors to be comparable to us;

changes in applicable laws or regulations;

issuance of new or updated research or reports by securities analysts;

sales of our Class A Common Stock by us or our stockholders; and

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares.

Further, the stock markets may experience extreme price and volume fluctuations that can affect the market
prices of equity securities. These fluctuations can be unrelated or disproportionate to the operating performance
of those companies. These broad market and industry fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international currency fluctuations, could harm the
market price of our Class A Common Stock.

In the past, companies that have experienced volatility in the market price of their stock have been subject to

securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our management’s attention from other business concerns,
which could harm our business.

If securities or industry analysts do not publish research or reports about our business, or publish negative
reports about our business, our share price and trading volume could decline.

The trading market for our Class A Common Stock may depend on the research and reports that securities
or industry analysts publish about us or our business. We do not have any control over these analysts. If one or
more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price
would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
research or reports on us, we could lose visibility in the financial markets, which could cause our stock price or
trading volume to decline.

Future sales of our Class A Common Stock in the public market could cause our share price to fall; furthermore,
you may be diluted by future issuances of Class A Common Stock in connection with our incentive plans,
acquisitions or otherwise.

Sales of a substantial number of shares of our Class A Common Stock in the public market, in particular
sales by our directors, officers or other affiliates, or the perception that these sales might occur, could depress the
market price of our Class A Common Stock and could impair our ability to raise capital through the sale of
additional equity securities. Furthermore, any Class A Common Stock that we issue in connection with our Long-
Term Incentive Plan or other equity incentive plans that we may adopt in the future, our acquisitions or otherwise
would dilute the percentage ownership of holders of our Class A Common Stock.

Our governing documents and Delaware law could prevent a takeover that stockholders consider favorable and
could also reduce the market price of our stock.

Our certificate of incorporation and bylaws contain certain provisions that could delay or prevent a change

in control. These provisions could also make it more difficult for stockholders to elect directors and take other
corporate actions. These provisions include, without limitation:

•

a classified board structure;

a requirement that stockholders must provide advance notice to propose nominations or have other
business considered at a meeting of stockholders;

supermajority stockholder approval to amend our bylaws or certain provisions in our certificate of
incorporation; and

authorization of blank check preferred stock.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding
Class A Common Stock, from engaging in certain business combinations without the approval of substantially all
of our stockholders for a certain period of time.

These and other provisions in our certificate of incorporation, bylaws and under Delaware law could discourage
potential takeover attempts, reduce the price that investors might be willing to pay for shares of our Class A Common
Stock in the future and result in the market price being lower than it would be without these provisions.

We currently do not intend to pay dividends on our Class A Common Stock and, consequently, the only opportunity
for stockholders to achieve a return on their investment is if the price of our Class A Common Stock appreciates.

We currently do not plan to declare or pay dividends on shares of our Class A Common Stock in the

foreseeable future. Further, because we are a holding company, our ability to pay dividends depends on our
receipt of cash distributions from the LLC and the LLC also relies on its subsidiaries for receipt of cash for
distributions. This may further restrict our ability to pay dividends as a result of the laws of the jurisdiction of
organization of the LLC and its subsidiaries, agreements of the LLC or its subsidiaries or covenants under our,
the LLC’s or its subsidiaries’ existing or future indebtedness. For example, our credit agreement generally
prohibits the LLC, Malibu Boats, LLC, Malibu Australian Acquisition Corp., Cobalt Boats, LLC and PB Holdco,
LLC from paying dividends or making distributions. Our credit agreement permits, however, (i) distributions
based on a member’s allocated taxable income, (ii) distributions to fund payments that are required under the
LLC’s tax receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers,
directors or employees of loan parties or payments pursuant to stock option and other benefit plans up to
$2.0 million in any fiscal year, and (iv) share repurchase payments up to $35.0 million in any fiscal year subject
to one-year carry forward and compliance with other financial covenants. In addition, the LLC may make
dividends and distributions of up to $10.0 million in any fiscal year, subject to compliance with other financial
covenants. Consequently, for stockholders the only opportunity to achieve a return on the shares they purchase
will be if the market price of our Class A Common Stock appreciates and they sell their shares at a profit.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Tennessee

Our Malibu and Axis boats are manufactured in Loudon, Tennessee. We lease the property where we have
our 197,300 square-foot facility that is used to manufacture Malibu and Axis boats. This property also includes
warehouse and office space. The property is leased pursuant to a lease agreement that has a term through
March 31, 2028, with the option to extend for three additional terms of ten years each.

We also own 112,000 square-feet of space neighboring our manufacturing facility in Loudon, Tennessee

that we use for our trailer and engine production. Our Tennessee facilities are used in our Malibu segment.

Kansas

Our Cobalt boats are manufactured in Neodesha, Kansas. We own the property in Neodesha, where we have
four manufacturing facilities aggregating 493,000 square feet of manufacturing space, including a 42,000 square
foot expansion completed in June 2020. Our Neodesha facilities are used in our Cobalt segment.

Florida

Our Pursuit boats are manufactured in Fort Pierce, Florida. We own the property in Fort Pierce, where we

have six manufacturing facilities aggregating 392,100 square feet of manufacturing space, including 181,000
square feet of a new manufacturing facility completed in June 2020. Our Fort Pierce facilities are used in our
Pursuit segment.

California

We lease a 172,500 square-foot facility in Merced, California pursuant to a lease agreement that has a term
through March 31, 2028, with the option to extend for three additional terms of ten years each. Our Merced site
houses both our product development team that focuses on design innovations as well as our tower and tower
accessory manufacturing operations. The components assembled at this site are delivered to our facilities in
Tennessee and our Australian subsidiary. Our Merced site is used in our Malibu segment.

Australia

We manufacture and test boats at two facilities in Albury, Australia with combined square-footage of
68,200. Each facility is leased pursuant to a lease agreement and each with a term through October 22, 2024, with
two five-year options to extend lease term. Our Albury facilities are used in our Malibu segment.

Item 3. Legal Proceedings

The discussion of legal matters under the section entitled “Legal Proceedings” is incorporated by reference

from Note 18 of our audited consolidated financial statements included elsewhere in this Annual Report on Form
10-K.

Item 4. Mine Safety Disclosures

Not Applicable.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Market Information

Our Class A Common Stock is listed on the Nasdaq Global Select Market under the symbol “MBUU”.

On August 28, 2020, the last reported sale price on the Nasdaq Global Select Market of our Class A
Common Stock was $55.32 per share. As of August 28, 2020, we had approximately seven holders of record of
our Class A Common Stock and 13 holders of record of our Class B Common Stock. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners,
but whose shares are held in street name by brokers and other nominees. This number of holders of record also
does not include stockholders whose shares may be held in trust by other entities.

Dividends

Malibu Boats, Inc. has never declared or paid any cash dividends on its capital stock. We currently

anticipate that we will retain all of our future earnings for use in the expansion and operation of our business and
do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash
dividends will be made at the discretion of our board of directors, subject to applicable law and will depend on
our financial condition, results of operations, capital requirements, general business conditions and other factors
that our board of directors may deem relevant.

Stock Performance Graph

The stock price performance graph below shall not be deemed soliciting material or to be filed with the SEC or
subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act,
nor shall it be incorporated by reference into any past or future filing under the Securities Act of 1933, as
amended, or the Securities Act or the Exchange Act, except to the extent we specifically request that it be treated
as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the
Exchange Act.

The following graph shows the cumulative total stockholder return of an investment of $100 in cash at
market close at the end of each of the years within the five-year period ended June 30, 2020 for (i) our Class A
Common Stock, (ii) the Russell 2000 Index and (iii) the Dow Jones Recreational Product Index. Pursuant to
applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends
have been declared on our Class A Common Stock to date. The stockholder return shown on the graph below is
not necessarily indicative of future performance, and we do not make or endorse any predictions as to future
stockholder returns.

Normalized as of 06/30/2015 Last Price

200%

150%

100%

50%

-50%

MBUU

Russell 2000

Dow Jones US RP

ear E

d 30-Ju

n-15

ear E

d 30-Ju

n-16

ear E

d 30-Ju

n-17

ear E

d 29-Ju

n-18

ear E

d 28-Ju

n-19

ear E

d 30-Ju

n-20

Issuer Purchases of Equity Securities

We did not repurchase any stock during the quarter ended June 30, 2020. On June 18, 2019, our Board of
Directors authorized a stock repurchase program to allow for the repurchase of up to $35.0 million of our Class A
Common Stock and the LLC’s LLC Units (the “Repurchase Program”) for the period from July 1, 2019 to July 1,
2020. 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. This repurchase 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 $50.0 million 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.

Unregistered Sales of Equity Securities

On May 18, 2020, in connection with the exchange of limited liability company interests of the LLC by a

member of the LLC, the Company issued a total of 12,500 shares of its Class A Common Stock, par value $0.01
per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the
Securities Act.

On May 19, 2020, in connection with the exchange of limited liability company interests of the LLC by a

member of the LLC, the Company issued a total of 20,000 shares of its Class A Common Stock, par value $0.01
per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the
Securities Act.

On May 19, 2020, in connection with the exchange of limited liability company interests of the LLC by a
member of the LLC, the Company issued a total of 1,000 shares of its Class A Common Stock, par value $0.01
per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the
Securities Act.

On May 20, 2020, in connection with the exchange of limited liability company interests of the LLC by a

member of the LLC, the Company issued a total of 25,000 shares of its Class A Common Stock, par value $0.01
per share for nominal consideration to such member in reliance on the exemption under Section 4(a)(2) of the
Securities Act.

Equity Compensation Plan Information

Equity compensation plan information required by this Item 5 will be included in our definitive proxy
statement for our annual meeting of stockholders, which will be filed with the SEC no later than 120 days after
the end of our fiscal year ended June 30, 2020 (the “Proxy Statement”), and is incorporated herein by reference.

Item 6. Selected Financial Data

The following table presents our selected financial data. The table should be read in conjunction with
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 8.
Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

Consolidated statement of operations and

comprehensive income data:

Net sales
Cost of sales

Gross profit
Operating expenses:

Selling and marketing
General and administrative
Amortization

Operating income
Other (income) expense, net

Net income before income tax expense
Income tax expense

Net income
Net income attributable to non-controlling

interest 1

Fiscal Year Ended June 30,

2020

2019

2018

2017

2016

(Dollars in thousands)

653,163
503,893

149,270

684,016
517,746

166,270

497,002
376,660

120,342

281,937
206,899

75,038

252,965
186,145

66,820

17,917
39,912
6,131

85,310
1,578

83,732
19,076

64,656

17,946
44,256
5,956

98,112
6,315

91,797
22,096

69,701

13,718
31,359
5,198

70,067
(19,320)

89,387
58,418

30,969

8,619
24,783
2,198

39,438
(9,230)

48,668
17,593

31,075

7,475
21,256
2,185

35,904
3,808

32,096
11,801

20,295

3,094

3,635

3,356

2,717

2,253

Net income attributable to Malibu Boats, Inc.

61,562

66,066

27,613

28,358

18,042

2.98
2.95

$
$

3.17
3.15

$
$

1.37
1.36

$
$

1.59
1.58

$
$

1.01
1.00

20,662,750
20,852,361

20,832,445
20,966,539

20,179,381
20,281,210

17,846,894
17,951,332

17,934,580
17,985,427

Net income available to Class A Common

Stock per share:

Basic
Diluted

Weighted average shares outstanding used in

computing net income per share:

Basic
Diluted

Consolidated balance sheet data:
Total assets
Total current liabilities
Total long-term liabilities
Total stockholders’/members’ equity

$
$

Additional financial and other data:
Unit volume
Gross margin
Adjusted EBITDA 2
Adjusted EBITDA margin 2
Adjusted fully distributed net income per share2

6.444
22.8%

110,947

17.0 %
3.29

7,362
24.3%

125,895

18.4%
3.76

477,346
70,163
145,656
261,527

451,314
75,332
165,629
210,353

365,768
65,386
160,511
139,871

223,663
39,185
132,242
52,236

222,326
47,829
154,468
20,029

6,292
24.2%

92,718

18.7%
2.60

3,815
26.6%

55,721

19.8%
1.56

3,569
26.4%

48,231

19.1%
1.32

(1) The non-controlling interest represents the portion of earnings or (loss) attributable to the economic interest
held by the non-controlling LLC Unit holders. The weighted average non-controlling interest attributable to
ownership interests in the LLC was 3.8%, 4.1%, 5.3%, 7.0%, and 11.1% for the fiscal years ended June 30,
2020, 2019, 2018, 2017, and 2016. The non-controlling interest was 3.4%, 3.8%, 4.8%, 6.6% and 7.4% as of
June 30, 2020, 2019, 2018, 2017, and 2016.

(2) Adjusted EBITDA, adjusted EBITDA margin, and adjusted fully distributed net income per share are

non-GAAP financial measures. For definitions of adjusted EBITDA, adjusted EBITDA margin, and
adjusted fully distributed net income and a reconciliation of each measure to net income for the fiscal years
ended June 30, 2020, 2019, and 2018, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations- GAAP Reconciliation of Non-GAAP Financial Measures.” For a
reconciliation of each measure to net income for the fiscal years ended June 30, 2017 and 2016, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations-GAAP
Reconciliation of Non-GAAP Financial Measures” in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2018.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Impact of the COVID-19 Pandemic

Outlook

Factors Affecting Our Results of Operations

Components of Results of Operations

Results of Operations

GAAP Reconciliation of Non-GAAP Financial Measures

Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Contractual Obligations and Commitments

Seasonality

Inflation

Critical Accounting Policies

New Accounting Pronouncements

Overview

We are a leading designer, manufacturer and marketer of a diverse range of recreational powerboats,
including performance sport boats, sterndrive and outboard boats. We are the market leader in the United States
in the performance sport boat category through our Malibu and Axis Wake Research boat brands, the market
leader in the United States in the 20’ - 40’ segment of the sterndrive boat category through our Cobalt brand and
are among the market leaders in the fiberglass outboard fishing boat market with our Pursuit brand. Our product
portfolio of premium brands are used for a broad range of recreational boating activities including, among others,
water sports, general recreational boating and fishing. Our passion for consistent innovation, which has led to
propriety technology such as Surf Gate, has allowed us to expand the market for our products by introducing
consumers to new and exciting recreational activities. We design products that appeal to an expanding range of
recreational boaters and water sports enthusiasts whose passion for boating and water sports is a key component
of their active lifestyle and provide consumers with a better customer-inspired experience. With performance,
quality, value and multi-purpose features, our product portfolio has us well positioned to broaden our addressable
market and achieve our goal of increasing our market share in the expanding recreational boating industry.

We currently sell our boats under four brands—Malibu; Axis; Cobalt; and Pursuit. Our flagship Malibu
boats offer our latest innovations in performance, comfort and convenience, and are designed for consumers
seeking a premium performance sport boat experience. Retail prices of our Malibu boats typically range from
$60,000 to $210,000. Our Axis boats appeal to consumers who desire a more affordable performance sport boat
product but still demand high performance, functional simplicity and the option to upgrade key features. Retail
prices of our Axis boats typically range from $65,000 to $115,000. Our Cobalt boats consist of mid to large-sized
luxury cruisers and bowriders that we believe offer the ultimate experience in comfort, performance and quality.
Retail prices for our Cobalt boats typically range from $60,000 to $450,000. Our Pursuit boats expand our
product offerings into the saltwater outboard fishing market and include center console, dual console and
offshore models. Retail prices for our Pursuit boats typically range from $80,000 to $800,000.

We sell our boats through a dealer network that we believe is the strongest in the recreational powerboat
category. As of July 1, 2020, our worldwide distribution channel consisted of over 350 dealer locations globally.
Our dealer base is an important part of our consumers’ experience, our marketing efforts and our brands. We

devote significant time and resources to find, develop and improve the performance of our dealers and believe
our dealer network gives us a distinct competitive advantage.

We achieved fiscal year 2020 net sales, net income and adjusted EBITDA of $653.2 million, $64.7 million
and $110.9 million, respectively, which were a decrease from $684.0 million, $69.7 million and $125.9 million,
respectively, for fiscal year 2019. The decrease from 2019 to 2020 resulted primarily from the adverse impacts of
the COVID-19 pandemic, including the impact of the temporary shutdown of our facilities. For the definition of
adjusted EBITDA and a reconciliation to net income, see “GAAP Reconciliation of Non-GAAP Financial
Measures.”

We have 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. Malibu is our largest segment and represented
54.3%, 54.8% and 63.7% of our net sales for fiscal years 2020, 2019, and 2018 respectively. We acquired Cobalt
in July 2017 and it represented 26.8%, 30.2% and 36.3% of our net sales for fiscal years 2020, 2019 and 2018,
respectively. We acquired Pursuit in October 2018 and it represented 18.9% and 15.0% of our net sales for fiscal
years 2020 and 2019, respectively.

We revised our segment reporting at the beginning of fiscal year 2020 to conform to changes in our internal

management reporting based on our boat manufacturing operations. Prior to this change in reporting segments,
we had four reportable segments, Malibu U.S., Malibu Australia, Cobalt and Pursuit. We now aggregate Malibu
U.S. and Malibu Australia into one reportable segment as they have similar economic characteristics and
qualitative factors. All segment information in this Annual Report on Form 10-K prior to July 1, 2019 has been
revised to conform to our current reporting segments for comparison purposes. Additional segment information
is contained in Note 20 - Segment Reporting, in the notes to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.

Impact of the COVID-19 Pandemic

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

States and the world, and it had a significant impact on our operations and financial results for fiscal year 2020.
On March 24, 2020, we elected to suspend operations at all of our facilities. We resumed operations at our
Loudon, Tennessee facility (Malibu and Axis boats) on April 20, 2020, our Neodesha, Kansas facility (Cobalt
boats) on April 27, 2020 and our Fort Pierce, Florida facility (Pursuit boats) on May 4, 2020. We also elected to
draw the then remaining available funds of $98.8 million from our revolving credit facility in late March 2020 to
ensure we maintained financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic. We
subsequently repaid $110.0 million on the revolving credit facility in June 2020.

Our financial results for fiscal year 2020 were impacted by the COVID-19 pandemic. The temporary
shutdown of our facilities in the second half of 2020 resulted in a decrease in production that we were not able to
fully recover during fiscal year 2020. We were not able to ship boats to our dealers during the suspension of our
operations, which negatively impacted our net sales. As a result, our net sales and unit volume decreased 39.1%
and 43.9%, respectively, during the fourth quarter of fiscal year 2020 compared to the fourth quarter of fiscal
year 2019. For the year ended June 30, 2020, we recognized a decrease of $30.9 million, or 4.5%, in net sales and
a decrease of 918 units, or 12.5%, in unit volume compared to fiscal year 2019. While costs of sales also
declined, we still recognized a decrease in gross profit of $16.6 million, or 10.0%, for fiscal year 2020 compared
to fiscal year 2019, primarily related to the declines in sales volumes resulting from our suspension of operations.

Notwithstanding our lower net sales resulting from our decrease in production, our dealers continued to
experience strong demand for our boats during the summer months. While sales were negatively impacted by

COVID-19 in late March and through April, retail sales improved materially from May through July 2020.
Consumers turned to boating as a form of outdoor, socially distanced recreation during the COVID-19 pandemic.
The increase in retail sales combined with our lower wholesale shipment levels during the fourth quarter of fiscal
year 2020 resulted in lower inventory levels at our dealers as of June 30, 2020 compared to last year. We expect
these lower inventory levels, while having the potential to impact retail sales in the near-term, will provide us
strong order flow for our model year 2021 product, unless consumer demand meaningfully decreases.

In addition to our operations, the COVID-19 pandemic also impacted and may continue to impact the
operations of our dealers and suppliers. While some of our dealers and suppliers had to suspend their operations
during the pandemic, many continued to operate and we are not aware of any of our dealers or suppliers that have
closed permanently.

We believe we are well-positioned to withstand any further disruptions that may occur as result of the

ongoing pandemic. We have approximately $49.9 million of cash on hand as of August 27, 2020 and
approximately $110.0 million available for borrowing under our revolving credit facility as of June 30, 2020.
Further, we have a flexible cost structure that allows us to more closely align our costs with wholesale shipments.
The ultimate impact of COVID-19 on our financial condition and results of operations, however, will depend on
a number of factors, including factors that we may not be able to forecast at this time. See the risk factor “The
COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, and
those of our dealers and suppliers, thereby adversely affecting our business, financial condition and results of
operations.” under Part I. Item 1A. of this Form 10-K.

Outlook

Industry-wide marine retail registrations continue to recover from the years following the global financial

crisis. According to Statistical Surveys, Inc., domestic retail registration volumes of performance sport boats,
fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately
5.2% between 2011 and 2019, for the 50 reporting states. While domestic retail registration volumes for new
recreational powerboats decreased in 2019, total retail sales dollars increased in 2019, according to NMMA.
These increases have been led by growth in our core market, performance sport boats, having produced a double-
digit compound annual growth rate between 2011 and 2019. While the growth rate was negatively impacted by
weak sales in March and April 2020 due to COVID-19, we believe domestic retail demand growth has otherwise
continued in performance sport boats for calendar year 2020, in part because consumers have turned to boating as
a form of outdoor, socially distanced recreation during the COVID-19 pandemic. Fiberglass sterndrive and
outboard boats, the target markets for our Cobalt and Pursuit branded products, have seen their combined market
grow at a 4.5% compound annual growth rate between 2011 and 2019. That growth has been driven by the
outboard market where Pursuit is focused and Cobalt is a new entrant and where we plan to meaningfully expand
our market share in the future. While Cobalt’s primary market for sterndrive propulsion has been challenged,
their performance continues to be helped by market share gains and they continue to see registration growth.
During 2019 the fiberglass outboard market was approximately flat year-over-year, but, in foot lengths 23 feet
and greater, where Pursuit and Cobalt compete, the market continues to grow. We expect the growing demand
for our products to continue, albeit at a lower pace than the past eight years.

Regardless of retail market growth rates, the combination of continued strong retail market activity this
summer and the temporary suspension of our operations from March through May 2020, has depleted inventory
levels at our dealers below prior year levels and we expect to see meaningful wholesale demand to restock our
dealer inventories through fiscal year 2021 and potentially beyond. While we expect lower dealer inventory
levels will support fiscal year 2021 financial performance, numerous other variables have the potential to impact
our volumes, both positively and negatively. For example, we believe the substantial decrease in the price of oil,
broad strength of the U.S. dollar and recently implemented tariffs has resulted in reduced demand for our boats in
certain markets. To date, growth in our domestic market has offset the significantly diminished demand from
economies that are driven by the oil industry and international markets. Consumer confidence, expanded or

eroded, is a variable that can also impact demand for our products in both directions. Other challenges that could
impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our
product, the availability of credit to our dealers and retail consumers, fuel costs, a meaningful reduction in the
value of global or domestic equity markets, the continued acceptance of our new products in the recreational
boating market, our ability to compete in the competitive power boating industry, and the costs of labor and
certain of our raw materials and key components.

Since 2008, we have increased our market share among manufacturers of performance sport boats due to
new product development, improved distribution, new models, and innovative features. As the market for our
product has recovered our competitors have become more aggressive in their product introductions, increased
their distribution and launched surf systems competitive with our patented Surf Gate system. This competitive
environment has continued throughout the past few years, but in 2019 and year-to-date 2020 strong performance
from Malibu and Axis have expanded our strong lead over our nearest competitor in terms of market share in the
performance sport boats category. We believe our new product pipeline, strong dealer network and ability to
manage our business through the COVID-19 pandemic leaves us well positioned to maintain and potentially
expand our industry leading market position in performance sports boats. In addition, we continue to be the
market share leader in both the premium and value-oriented product sub-categories.

We also believe our track record of expanding our market share due to new product development, improved

distribution, new models, and innovative features is directly transferable to our Cobalt and Pursuit acquisitions.
While Cobalt and Pursuit are market leaders in certain areas, we believe our experience positions us to execute a
strategy to drive enhanced share by expanding both the Cobalt and Pursuit product offerings with different foot
lengths, different boat types and different propulsion technologies. Our new product development efforts at
Cobalt and Pursuit will take time and our ability to influence near-term model introductions is limited, but we
have already begun to execute on this strategy. With respect to Cobalt, we have included Splash and Stow and a
new electronic flip down Swim Step for model year 2021 boats. For the Pursuit brand, our focus has been on
expanding the award winning Dual Console, Sport and Offshore product offerings that continue to combine
innovative features and dependable performance in refined designs that accommodate a broad array of activities
on the water, including the Electric Sliding Entertainment Center on the new S 378. We believe enhancing new
product development combined with diligent management of the Cobalt and Pursuit dealer networks positions us
to meaningfully improve our share of the sterndrive and outboard markets over time.

Factors Affecting Our Results of Operations

We believe that our results of operations and our growth prospects are affected by a number of factors,

which we discuss below.

Economic Environment and Consumer Demand

Our product sales are impacted by general economic conditions, which affect the demand for our products,

the demand for optional features, the availability of credit for our dealers and retail consumers, and overall
consumer confidence. Consumer spending, especially purchases of discretionary items, tends to decline during
recessionary periods and tends to increase during expansionary periods. The recreational powerboat industry has
shown continued growth from 2010 through 2019 based on retail sales. While there is uncertainty surrounding
the COVID-19 pandemic we believe we are well positioned strategically in the recreational powerboat market
with brands that are market leaders in their segments.

New Product Development and Innovation

Our long-term revenue prospects are based in part on our ability to develop new products and technological

enhancements that meet the demands of existing and new consumers. Developing and introducing new boat
models and features that deliver improved performance and convenience are essential to leveraging the value of

our brands. By introducing new boat models, we are able to appeal to a new and broader range of consumers and
focus on underserved or adjacent segments of the broader powerboat category. To keep product fresh and at the
forefront of technological innovation in the boating industry, we aim to introduce a number of new boat models
per year. We also believe we are able to capture additional value from the sale of each boat through the
introduction of new features, which results in increased average selling prices and improved margins. We
allocate most of our product development costs to new model and feature designs, usually with a specific
consumer base and market in mind. We use industry data to analyze our markets and evaluate revenue potential
from each major project we undertake. Our product development cycle, or the time from initial concept to
volume production, can be up to two years. As a result, our development costs, which may be significant, may
not be offset by corresponding new sales during the same periods. Once new designs and technologies become
available to our consumers, we typically realize revenue from these products from one year up to 15 years. We
may not, however, realize our revenue expectations from each innovation. We believe our close communication
with our consumers, dealers and sponsored athletes regarding their future product desires enhances the efficiency
of our product development expenditures.

Product Mix

Leveraging our robust product offering and features to enhance our sales growth and gross margins. Our
product mix, as it relates to our brands, types of boats and features, not only makes our offerings attractive to
consumers but also helps drive higher sales and margins. Historically, we have been able to realize higher sales
and margins when we sell larger boats compared to our smaller boats, our premium brands compared to our
entry-level brands and our boats that are fully-equipped with optional features. We will strive to continue to
develop new features and models and maintain an attractive product mix that optimizes sales growth and
margins.

Ability to Manage Manufacturing Costs, Sales Cycles and Inventory Levels

Our results of operations are affected by our ability to manage our manufacturing costs effectively and to
respond to changing sales cycles. Our product costs vary based on the costs of supplies and raw materials, as well
as labor costs. We have implemented various initiatives to reduce our cost base and improve the efficiency of our
manufacturing process. We are continuously monitoring and reviewing our manufacturing processes to identify
improvements and create additional efficiencies. During fiscal year 2020, we expanded our facilities in Kansas
and Florida for our Cobalt and Pursuit operations, respectively. We expect these expanded facilities will allow us
to continue improving the manufacturing process at each of these locations. We rely on our insights into the
market gleaned from dealer inventory levels, industry reports about anticipated demand for our products in the
upcoming sales cycle and our own estimates and assumptions in formulating our manufacturing plan for the
following fiscal year. Throughout our consumer sales cycle, which reaches its peak from March through August
of each year, we adjust our manufacturing activities in order to adapt to variability in demand.

Dealer Network, Dealer Financing and Incentives

We rely on our dealer network to distribute and sell our products. We believe we have developed the
strongest distribution network in the performance sport boat category. To improve and expand our network and
compete effectively for dealers, we regularly monitor and assess the performance of our dealers and evaluate
dealer locations and geographic coverage in order to identify potential market opportunities. Our acquisitions of
Cobalt and Pursuit has allowed us to expand into each of their strong dealer networks as well. We intend to
continue to add dealers in new territories in the United States as well as internationally, which we believe will
result in increased unit sales.

Our dealers are exposed to seasonal variations in consumer demand for boats. We address anticipated
demand for our products and manage our manufacturing in order to mitigate seasonal variations. We also use our
dealer incentive programs to encourage dealers to order in the off-season by providing floor plan financing relief,

which typically permits dealers to take delivery of current model year boats between July 1 and April 30 on an
interest-free basis for a specified period. We also offer our dealers other incentives, including rebates, seasonal
discounts, promotional co-op arrangements and other allowances. We facilitate floor plan financing programs for
many of our dealers by entering into repurchase agreements with certain third-party lenders, which enable our
dealers, under certain circumstances, to establish lines of credit with the third-party lenders to purchase
inventory. Under these floor plan financing programs, a dealer draws on the floor plan facility upon the purchase
of our boats and the lender pays the invoice price of the boats. We will continue to review and refine our dealer
incentive offerings and monitor any exposures arising under these arrangements.

Vertical Integration

We have vertically integrated a number of key components of our manufacturing process, including the

manufacturing of boat trailers, towers and tower accessories, machined and billet parts, and tooling. We began
producing our own engines for our Malibu and Axis models. Our engines, branded as Malibu Monsoon engines,
were in Malibu and Axis boats for model year 2020. We believe our engine marinization initiative will reduce
our reliance on our previous engine suppliers for our Malibu and Axis brands while reducing the risk that a
change in cost or production from any engine supplier for such brands could adversely affect our business.
Recently we began producing soft grip flooring for our Malibu, Axis and new Cobalt models.

Vertical integration of key components of our boats gives us the ability to increase incremental margin per
boat sold by reducing our cost base and improving the efficiency of our manufacturing process. Additionally, it
allows us to have greater control over design, consumer customization options, construction quality, and our
supply chain. We believe our engine marinization initiative will reduce our reliance on our previous engine
suppliers for our Malibu and Axis brands while reducing the risk that a change in cost or production from any
engine supplier for such brands could adversely affect our business. We continually review our manufacturing
process to identify opportunities for additional vertical integration investments across our portfolio of premium
brands.

Components of Results of Operations

Net Sales

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

• Gross sales from:

• Boat and trailer sales—consists of sales of boats and trailers to our dealer network. Nearly all of
our boat sales include optional feature upgrades purchased by the consumer, which increase the
average selling price of our boats; and

• Parts and other sales—consists of sales of replacement and aftermarket boat parts and accessories
to our dealer network; and consists of royalty income earned from license agreements with various
boat manufacturers, including Nautique, Chaparral, Mastercraft, and Tige related to the use of our
intellectual property.

• Net sales are net of:

•

Sales returns—consists primarily of contractual repurchases of boats either repossessed by the
floor plan financing provider from the dealer or returned by the dealer under our warranty
program; and

• Rebates, free flooring and discounts—consists of incentives, rebates and free flooring, we provide
to our dealers based on sales of eligible products. For our Malibu and Axis models, if a domestic

dealer meets its monthly or quarterly commitment volume, as well as other terms of the dealer
performance program, the dealer is entitled to a specified rebate. Cobalt dealers are entitled to
volume-based discounts taken at the time of invoice. For our Pursuit models, if a dealer meets its
quarterly or annual retail volume goals, the dealer is entitled to a specific rebate applied to their
wholesale volume purchased from Pursuit. For Malibu and Cobalt models and select Pursuit
models, our dealers that take delivery of current model year boats in the offseason, typically July
through April in the U.S., are also entitled to have us pay the interest to floor the boat until the
earlier of (1) the sale of the unit or (2) a date near the end of the current model year, which
incentive we refer to as “free flooring.” From time to time, we may extend the flooring program to
eligible models beyond the offseason period. For more information, see “Item 1. Business - Dealer
Management.”

Cost of Sales

Our cost of sales includes all of the costs to manufacture our products, including raw materials, components,

supplies, direct labor and factory overhead. For components and accessories manufactured by third-party
vendors, such costs represent the amounts invoiced by the vendors. Shipping costs and depreciation expense
related to manufacturing equipment and facilities are also included in cost of sales. Warranty costs associated
with the repair or replacement of our boats under warranty are also included in cost of sales.

Operating Expenses

Our operating expenses include selling and marketing, and general and administrative costs. Each of these
items includes personnel and related expenses, supplies, non-manufacturing overhead, third-party professional
fees and various other operating expenses. Further, selling and marketing expenditures include the cost of
advertising and various promotional sales incentive programs. General and administrative expenses include,
among other things, salaries, benefits and other personnel related expenses for employees engaged in product
development, engineering, finance, information technology, human resources and executive management. Other
costs include outside legal and accounting fees, investor relations, risk management (insurance) and other
administrative costs. General and administrative expenses also include product development expenses associated
with our engines vertical integration initiative and acquisition or integration related expenses.

Other (Income) Expense, Net

Other (income) expense, net consists of interest expense and other income or expense, net. Interest expense
consists of interest charged under our outstanding debt, interest on our interest rate swap arrangement and change
in the fair value of our interest rate swap we entered into on July 1, 2015, which matured on March 31,2020, and
amortization of deferred financing costs on our credit facilities. Other income or expense includes adjustments to
our tax receivable agreement liability.

Income Taxes

Malibu Boats, Inc. is subject to U.S. federal and state income tax in multiple jurisdictions with respect to our

allocable share of any net taxable income of the LLC. The LLC is a pass-through entity for federal purposes but
incurs income tax in certain state jurisdictions.

Net Income Attributable to Non-controlling Interest

As of June 30, 2020 and 2019, we had a 96.6% and 96.2% controlling economic interest and 100% voting

interest in the LLC. We consolidate the LLC’s operating results for financial statement purposes. Net income
attributable to non-controlling interest represents the portion of net income attributable to the LLC members.

Results of Operations

The table below sets forth our consolidated results of operations, expressed in thousands (except unit
volume and net sales per unit) and as a percentage of net sales, for the periods presented. Our consolidated
financial results for these periods are not necessarily indicative of the consolidated financial results that we will
achieve in future periods. Certain totals for the table below will not sum to exactly 100% due to rounding.

Net sales
Cost of sales

Gross profit

Operating expenses:
Selling and marketing
General and administrative
Amortization

Operating income

Other (income) expense:
Other
Interest expense

Fiscal Year Ended June 30,

2020

2019

2018

%
Revenue

653,163
503,893

100.0% 684,016
77.2% 517,746

100.0% 497,002
75.7% 376,660

100.0%
75.8%

149,270

22.8% 166,270

24.3% 120,342

24.2%

17,917
39,912
6,131

2.8% 17,946
6.1% 44,256
5,956
0.9%

2.6% 13,718
6.5% 31,359
5,198
0.9%

2.8%
6.3%
1.0%

85,310

13.0% 98,112

14.3% 70,067

14.1%

(2,310)
3,888

(0.4)%
0.6%

(149) — % (24,705)
5,385
0.9%
6,464

(5.0)%
1.1%

Other (income) expense, net

1,578

0.2%

6,315

0.9% (19,320)

(3.9)%

Net income before provision for income taxes
Income tax provision

Net income

Net income attributable to non-controlling interest

Net income attributable to Malibu Boats,

83,732
19,076

64,656
3,094

12.8% 91,797
2.9% 22,096

13.4% 89,387
3.2% 58,418

9.9% 69,701
3,635
0.5%

10.2% 30,969
3,356

0.5%

18.0%
11.8%

6.2%
0.7%

Inc.

61,562

9.4% 66,066

9.7% 27,613

5.6%

Volume by Segment
Malibu
Cobalt
Pursuit 1

Total Units

Net sales per unit

Fiscal Year Ended June 30,

2020

Unit

2019

Unit

2018

Unit

Volumes % Total

61.8%
30.3%
7.9%

3,980
1,956
508

6,444

4,547
2,409
406

7,362

$101,360

$92,912

61.7%
32.8%
5.5%

4,060
2,232

64.5%
35.5%
— — %

6,292

$78,990

(1) We acquired substantially all of the assets of Pursuit on October 15, 2018.

Comparison of the Fiscal Year Ended June 30, 2020 to the Fiscal Year Ended June 30, 2019

Net Sales

Net sales for fiscal year 2020 decreased $30.9 million, or 4.5%, to $653.2 million, compared to fiscal year

2019. Unit volume for fiscal year 2020 decreased 918 units, or 12.5%, to 6,444 units compared to fiscal year
2019. The decrease in net sales and unit volumes was driven primarily by the temporary shutdown of our

facilities in the second half of fiscal year 2020 as a result of the COVID-19 pandemic. As a result of our
suspension of operations, we were not able to ship boats to our dealers during the period of shut-down, which
negatively impacted our net sales for the second half of fiscal year 2020. In addition to the pandemic, but to a
lesser effect, we also had planned lower production rates at Cobalt to reduce wholesale shipments and dealer
inventories that negatively impacted sales versus the prior year period. This decrease in net sales was partially
offset by a higher average selling price due to model mix and an increase in sales at Pursuit from a full year of
results in fiscal year 2020 compared with nine months in fiscal year 2019 since its acquisition date on
October 15, 2018.

Net sales attributable to our Malibu segment decreased $19.9 million, or 5.3%, to $354.8 million for fiscal

year 2020 compared to fiscal year 2019. Unit volumes attributable to our Malibu segment decreased 567 units for
fiscal year 2020 compared to fiscal year 2019. The decrease in net sales and unit volumes was driven by the
temporary shutdown of our Loudon, Tennessee facility in the second half of fiscal year 2020 as a result of the
COVID-19 pandemic. This decrease in Malibu net sales was partially offset primarily by our product mix of new,
larger Malibu and Axis models.

Net sales from our Cobalt segment decreased $31.8 million, or 15.4%, to $174.8 million for fiscal year 2020

compared to fiscal year 2019. Unit volumes attributable to Cobalt decreased 453 units for fiscal year 2020
compared to fiscal year 2019. The decrease in net sales and unit volumes was driven primarily by the temporary
shutdown of our Neodesha, Kansas facility in the second half of fiscal year 2020 as a result of the COVID-19
pandemic. In addition to the pandemic, but to a lesser effect, we also had planned lower production rates at
Cobalt to reduce wholesale shipments and dealer inventories that negatively impacted sales versus the prior year
period. The decrease was partially offset by year-over-year price increases on our Cobalt models.

Net sales from our Pursuit segment increased $20.8 million, or 20.3%, to $123.6 million for fiscal year 2020

compared to fiscal year 2019. Unit volumes attributable to Pursuit increased 102 units for fiscal year 2020
compared to fiscal year 2019. The increase in Pursuit net sales resulted from a full year of sales from Pursuit in
fiscal year 2020 compared to a partial nine months in fiscal year 2019 since our acquisition of Pursuit on
October 15, 2018. The increase in net sales and unit volumes were partially offset by the lower average selling
price due to the mix of models sold and the temporary shutdown of our Fort Pierce, Florida facility in the second
half of fiscal year 2020 as a result of the COVID-19 pandemic.

Our overall net sales per unit increased 9.1% to $101,360 per unit for fiscal year 2020 compared to fiscal

year 2019. Net sales per unit for our Malibu segment increased 8.2% to $89,138 per unit for fiscal year 2020
compared to fiscal year 2019, primarily driven by higher sales for new, more expensive models and optional
features. Net sales per unit for our Cobalt segment increased 4.2% to $89,350 per unit for fiscal year 2020
compared to fiscal year 2019, driven by year-over-year price increases. Net sales per unit for our Pursuit segment
decreased 3.9% to $243,358 per unit for fiscal year 2020 compared to fiscal year 2019, primarily driven by lower
average selling price due to the mix of models sold.

Cost of Sales

Cost of sales for fiscal year 2020 decreased $13.9 million, or 2.7%, to $503.9 million compared to fiscal
year 2019. The decrease in cost of sales resulted primarily from lower unit volumes for Malibu, Axis and Cobalt.
The decrease in costs of sales was partially offset by incremental costs contributed by Pursuit for the full year of
fiscal year 2020 compared to only nine months for fiscal year 2019 since its acquisition in October 2018 and
increased costs incurred to replace engines during the United Auto Workers’ strike against General Motors.

Gross Profit

Gross profit for fiscal year 2020 decreased $17.0 million, or 10.2%, compared to fiscal year 2019. The

decrease in gross profit was due mainly to lower unit volumes in fiscal year 2020 as described above and

increased costs incurred to replace engines during the United Auto Workers’ strike against General Motors.
Gross margin decreased 150 basis points from 24.3% in fiscal 2019 to 22.8% in fiscal year 2020.

Operating Expenses

Selling and marketing expense for fiscal year 2020 remained flat at $17.9 million compared to fiscal year
2019. As a percentage of sales, selling and marketing expense increased 20 basis points from 2.6% for fiscal year
2019 to 2.8% for fiscal year 2020. General and administrative expense for fiscal year 2020 decreased
$4.3 million, or 9.8%, to $39.9 million compared to fiscal year 2019. The decrease in general and administrative
expenses was largely due to expenses related to the acquisition of Pursuit in fiscal year 2019 that were not
incurred during fiscal year 2020, partially offset by incremental general and administrative expenses attributable
to Pursuit during fiscal year 2020. As a percentage of sales, general and administrative expenses decreased 40
basis points to 6.1% for fiscal year 2020 compared to 6.5% for fiscal year 2019. Amortization expense for fiscal
year 2020 increased $0.2 million, or 2.9%, compared to fiscal year 2019, due to additional amortization from
intangible assets acquired as a result of the Pursuit acquisition for the full year in fiscal year 2020.

Other (Income) Expense, Net

Other expense, net for fiscal year 2020 decreased by $4.7 million, or 75.0% to $1.6 million as compared to

fiscal year 2019. The decrease was primarily due to decreased interest expense of $2.6 million and a $1.7 million
adjustment to our tax receivable agreement liability, which resulted in us recognizing a corresponding amount as
other income during fiscal year 2020. Interest expense decreased due to a lower interest rate and lower average
outstanding debt during fiscal year 2020 compared to fiscal year 2019. The adjustment to our tax receivable
agreement liability was the result of a decrease in the estimated tax rate used in computing our future tax
obligations and, in turn, a decrease in the future tax benefit we expect to pay under our tax receivable agreement
to our pre-IPO owners.

Provision for Income Taxes

Our provision for income taxes for fiscal year 2020 decreased $3.0 million, to $19.1 million compared to

fiscal year 2019. This decrease was primarily driven by lower pre-tax earnings and reduced U.S. state taxes. For
fiscal year 2020, our effective tax rate of 22.8% differed from the statutory federal income tax rate of 21%
primarily due to the impact of U.S. state taxes.

This increase in tax rate was partially offset by the benefits of the foreign derived intangible income

deduction, the research and development tax credit, a windfall benefit generated by certain stock based
compensation, and the impact of non-controlling interests in the LLC. For fiscal year 2019, our effective tax rate
of 24.1% differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state
taxes. This increase was partially offset by the benefits of the foreign derived intangible income deduction, the
research and development tax credit and the impact of non-controlling interests in the LLC.

Non-controlling interest

Non-controlling interest represents the ownership interests of the members of the LLC other than us and the

amount recorded as non-controlling interest in our consolidated statements of operations and comprehensive
income is computed by multiplying pre-tax income for the applicable fiscal year by the percentage ownership in
the LLC not directly attributable to us. For fiscal years 2020 and 2019, the weighted average non-controlling
interest attributable to ownership interests in the LLC not directly attributable to us was 3.8% and 4.1%,
respectively.

Comparison of the Fiscal Year Ended June 30, 2019 to the Fiscal Year Ended June 30, 2018

Net Sales

Net sales for fiscal year 2019 increased $187.0 million, or 37.6%, to $684.0 million, compared to fiscal year

2018. Unit volume for fiscal year 2019 increased 1,070 units, or 17.0%, to 7,362 units compared to fiscal year
2018. The increase in net sales and unit volumes was driven primarily by our acquisition of Pursuit in October
2018, as well as increased demand for our Malibu, Axis and Cobalt brands coupled with year-over-year price
increases.

Net sales attributable to our Malibu segment increased $58.0 million, or 18.3%, to $374.6 million for fiscal
year 2019 compared to fiscal year 2018. Unit volumes attributable to our Malibu segment increased 487 units for
fiscal year 2019 compared to fiscal year 2018. The increase in net sales and unit volume for Malibu was driven
primarily by strong demand for new models and optional features, which led to a higher net sales per unit for
Malibu and Axis models. Net sales was also impacted by year-over-year price increases on all of our Malibu and
Axis models.

Net sales from our Cobalt segment increased $26.2 million, or 14.6%, to $206.6 million for fiscal year 2019

compared to fiscal year 2018. Unit volumes attributable to Cobalt increased 177 units for fiscal year 2019
compared to fiscal year 2018. The increase in Cobalt net sales and unit volume was driven primarily by strong
demand for our R series models. Net sales was also impacted by year-over-year price increases on all of our
Cobalt models.

Net sales and unit volume contributed by Pursuit since its acquisition on October 15, 2018 were

$102.8 million and 406 units, respectively, for fiscal year 2019.

Our overall net sales per unit increased 17.6% to $92,912 per unit for fiscal year 2019 compared to fiscal

year 2018. Net sales per unit for our Malibu segment increased 5.6% to $82,386 per unit for fiscal year 2019
compared to fiscal year 2018, driven by strong demand for new models and optional features and year-over-year
price increases. Net sales per unit for our Cobalt segment increased 6.2% to $85,761 per unit for fiscal year 2019
compared to fiscal year 2018, driven by a favorable mix of R series models which have a higher average selling
price as well as year-over-year price increases. Net sales per unit for Pursuit for fiscal year 2019 was $253,219.

Cost of Sales

Cost of sales for fiscal year 2019 increased $141.1 million, or 37.5%, to $517.7 million compared to fiscal year

2018. The increase in cost of sales was driven primarily by incremental costs contributed by Pursuit since its
acquisition in October 2018 and an increase in unit volumes at our Malibu, Axis and Cobalt businesses.

Gross Profit

Gross profit for fiscal year 2019 increased $45.9 million, or 38.2%, compared to fiscal year 2018. The increase

in gross profit was due mainly to higher unit volumes in the businesses mentioned above. Gross margin increased
10 basis points from 24.2% in fiscal 2018 to 24.3% in fiscal year 2019 due to our gross margins increasing for our
comparable businesses primarily as a result of our operational efficiency initiatives offset by $0.9 million of
additional expense related to the fair value step up of Pursuit inventory acquired and sold during fiscal year 2019.

Operating Expenses

Selling and marketing expense for fiscal year 2019 increased $4.2 million, or 30.8%, to $17.9 million
compared to fiscal year 2018 due primarily to the incremental expenses from Pursuit since its acquisition. As a
percentage of sales, selling and marketing expense decreased 20 basis points from 2.8% for fiscal year 2018 to 2.6%
for fiscal year 2019. General and administrative expense for fiscal year 2019 increased $12.9 million, or 41.1%, to
$44.3 million compared to fiscal year 2018. The increase in general and administrative expenses was largely due to
incremental general and administrative expenses attributable to Pursuit since its acquisition,

integration related expenses for our acquisition of Pursuit, which we completed in October 2018 and higher legal
expenses related mostly to intellectual property litigation. As a percentage of sales, general and administrative
expenses increased 20 basis points to 6.5% for fiscal year 2019 compared to 6.3% for fiscal year 2018.
Amortization expense for fiscal year 2019 increased $0.8 million, or 14.6%, compared to fiscal year 2018, due to
additional amortization from intangible assets acquired as a result of the Pursuit acquisition.

Other (Income) Expense, Net

Other expense, net for fiscal year 2019 changed by $25.6 million to expense of $6.3 million as compared to
income of $19.3 million in fiscal year 2018. The change was primarily due to a $24.6 million reduction in our tax
receivable agreement liability for fiscal year 2018, which resulted in us recognizing a corresponding amount as
other income. The reduction of our tax receivable agreement liability primarily resulted from a decrease in the
estimated tax rate used in computing our future tax obligations as a result of the Tax Act, which, in turn,
decreased the future tax benefit we expect to realize related to our increased tax basis from previous sales and
exchanges of LLC Units by our pre-IPO owners. For fiscal year 2019 we recognized higher interest expense on
our loans because of an overall higher average principal balance compared to fiscal year 2018, as a result of our
$50.0 million of borrowing under our revolving credit facility to finance a portion of the purchase price for
Pursuit. This higher interest expense was partially offset by other income we recognized from an adjustment in
our tax receivable agreement liability as a result of a decrease in the estimated tax rate used in computing our
future tax obligations and, in turn, a decrease in the future tax benefit we expect to pay under our tax receivable
agreement with pre-IPO owners.

Provision for Income Taxes

Our provision for income taxes for fiscal year 2019 decreased $36.3 million, to $22.1 million compared to
fiscal year 2018. For fiscal year 2018, we recorded a non-cash increase to income tax expense of $44.5 million
for the remeasurement of deferred taxes on the enactment date of the Tax Act and deferred tax impact related to
the reduction in the tax receivable agreement liability. For fiscal year 2019, our effective tax rate of 24.1%
differed from the statutory federal income tax rate of 21% primarily due to the impact of U.S. state taxes. This
increase was partially offset by the benefits of the foreign derived intangible income deduction, the research and
development tax credit and the impact of non-controlling interests in the LLC. For fiscal year 2018, our effective
tax rate of 65.4% differed from the blended statutory federal income tax rate of approximately 28% primarily due
to the impact of the Tax Act adopted in January 2018 and the impact of the additional jurisdictions in which we
were taxed as a result of the Cobalt acquisition in July 2017. Our effective tax rate was also impacted, to a lesser
extent, by the non-controlling interests in the LLC, state income taxes attributable to the LLC, and the benefit of
deductions under Section 199 of the Internal Revenue Code. Our effective tax rate also reflects the impact of our
share of the LLC’s permanent items such as stock compensation expense attributable to profits interests.

Non-controlling interest

Non-controlling interest represents the ownership interests of the members of the LLC other than us and the

amount recorded as non-controlling interest in our consolidated statements of operations and comprehensive
income is computed by multiplying pre-tax income for the applicable fiscal year by the percentage ownership in
the LLC not directly attributable to us. For fiscal years 2019 and 2018, the weighted average non-controlling
interest attributable to ownership interests in the LLC not directly attributable to us was 4.1% and 5.3%,
respectively.

GAAP Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that are used by

management as well as by investors, commercial bankers, industry analysts and other users of our financial
statements.

We define adjusted EBITDA as net income before interest expense, income taxes, depreciation,
amortization and non-cash, non-recurring or non-operating expenses, including certain professional fees,
acquisition and integration related expenses, non- cash compensation expense, expenses related to our engine
development initiative, expenses related to interruption to our engine supply during the labor strike by UAW
against General Motors and adjustments to our tax receivable agreement liability. We define adjusted EBITDA
margin as adjusted EBITDA divided by net sales. Adjusted EBITDA and adjusted EBITDA margin are not
measures of net income as determined by GAAP. Management believes adjusted EBITDA and adjusted EBITDA
margin allow investors to evaluate the company’s operating performance and compare our results of operations
from period to period on a consistent basis by excluding items that management does not believe are indicative of
our core operating performance. Management uses Adjusted EBITDA to assist in highlighting trends in our
operating results without regard to our financing methods, capital structure and non-recurring or non-operating
expenses. We exclude the items listed above from net income in arriving at adjusted EBITDA because these
amounts can vary substantially from company to company within our industry depending upon accounting
methods and book values of assets, capital structures, the methods by which assets were acquired and other
factors. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative to,
or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our liquidity.
Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a
company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historical
costs of depreciable assets. Our presentation of adjusted EBITDA and adjusted EBITDA margin should not be
construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations
of adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures of
other companies.

The following table sets forth a reconciliation of net income as determined in accordance with GAAP to

adjusted EBITDA and adjusted EBITDA margin for the periods indicated (dollars in thousands):

Net income
Income tax provision 1
Interest expense
Depreciation
Amortization
Professional fees and litigation settlements 2
Acquisition and integration related expenses 3
Stock-based compensation expense 4
UAW strike impact 5
Engine development 6
Adjustment to tax receivable agreement liability 7

Adjusted EBITDA

Adjusted EBITDA margin

Fiscal Year Ended June 30,

2020

2019

2018

$ 64,656
19,076
3,888
12,249
6,131
1,013
—
3,042
2,564
—
(1,672)

$ 69,701
22,096
6,464
10,004
5,956
739
5,245
2,607
—
3,186
(103)

$ 30,969
58,418
5,385
7,656
5,198
26
2,859
1,973
—
4,871
(24,637)

$110,947

$125,895

$ 92,718

17.0 %

18.4 %

18.7 %

(1) Provision for income taxes for fiscal years 2020, 2019 and 2018 reflect the impact of the Tax Act adopted in
December 2017, which among other items, lowered the U.S. corporate income tax rate from 35% to 21%,
effective January 1, 2018. For fiscal year 2018, we recorded an increase to income tax expense of
$44.5 million for the remeasurement of deferred taxes on the enactment date of the Tax Act and the deferred
tax impact related to the reduction in the tax receivable agreement liability. Refer to Note 13 of our
consolidated financial statements included elsewhere in this Annual Report.

MasterCraft. For more information, refer to Note 18 of our consolidated financial statements included
elsewhere in this Annual Report.

(3) For fiscal year 2019, represents integration costs and legal, professional and advisory fees incurred in

connection with our acquisition of Pursuit on October 15, 2018. For fiscal year 2018, represents integration
costs and legal, professional and advisory fees incurred in connection with our acquisition of Pursuit and our
acquisition of Cobalt on July 6, 2017. Integration related expenses for fiscal year 2019 include post-
acquisition adjustments to cost of goods sold of $0.9 million for the fair value step up of Pursuit inventory
acquired, most of which was sold during the second quarter of fiscal year 2019. Integration related expenses
for fiscal year 2018 include post-acquisition adjustments to cost of goods sold of $1.5 million for the fair
value step up of Cobalt inventory acquired, most of which was sold during the first quarter of fiscal year
2018.

(4) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-
Term Incentive Plan and profit interests issued under the previously existing limited liability company
agreement of the LLC. For more information, refer to Note 16 of our consolidated financial statements
included elsewhere in this Annual Report.

(5) For fiscal year 2020, represents costs incurred in connection with interruption to our engine supply during
the UAW strike against General Motors. We purchase engines from General Motors LLC that we then
prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended
delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two
suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.

(6) Represents costs incurred in connection with our vertical integration of engines including product

development costs and supplier transition performance incentives.

(7) For fiscal years 2020 and 2019, we recognized other income from an adjustment in our tax receivable
agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax
obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable
agreement with pre-IPO owners. For fiscal year 2019, the rate decrease was mainly offset by an increase to
other expense for tax receivable agreement liability derived by future tax benefits from Tennessee net
operating losses at Malibu Boats, Inc. For fiscal year 2018, we recognized other income as a result of a
decrease in our estimated tax receivable agreement liability. The reduction in our tax receivable agreement
liability resulted primarily from the adoption of the Tax Act during the second quarter of fiscal year 2018,
which decreased the estimated tax rate used in computing our future tax obligations and, in turn, decreased
the future tax benefit we expect to realize related to increased tax basis from previous sales and exchanges
of LLC Units by our pre-IPO owners. Refer to Note 12 of our consolidated financial statements included
elsewhere in this Annual Report.

Adjusted Fully Distributed Net Income

We define Adjusted Fully Distributed Net Income as net income attributable to Malibu Boats, Inc.

(i) excluding income tax expense, (ii) excluding the effect of non-recurring or non-cash items, (iii) assuming the
exchange of all LLC units into shares of Class A Common Stock, which results in the elimination of
non-controlling interest in the LLC, and (iv) reflecting an adjustment for income tax expense on fully distributed
net income before income taxes at our estimated effective income tax rate. Adjusted Fully Distributed Net
Income is a non-GAAP financial measure because it represents net income attributable to Malibu Boats, Inc.,
before non-recurring or non-cash items and the effects of non-controlling interests in the LLC.

We use Adjusted Fully Distributed Net Income to facilitate a comparison of our operating performance on a
consistent basis from period to period that, when viewed in combination with our results prepared in accordance
with GAAP, provides a more complete understanding of factors and trends affecting our business than GAAP
measures alone.

We believe Adjusted Fully Distributed Net Income assists our board of directors, management and investors

in comparing our net income on a consistent basis from period to period because it removes non-cash or

non-recurring items, and eliminates the variability of non-controlling interest as a result of member owner
exchanges of LLC Units into shares of Class A Common Stock.

In addition, because Adjusted Fully Distributed Net Income is susceptible to varying calculations, the
Adjusted Fully Distributed Net Income measures, as presented in this Annual Report, may differ from and may,
therefore, not be comparable to similarly titled measures used by other companies.

The following table shows the reconciliation of the numerator and denominator for net income available to

Class A Common Stock per share to Adjusted Fully Distributed Net Income per Share of Class A Common Stock
for the periods presented (in thousands except share and per share data):

Reconciliation of numerator for net income available to Class A
Common Stock per share to Adjusted Fully Distributed Net
Income per Share of Class A Common Stock:

Net income attributable to Malibu Boats, Inc.
Income tax provision 1
Professional fees and litigation settlements 2
Acquisition and integration related expenses 3
Fair value adjustment for interest rate swap 4
Stock-based compensation expense 5
Engine development 6
UAW strike impact 7
Adjustment to tax receivable agreement liability 8
Net income attributable to non-controlling interest 9

Fully distributed net income before income taxes
Income tax expense on fully distributed income before income

taxes 10

Adjusted Fully Distributed Net Income

Fiscal Year Ended June 30,

2020

2019

2018

61,562
19,076
1,013
4,262
68
3,042
—
2,564
(1,672)
3,094

93,009

66,066
22,096
739
9,506
350
2,607
3,186
—
(103)
3,635

108,082

21,857

26,048

71,152

82,034

27,613
58,418
26
5,719
(369)
1,973
4,871
—
(24,637)
3,356

76,970

20,908

56,062

Fiscal Year Ended June 30,

2020

2019

2018

Reconciliation of denominator for net income available to
Class A Common Stock per share to Adjusted Fully
Distributed Net Income per Share of Class A Common Stock:

Weighted average shares outstanding of Class A Common Stock

used for basic net income per share: 11

20,662,750

20,832,445

20,189,879

Adjustments to weighted average shares of Class A Common Stock:
Weighted-average LLC units held by non-controlling unit

holders 12

806,943

880,144

1,138,917

Weighted-average unvested restricted stock awards issued to

management 13

155,433

130,520

132,673

Adjusted weighted average shares of Class A Common Stock

outstanding used in computing Adjusted Fully Distributed Net
Income per Share of Class A Common Stock:

21,625,126

21,843,109

21,461,469

The following table shows the reconciliation of net income available to Class A Common Stock per share to

Adjusted Fully Distributed Net Income per Share of Class A Common Stock for the periods presented:

Net income available to Class A Common Stock per shared
Impact of adjustments:

Income tax provision 1
Professional fees and litigation settlements 2
Acquisition and integration related expenses 3
Fair value adjustment for interest rate swap 4
Stock-based compensation expense 5
Engine development 6
UAW strike impact 7
Adjustment to tax receivable agreement liability 8
Net income attributable to non-controlling interest 9

Fully distributed net income per share before income taxes

Impact of income tax expense on fully distributed income before income taxes 10
Impact of increased share count 14

Fiscal Year Ended June 30,

2020

2019

2018

$ 2.98

$ 3.17

$ 1.37

1.06
0.92
0.04
0.05
0.46
0.21
0.02
—
0.13
0.15
0.15
—
0.12
—
(0.08) —
0.15

0.17

4.50
(1.06)
(0.15)

5.20
(1.25)
(0.19)

2.89
—
0.28
(0.02)
0.10
0.24
—
(1.22)
0.17

3.81
(1.04)
(0.17)

Adjusted Fully Distributed Net Income per Share of Class A Common Stock

$ 3.29

$ 3.76

$ 2.60

(2) For fiscal years 2020 and 2019, represents legal and advisory fees related to our litigation with Skier’s
Choice, Inc. For fiscal year 2018, represents legal and advisory fees related to our litigation with
MasterCraft. For more information, refer to Note 18 of our consolidated financial statements included
elsewhere in this Annual Report.

(3) For fiscal year 2020 represents amortization of intangibles acquired in connection with the acquisition of
Pursuit and Cobalt. For fiscal year 2019, represents integration costs and legal, professional and advisory
fees incurred in connection with our acquisition of Pursuit on October 15, 2018. For fiscal year 2018,
represents integration costs and legal, professional and advisory fees incurred in connection with our
acquisition of Pursuit and our acquisition of Cobalt on July 6, 2017. Integration related expenses for fiscal
year 2019 include post-acquisition adjustments to cost of goods sold of $0.9 million for the fair value step
up of inventory acquired, most of which was sold during the second quarter of fiscal year 2019 and
$1.3 million in depreciation and amortization associated with our fair value step up of property, plant and
equipment and intangibles acquired in connection with the acquisition of Pursuit. In addition, for fiscal year
2019 integration related expenses includes $3.0 million in amortization associated with intangibles acquired
in connection with the acquisition of Cobalt. Integration related expenses for fiscal year 2018 include post-
acquisition adjustments to cost of goods sold of $1.5 million for the fair value step up of inventory acquired,
most of which was sold during the first quarter of fiscal year 2018. In addition, for fiscal year 2018
integration related expenses includes $2.9 million in depreciation and amortization associated with our fair
value step up of property, plant and equipment and intangibles acquired in connection with the acquisition
of Cobalt.

(4) Represents the change in the fair value of our interest rate swap entered into on July 1, 2015. The swap

matured on March 31, 2020.

(5) Represents equity-based incentives awarded to certain of our employees under the Malibu Boats, Inc. Long-
Term Incentive Plan and profit interests issued under the previously existing limited liability company

agreement of the LLC. For more information, refer to Note 16 of our consolidated financial statements
included elsewhere in this Annual Report.

(6) Represents costs incurred in connection with our vertical integration of engines including product

development costs and supplier transition performance incentives.

(7) For fiscal year 2020, represents costs incurred in connection with interruption to our engine supply during
the UAW strike against General Motors. We purchase engines from General Motors LLC that we then
prepare for marine use for our Malibu and Axis boats. During the UAW strike, General Motors suspended
delivery of engine blocks to us and we incurred costs by entering into purchase agreements with two
suppliers for additional engines to supplement our inventory of engine blocks for Malibu and Axis boats.

(8) For fiscal years 2020 and 2019, we recognized other income from an adjustment in our tax receivable
agreement liability as a result of a decrease in the estimated tax rate used in computing our future tax
obligations and in turn, a decrease in the future tax benefit we expect to pay under our tax receivable
agreement with pre-IPO owners. For fiscal 2019, the rate decrease was mainly offset by an increase to other
expense for tax receivable agreement liability derived by future tax benefits from Tennessee net operating
losses at Malibu Boats, Inc. For fiscal year 2018, we recognized other income as a result of a decrease in our
estimated tax receivable agreement liability. The reduction in our tax receivable agreement liability resulted
primarily from the adoption of the Tax Act during the second quarter of fiscal year 2018, which decreased
the estimated tax rate used in computing our future tax obligations and, in turn, decreased the future tax
benefit we expect to realize related to increased tax basis from previous sales and exchanges of LLC Units
by our pre-IPO owners. Refer to Note 12 of our consolidated financial statements included elsewhere in this
Annual Report.

(9) Reflects the elimination of the non-controlling interest in the LLC as if all LLC members had fully

exchanged their LLC Units for shares of Class A Common Stock.

(10) Reflects income tax expense at an estimated normalized annual effective income tax rate of 23.5% of

income before taxes for fiscal year 2020, 24.1% of income before taxes for fiscal year 2019 and 27.2% of
income before income taxes for fiscal year 2018, in each case assuming the conversion of all LLC Units into
shares of Class A Common Stock. The estimated normalized annual effective income tax rate for fiscal year
2020 is based on the federal statutory rate plus a blended state rate adjusted for the research and
development tax credit, the foreign derived intangible income deduction, and foreign income taxes
attributable to our Australian subsidiary. The estimated normalized annual effective income tax rate for
fiscal year 2019 is based on the federal statutory rate plus a blended state rate adjusted for the research and
development tax credit and foreign income taxes attributable to our Australian subsidiary. The estimated
normalized effective income tax rate for fiscal year 2018 is based on the federal statutory rate plus a blended
state rate adjusted for deductions under Section 199 of the Internal Revenue Code, state taxes attributable to
the LLC, and foreign income taxes attributable to our Australian subsidiary.

(11) The difference in weighted average shares outstanding for fiscal year 2018, relates to the difference in the

weighting of shares outstanding of Class A Common Stock during this period for the calculation of basic net
income per share for our financial statements and basic net income per share for adjusted fully distributed
net income.

(12) Represents the weighted average shares outstanding of LLC Units held by non-controlling interests

assuming they were exchanged into Class A Common Stock on a one-for-one basis.

(13) Represents the weighted average unvested restricted stock awards included in outstanding shares during the

applicable period that were convertible into Class A Common Stock and granted to members of
management.

(14) Reflects impact of increased share counts assuming the exchange of all weighted average shares outstanding
of LLC Units into shares of Class A Common Stock and the conversion of all weighted average unvested
restricted stock awards included in outstanding shares granted to members of management.

Liquidity and Capital Resources

Our primary sources of funds are cash provided by operating activities and borrowings under our credit
agreement. Our primary use of funds has been for capital investments, repayments under our debt arrangements,

acquisitions, cash distributions to members of the LLC and cash payments under our tax receivable agreement.
The following table summarizes the cash flows from operating, investing and financing activities (dollars in
thousands):

Total cash provided by (used in):

Operating activities
Investment activities
Financing activities

Impact of currency exchange rates on cash balances

Increase (decrease) in cash

Fiscal Year Ended June 30,

2020

2019

2018

$ 94,141
(40,394)
(47,323)
(29)

$ 81,500
(118,011)
2,375
(95)

$ 58,455
(135,856)
106,202

—

$ 6,395

$ (34,231)

$ 28,801

Comparison of the Fiscal Year Ended June 30, 2020 to the Fiscal Year Ended June 30, 2019

Operating Activities

Net cash from operating activities was $94.1 million for fiscal year 2020, compared to $81.5 million for the
same period in 2019, an increase of $12.6 million. The increase in cash provided by operating activities primarily
resulted from a net increase in operating assets and liabilities of $13.0 million related to the timing of collections
of accounts receivables, payments for accruals and payables, and purchases of inventory and an increase of
$4.6 million in non-cash items primarily related to depreciation, amortization, deferred tax assets and non-cash
compensation offset by a $5.0 million decrease in net income.

Investing Activities

Net cash used for investing activities was $40.4 million for fiscal year 2020 compared to $118.0 million for

the same period in 2019, a decrease of $77.6 million. The decrease in cash used for investing activities was
primarily related to the purchase price paid for Pursuit in October 2018, partially offset by an increase in capital
expenditures in fiscal year 2020 consisting of normal purchases for manufacturing infrastructure, molds, and
equipment and expansion activities at Cobalt and Pursuit.

Financing Activities

Net cash used by financing activities was $47.3 million for fiscal year 2020 compared to net cash provided

by financing activities of $2.4 million for fiscal year 2019, a change of $49.7 million. During fiscal year 2020,
we received $103.8 million in proceeds from our credit facility primarily to provide financial flexibility in light
of the current uncertainty resulting from the COVID-19 pandemic. We repaid $110 million of revolving debt and
we repurchased $13.8 million of our Class A Common Stock under our previously announced stock repurchase
program. We also paid $1.8 million in distributions to LLC unit holders and $0.8 million on taxes for shares
withheld on restricted stock vestings and we received $0.4 million in proceeds from the exercise of stock options
during fiscal year 2020. During fiscal year 2019, we received $55.0 million in proceeds from our credit facility
primarily to fund the acquisition of Pursuit, which we subsequently repaid during the same fiscal year. We also
converted $35.0 million from term debt to our revolving credit facility in May 2019. We also paid $1.8 million in
distributions to LLC unit holders and $1.2 million on taxes for shares withheld on restricted stock vestings and
we received $0.7 million proceeds from the exercise of stock options.

Comparison of the Fiscal Year Ended June 30, 2019 to the Fiscal Year Ended June 30, 2018

Operating Activities

Net cash from operating activities was $81.5 million for fiscal year 2019, compared to $58.5 million for the
same period in 2018, an increase of $23.0 million. The increase in cash provided by operating activities primarily

resulted from an increase in net income of $38.7 million, partially offset by a lower amount of non-cash expenses
included in net income and an increase in the net use of cash related to the timing of collections of accounts
receivables, payments for accruals and payables, and purchases of inventory.

Investing Activities

Net cash used for investing activities was $118.0 million for fiscal year 2019 compared to $135.9 million
for the same period in 2018, a decrease of $17.8 million. The decrease in cash used for investing activities was
primarily related to the lower purchase price paid for Pursuit in October 2018 compared to the purchase price
paid for Cobalt in July 2017, partially offset by an increase in capital expenditures consisting of normal
purchases for manufacturing infrastructure and expansion activities, molds, and equipment.

Financing Activities

Net cash provided by financing activities was $2.4 million for fiscal year 2019 compared to net cash
provided by financing activities of $106.2 million for fiscal year 2018, a decrease in cash of $103.8 million.
During the fiscal year ended June 30, 2019, we received $55.0 million in proceeds from our revolving credit
facility of which $50.0 million was used to fund the acquisition of Pursuit. We also converted $35.0 million from
term debt to our revolving credit facility in May 2019. We have repaid $50.0 million on our revolving credit
facility during fiscal year 2019. We paid $1.8 million in distributions to LLC unit holders and $1.2 million on
taxes for shares withheld on restricted stock vestings and we received $0.7 million proceeds from the exercise of
stock options for fiscal year 2019. During fiscal year 2018, we received proceeds of $105.0 million from our
credit facility to fund the acquisition of Cobalt and $55.3 million in proceeds from our equity offering, which we
used to repay $50.0 million on our outstanding term debt. In connection with the term debt and equity offering,
we paid $1.1 million and $0.7 million in legal and advisory costs, respectively. In addition, during the fiscal year
2018, we paid $1.6 million in distributions to LLC unit holders.

Loans and Commitments

We currently have a revolving credit facility with borrowing capacity of up to $120.0 million and a
$75.0 million term loan outstanding. As of June 30, 2020, we had $8.8 million outstanding under our revolving
credit facility and $1.2 million in outstanding letters of credit. On March 19, 2020, we elected to draw the then
remaining available funds of $98.8 million from the revolving credit facility. In June 2020, we repaid
$110.0 million 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 Truist Financial Corp.
(previously known as 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 LLC, Boats LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a
party to the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate equal to either, at our option, (i) the highest of

the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1% (the “Base Rate”) or
(ii) LIBOR, in each case plus an applicable margin ranging from 1.25% to 2.25% with respect to LIBOR
borrowings and 0.25% to 1.25% with respect to Base Rate borrowings. 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,
2020, the interest rate on the term loan and revolving credit facility was 1.66%. We are 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 we

made a voluntary principal payment on the term loan in the amount of $50.0 million with a portion of the net

proceeds from our equity offering completed on August 14, 2017. We exercised our option to apply the
prepayment in forward order to principal installments on our term loan through December 31, 2021 and a portion
of the principal installments due on March 31, 2022. As a result, the term loan is subject to a quarterly
installment of approximately $3.0 million on March 31, 2022 and the balance of the term loan is due on the
scheduled maturity date of July 1, 2022. The Credit Agreement is also subject to prepayments from the net cash
proceeds received by Boats LLC or any guarantors from certain asset sales and recovery events, subject to certain
reinvestment rights, and from excess cash flow, subject to the terms and conditions of the credit agreement. As of
June 30, 2020, the outstanding principal amount of the term loan and revolving credit facility was $83.8 million.

The Credit Agreement contains certain customary representations and warranties, and notice requirements

for the occurrence of specific events such as the occurrence of any event of default, or pending or threatened
litigation. The Credit Agreement also requires compliance with certain customary financial covenants, including
a minimum ratio of EBITDA to fixed charges and a maximum ratio of total debt to EBITDA. The Credit
Agreement contains certain restrictive covenants, which, among other things, place limits on certain activities of
the loan parties under the Credit Agreement, such as the incurrence of additional indebtedness and additional
liens on property and limit the future payment of dividends or distributions. For example, the Credit Agreement
generally prohibits Malibu Boats Holdings, LLC, Boats LLC and the subsidiary guarantors from paying
dividends or making distributions, including to us. The credit facility permits, however, (i) distributions based on
a member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax
receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or
employees of loan parties or payments pursuant to stock option and other benefit plans up to $2.0 million in any
fiscal year, and (iv) share repurchase payments up to $35.0 million in any fiscal year subject to one-year carry
forward and compliance with
other financial covenants. In addition, the LLC may make dividends and distributions of up to $10.0 million in
any fiscal year, subject to compliance with other financial covenants.

Potential Impact of LIBOR Transition

The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London
Interbank Offered Rate, or LIBOR, has announced that the FCA will no longer persuade or compel banks to
submit rates for the calculation of LIBOR after 2021. That announcement indicates that the continuation of
LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR
will be discontinued or modified prior to 2021.

All of our $83.8 million of debt outstanding under our Credit Agreement as of June 30, 2020 bears interest
at a floating rate that uses LIBOR as the applicable reference rate to calculate the interest. Our Credit Agreement
provides that, if the administrative agent has determined that adequate means do not exist for ascertaining
LIBOR or that LIBOR does not adequately and fairly reflect the cost to lenders for making, funding or
maintaining their loans, then all of our outstanding loans under the Credit Agreement will be converted into loans
that accrue interest at the alternative Base Rate described above under “Loans and Commitments” on the last day
of such interest period that determination is made. Further, the lenders under our Credit Agreement will no
longer be obligated to make loans using LIBOR as the applicable reference rate.

In addition, our tax receivable agreement provides that, if for any reason the LLC is not able to make a tax
distribution in an amount that is sufficient to make any required payment under the tax receivable agreement or
we otherwise lack sufficient funds, interest would accrue on any unpaid amounts at LIBOR plus 500 basis points
until they are paid. Our tax receivable agreement, however, does not provide for an alternative reference rate to
LIBOR and, while we do not currently anticipate failing to pay any amounts owed under our tax receivable
agreement, it is unclear how we would determine interest on any such amounts should we fail to pay as required
under our tax receivable agreement.

If the rate used to calculate interest on our outstanding floating rate debt under our Credit Agreement that
currently uses LIBOR were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use

of the alternative Base Rate, we would expect to incur additional interest expense on such indebtedness as of
June 30, 2020 of approximately $0.8 million on an annualized basis. While we do not expect the potential impact
of any LIBOR transition to have a material effect on our financial results based on our currently outstanding
debt, uncertainty as to the nature of potential changes to LIBOR, fallback provisions, alternative reference rates
or other reforms could adversely impact our interest expense on our floating rate debt that currently uses LIBOR
as the applicable reference rate. In addition, any alternative reference rates to LIBOR may result in interest that
does not correlate over time with the payments that would have been made on our indebtedness if LIBOR was
available in its current form. Further, the discontinuance or modification of LIBOR and uncertainty of an
alternative reference rate may result in the increase in the cost of future indebtedness, which could have a
material adverse effect on our financial condition, cash flow and results of operations. We intend to closely
monitor the financial markets and the use of fallback provisions and alternative reference rates in 2020 in
anticipation of the discontinuance or modification of LIBOR by the end of 2021.

Future Liquidity Needs and Capital Expenditures

Management believes that our existing cash and cash flows from operations will be sufficient to fund our

operations for the next 12 months. We estimate that approximately $3.6 million will be due under the tax
receivable agreement within the next 12 months. In accordance with the tax receivable agreement, the next
payment is anticipated to occur approximately 75 days after filing the federal tax return which is due on April 15,
2021.

Our future capital requirements will depend on many factors, including the general economic environment
in which we operate and our ability to generate cash flow from operations, which are more uncertain as a result
of the COVID-19 pandemic and its impact on the general economy. Our liquidity needs during this uncertain
time will depend on multiple factors, including our ability to continue operations and production of boats, the
COVID-19 pandemic’s effects on our dealers, suppliers and retail customers, the availability of sufficient
amounts of financing, and our operating performance.

Stock Repurchase Program

On June 18, 2019, our Board of Directors authorized a stock repurchase program to allow for the repurchase
of up to $35.0 million of our Class A Common Stock and the LLC’s LLC Units (the “Repurchase Program”) for
the period from July 1, 2019 to July 1, 2020. 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. This repurchase
program expired on July 1, 2020. On August 27, 2020, our Board of Directors authorized a new stock repurchase
program for the repurchase of up to $50.0 million 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.

Capital Resources

Management expects our capital expenditures for fiscal year 2021 to be less than our capital expenditures

for fiscal year 2020 primarily driven by facility expansion projects at Cobalt and Pursuit completed in fiscal year
2020. Capital expenditures for fiscal year 2021 are expected to consist primarily of the completion of ongoing
projects, new tooling, and expenditures to increase production capacity to accommodate future growth.

Off-Balance Sheet Arrangements

Repurchase Commitments

In connection with our dealers’ wholesale floor plan financing of boats, we have entered into repurchase
agreements with various lending institutions. The repurchase commitment is on an individual unit basis with a
term from the date it is financed by the lending institution through payment date by the dealer, generally not

exceeding two and a half years. Such agreements are customary in the industry and our exposure to loss under
such agreements is limited by the resale value of the inventory which is required to be repurchased. Refer to Note
18 to the audited consolidated financial statements included elsewhere in this Annual Report for further
information on repurchase commitments.

Contractual Obligations and Commitments

As of June 30, 2020, our contractual obligations were as follows:

Long-term debt 1
Interest expense 2
Operating leases 3
Purchase obligations 4
Payments pursuant to tax receivable agreement 5

Total

Payments Due by Period

Total

Less than 1
Year

1-3 Years

3-5 Years

(In thousands)

More than 5
Years

$ 83,800
3,011
18,273
61,615
49,665

$ — $75,000
1,497
4,833
—
7,586

1,370
2,548
61,615
3,589

$ 8,800
144
4,878
—
8,063

$ —
—
6,014
—
30,427

$216,364

$69,122

$88,916

$21,885

$36,441

(1) Principal payments on our outstanding bank debt per terms of our Credit Agreement, which is comprised of

a $75.0 million term loan and $120.0 million revolving credit facility, of which $8.8 million was
outstanding as of June 30, 2020. Assumes no additional borrowings or repayments under our revolving
credit facility prior to its maturity. The term loan matures on July 1, 2022 and the revolving credit facility
matures on July 1, 2024.
Interest payments on our outstanding term loan and revolving credit facility under our credit agreement. Our
term loan and revolving credit facility bear interest at variable rates. We have calculated future interest
obligations based on the interest rate for our term loan and revolving credit facility as of June 30, 2020.
(3) Pursuant to the adoption of ASC Topic 842, Leases, as of July 1, 2019 our lease liability for all leases with

(2)

terms greater than 12 months as represented on the balance sheet respective of maturity.

(4) As part of the normal course of business, we enter into purchase orders from a variety of suppliers, primarily

for raw materials, in order to manage our various operating needs. The orders are expected to be purchased
throughout fiscal year 2021.

(5) Reflects amounts owed under our tax receivables agreement that we entered into with our pre-IPO owners at
the time of our IPO. Under the tax receivables agreement, we pay the pre-IPO owners (or any permitted
assignees) 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise
tax that we actually realize, or in some circumstances are deemed to realize, as a result of an expected
increase in our share of tax basis in LLC’s tangible and intangible assets, including increases attributable to
payments made under the tax receivable agreement. These obligations will not be paid if we do not realize
cash tax savings.

Our dealers have arrangements with certain finance companies to provide secured floor plan financing for

the purchase of our products. These arrangements indirectly provide liquidity to us by financing dealer purchases
of our products, thereby minimizing the use of our working capital in the form of accounts receivable. A majority
of our sales are financed under similar arrangements, pursuant to which we receive payment within a few days of
shipment of the product. We have agreed to repurchase products repossessed by the finance companies if a dealer
defaults on its debt obligations to a finance company and the boat is returned to us, subject to certain limitations.
Our financial exposure under these agreements is limited to the difference between the amounts unpaid by the
dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of
the repossessed product. For fiscal year 2020, we repurchased two units from a lender of one of our 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, we repurchased eight units from a lender of two of our former dealers and those units
were subsequently resold in fiscal year 2020 above their cost and at minimal margin loss. For fiscal year 2018,
we did not repurchase any units under our repurchase agreements. An adverse change in retail sales could require
us to repurchase repossessed units upon an event of default by any of our dealers, subject to the annual limitation.

Seasonality

Our dealers experience seasonality in their business. Retail demand for boats is seasonal, with a significant
majority of sales occurring during peak boating season, which coincides with our first and fourth fiscal quarters.
In order to minimize the impact of this seasonality on our business, we manage our manufacturing processes and
structure dealer incentives to tie our annual volume rebates program to consistent ordering patterns, encouraging
dealers to purchase our products throughout the year. In this regard, we may offer free flooring incentives to
dealers from the beginning of our model year through April 30 of each year. Further, in the event that a dealer
does not consistently order units throughout the year, such dealer’s rebate is materially reduced. We may offer
off-season retail promotions to our dealers in seasonally slow months, during and ahead of boat shows, to
encourage retail demand.

Inflation

The market prices of certain materials and components used in manufacturing our products, especially

resins that are made with hydrocarbon feedstocks, copper, aluminum and stainless steel, can be volatile.
Historically, however, inflation has not had a material effect on our results of operations. Significant increases in
inflation, particularly those related to wages and increases in the cost of raw materials, could have an adverse
impact on our business, financial condition and results of operations.

New boat buyers often finance their purchases. Inflation typically results in higher interest rates that could

translate into an increased cost of boat ownership. Should inflation and increased interest rates occur, prospective
consumers may choose to forgo or delay their purchases or buy a less expensive boat in the event credit is not
available to finance their boat purchases.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our

consolidated financial statements, which have been prepared in accordance with GAAP. These principles require
us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and cash
flows, and related disclosure of contingent assets and liabilities. Our estimates include those related to business
combinations, revenue recognition, income taxes, tax receivable agreement liability, and warranty claims. We
base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ from these estimates. To the extent that there are material
differences between these estimates and our actual results, our future financial statements will be affected.

We believe that of our significant accounting policies, which are described in the notes to our audited
consolidated financial statements appearing elsewhere in this Annual Report, the accounting policies listed below
involve a greater degree of judgment and complexity. Accordingly, we believe these are the most critical to
understand and evaluate fully our financial condition and results of operations.

Revenue Recognition

Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied;

this occurs when control of promised goods (boats, parts, or other) is transferred to the customer. Revenue is
measured as the amount of consideration we expect to receive in exchange for transferring goods or providing
services. We generally manufacture products based on specific orders from dealers and often ship completed

products only after receiving credit approval from financial institutions. The amount of consideration we receive
and revenue we recognize varies with changes in marketing incentives and rebates we offer to our dealers and
their customers.

Dealers generally have no rights to return unsold boats. From time to time, however, we may accept returns

in limited circumstances and at our discretion under our warranty policy, which generally limits returns to
instances of manufacturing defects. We may be obligated, in the event of default by a dealer, to accept returns of
unsold boats under our repurchase commitment to floor financing providers, who are able to obtain such boats
through foreclosure. We accrue returns when a repurchase and return, due to the default of one of our dealers, is
determined to be probable and the return is reasonably estimable. Historically, product returns resulting from
repurchases made under the floorplan financing program, have not been material and the returned boats have
been subsequently resold above their cost. Refer to Note 9 and Note 18 related to our product warranty and
repurchase commitment obligations, respectively.

Revenue from boat part sales is recorded as the product is shipped from our location, which is free on board

shipping point. Revenue associated with sales of materials, parts, boats or engine products sold under our
exclusive manufacturing and distribution agreement with our Australian subsidiary are eliminated in
consolidation. Revenue associated with sales to the independent representative responsible for international sales
is recognized in accordance with free on board shipping point terms, the point at which the risks of ownership
and loss pass to the representative. A fixed percentage discount is earned by the independent representative at the
time of shipment to the representative as a reduction in the price of the boat and is recorded in our consolidated
statement of operations as a reduction in sales.

We earn royalties on boats shipped with our 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. The usage of our
technology satisfies the performance obligation in the contract.

Product Warranties

Our Malibu and Axis brand boats have a limited warranty for a period up to five years. Our 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. 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.

Our standard warranties require us or our dealers to repair or replace defective products during the warranty

period at no cost to the consumer. We estimate warranty costs we expect to incur and record a liability for such
costs at the time the product revenue is recognized. We utilize historical claims trends and analytical tools to
develop the estimate of our warranty obligation on a per boat basis, by brand and warranty year. Factors that
affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims
and cost per claim. We assess the adequacy of our recorded warranty liabilities and adjust the amounts as
necessary. Beginning in model year 2016, we increased the term of our 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, we increased the term of our bow-to-stern warranty for Cobalt brand boats from three years to five years.
As a result of these changes, all of our 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, we have 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. A hypothetical change of a 10% increase or decrease to our estimate of the warranty liability as of
June 30, 2020 would have affected net income for the fiscal year ended June 30, 2020 by approximately
$2.1 million.

New Accounting Pronouncements

See “Part II, Item 8. Financial Statements and Supplementary Data—Note 1—Organization, Basis of

Presentation, and Summary of Significant Accounting Policies—New Accounting Pronouncements.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial condition through adverse changes in

financial market prices and rates and inflation. Changes in these factors could cause fluctuations in our results of
operations and cash flows. In the ordinary course of business, we are primarily exposed to foreign exchange rate and
interest rate risks. We manage our exposure to these market risks through regular operating and financing activities. In
the past, we have also attempted to reduce our market risks through hedging instruments such as interest rate swaps.

Foreign Exchange Rate Risk

We have operations both within the United States and Australia, and we are exposed to market risks in the

ordinary course of our business. These risks primarily include foreign exchange rate and inflation risks. Our
Australian operations purchase key components from our U.S. operations, as well as other U.S. based suppliers,
and pay for these purchases in U.S. dollars. Fluctuations in the foreign exchange rate of the U.S. dollar against
the Australian dollar have resulted in a gain of $0.1 million in foreign currency translation in the fiscal year
ended June 30, 2020. We had a flat foreign currency translation for fiscal year 2019 and a loss of $0.1 million for
fiscal year 2018. We are also subject to risks relating to changes in the general economic conditions in the
countries where we conduct business. To reduce certain of these risks to our Australian operations, we monitor,
on a regular basis, the financial condition and position of the subsidiary. We do not use derivative instruments to
mitigate the impact of our foreign exchange rate risk exposures.

Additionally, the assets and liabilities of our Australian subsidiary are translated at the foreign exchange rate
in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other
comprehensive loss in the stockholders’ equity section of the accompanying consolidated balance sheets.
Revenues and expenses of our foreign subsidiary are translated at the average foreign exchange rate in effect for
each month of the quarter. Certain assets and liabilities related to intercompany positions reported on our
consolidated balance sheet that are denominated in a currency other than the functional currency are translated at
the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net
income.

Interest Rate Risk

We are subject to interest rate risk in connection with borrowings under our revolving credit facility and
term loan, which bear interest at variable rates. At June 30, 2020, we had $75.0 million of term loan outstanding
under our term loan facility and $8.8 million outstanding debt under our revolving credit facility. As of June 30,
2020, the undrawn borrowing amount under our revolving credit facility was $111.2 million. Borrowings under
the term loan and revolving credit facility bear interest at our option of (i) the highest of the prime rate, the
Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1%, which is the Base Rate, or (ii) LIBOR, in each
case plus an applicable margin ranging from 0.25% to 1.25% with respect to Base Rate borrowings and 1.25% to
2.25% with respect to LIBOR borrowings. Therefore, our income and cash flows will be exposed to changes in
interest rates to the extent that we do not have effective hedging arrangements in place.

At June 30, 2020, the interest rate on our term loan and revolving credit facility was 1.66%. Based on a
sensitivity analysis at June 30, 2020, assuming a 100 basis point increase in interest rates would increase our
annual interest expense by approximately $0.8 million.

On July 1, 2015, we entered into a 5-year floating to fixed interest rate swap with a certain counterparty to

the previously existing credit agreement to mitigate the risk of interest rate fluctuations associated with our
variable rate long term debt. The swap has an effective start date of July 1, 2015 and is based on a one-month
LIBOR rate versus a 1.52% fixed rate on a notional value of $39.3 million, which was equal to 50% of the
outstanding balance of our term loan at the time of the swap arrangement. The swap matured on March 31, 2020.
For the fiscal year ended June 30, 2020, we recorded a loss of $0.1 million 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.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Report of Management on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income for the Fiscal Years Ended June 30,

2020, 2019, and 2018

Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended June 30, 2020, 2019, and

2018

Consolidated Statements of Cash Flows for the Fiscal Years ended June 30, 2020, 2019, and 2018
Notes to Consolidated Financial Statements

Page

72
73

77
78

79
81
82

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

To the Stockholders and Board of Directors
Malibu Boats, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Malibu Boats, Inc. and subsidiaries’ (the Company) 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. In our opinion, the Company maintained,
in all material respects, effective 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.

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.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

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

/s/ KPMG LLP

Knoxville, Tennessee
August 31, 2020

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Malibu Boats, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Malibu Boats, Inc. and subsidiaries (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). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of June 30,
2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period
ended June 30, 2020, in conformity with U.S. generally accepted accounting principles.

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

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.

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. The product warranty liability represents estimated future costs to
repair or replace defective products during the warranty period for each boat sold. The Company’s estimated
future costs to repair or replace defective products includes assumptions regarding the anticipated warranty
costs per boat by brand.

We identified the evaluation of the anticipated warranty costs per boat that are used to estimate the product
warranty liability for Malibu, Axis and Cobalt branded boats as a critical audit matter. A higher degree of
subjective auditor judgment was required to evaluate the Company’s estimate of the anticipated warranty
costs per boat, due to the nature of the audit evidence. 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. This historical claims experience is shorter in duration than the five-year warranty term associated
with the Company’s current warranty program.

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.

/s/ KPMG LLP

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

Knoxville, Tennessee
August 31, 2020

MALIBU BOATS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income
(In thousands, except share data)

Net sales
Cost of sales

Gross profit
Operating expenses:

Selling and marketing
General and administrative
Amortization

Operating income
Other (income) expense, net:
Other income, net
Interest expense

Other (income) expense, net

Net income before provision for income taxes
Income tax provision

Net income

Net income attributable to non-controlling interest

Net income attributable to Malibu Boats, Inc.

Comprehensive income:
Net income
Other comprehensive income (loss), net of tax:

Change in cumulative translation adjustment

Other comprehensive income (loss), net of tax

Comprehensive income, net of tax

Less: comprehensive income attributable to non-controlling interest,

net of tax

Fiscal Year Ended June 30,

2020

2019

2018

653,163
503,893

149,270

684,016
517,746

166,270

497,002
376,660

120,342

17,917
39,912
6,131

85,310

(2,310)
3,888

1,578

83,732
19,076

64,656
3,094

17,946
44,256
5,956

98,112

(149)
6,464

6,315

91,797
22,096

69,701
3,635

61,562

66,066

13,718
31,359
5,198

70,067

(24,705)
5,385

(19,320)

89,387
58,418

30,969
3,356

27,613

64,656

69,701

30,969

(304)

(844)

(621)

64,352

68,857

30,348

3,083

3,591

3,328

Comprehensive income attributable to Malibu Boats, Inc.,

net of tax

61,269

65,266

27,020

Weighted average shares outstanding used in computing net

income per share:

Basic
Diluted
Net income available to Class A Common Stock per share:
Basic
Diluted

20,662,750
20,852,361

20,832,445
20,966,539

20,179,381
20,281,210

$
$

2.98
2.95

$
$

3.17
3.15

$
$

1.37
1.36

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

MALIBU BOATS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(In thousands, except share data)

Assets
Current assets
Cash
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets

Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Deferred tax assets
Other assets

Total assets

Liabilities
Current liabilities

Accounts payable
Accrued expenses
Income tax and distribution payable
Payable pursuant to tax receivable agreement, current portion

Total current liabilities

Deferred tax liabilities
Other liabilities
Payable pursuant to tax receivable agreement, less current portion
Long-term debt

Total liabilities

Commitments and contingencies (See Note 18)
Stockholders’ Equity
Class A Common Stock, par value $0.01 per share, 100,000,000 shares authorized;
20,595,969 shares issued and outstanding as of June 30, 2020; 20,852,640 shares
issued and outstanding as of June 30, 2019

Class B Common Stock, par value $0.01 per share, 25,000,000 shares authorized; 15

shares issued and outstanding as of June 30, 2020; 15 shares issued and
outstanding as of June 30, 2019

Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares

issued and outstanding as of June 30, 2020; no shares issued and outstanding as of
June 30, 2019

Additional paid in capital
Accumulated other comprehensive loss
Accumulated earnings

Total stockholders’ equity attributable to Malibu Boats, Inc.

Non-controlling interest

Total stockholders’ equity

June 30, 2020

June 30, 2019

$ 33,787
13,767
72,946
3,954

124,454
94,310
51,273
139,892
52,935
14,482
$477,346

$ 15,846
50,485
243
3,589

70,163
14
16,727
46,076
82,839

215,819

$ 27,392
27,961
67,768
4,530

127,651
65,756
51,404
146,061
60,407
35
$451,314

$ 21,174
49,097
1,469
3,592

75,332
145
1,689
50,162
113,633

240,961

204

207

—

103,797
(3,132)
153,711
254,580
6,947

261,527

—

113,004
(2,828)
93,852
204,235
6,118

210,353

Total liabilities and stockholders’ equity

$477,346

$451,314

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

S
E
I
R
A
I
D
I
S
B
U
S
D
N
A

C
N
I

S
T
A
O
B
U
B
I
L
A
M

y
t
i

u
q
E

’
s
r
e
d

l
o
h
k
c
o
t
S
f
o

s
t
n
e
m
e
t
a
t
S
d
e
t
a
d

i
l
o
s
n
o
C

)
s
e
r
a
h
s
B
s
s
a
l
C

f
o

r
e
b
m
u
n
t
p
e
c
x
e

,
s
d
n
a
s
u
o
h
t
n
I
(

y
t
i
u
q
E

s
s
o
L

s
r
e
d
l
o
h
k
c
o
t
S

e
v
i
s
n
e
h
e
r
p
m
o
C

l
a
t
o
T

d
e
t
a
l
u
m
u
c
c
A

r
e
h
t
O

6
3
2
,
2
5

)
3
6
3
,
1
(
$

3
8
2
,
1

9
6
9
,
0
3

7
6
8

0
0
0
,
1

)
0
5
6
(

)
5
8
6
,
1
(

4
0
0
,
3

7
1
3
,
5
5

)
4
4
6
(

)
7
2
8
,
1
(

7
7
3
,
1

1
0
7
,
9
6

1
7
8
,
9
3
1

4
8
7

9
4
7

)
6
7
6
,
2
(

5
7
2
,
3

)
2
8
8
(

)
8
4
8
,
1
(

)
1
2
6
(

)
4
8
9
,
1
(

5
2

9
8
7
,
7
2

6
6
0
,
6
6

)
4
4
8
(

)
3
(

)
0
2
9
(

)
3
2
(

)
2
5
8
,
1
(

2
0
5
,
5

5
3
6
,
3

)
6
3
1
,
1
(

)
8
3
(

)
5
4
8
,
1
(

7
6
8

2
8
2
,
1

0
0
0
,
1

)
0
5
6
(

)
5
8
6
,
1
(

4
9
2
,
5
5

0
2
9

4
0
0
,
3

)
2
(

7
1
2

6
5

9
3

3
2

0
0
3
,
2

4
8
7

9
4
7

6
7
3
,
1

)
6
7
6
,
2
(

5
7
2
,
3

6
3
1
,
1

)
2
(

5
5

9
2

4
1
2

0
6
3
,
8
0
1

—

7
1

4
0
2

5
5
5
,
0
2

.
c
n
I

,
s
t
a
o
B
u
b
i
l
a
M

d
e
t
a
l
u
m
u
c
c
A

s
g
n
i
n
r
a
E

)
t
i
c
i
f
e
D

(

3
1
6
,
7
2

1
5
1

-
n
o
N

g
n
i
l
l
o
r
t
n
o
c

n
i

t
s
e
r
e
t
n
I

C
L
L

6
5
3
,
3

1
4
9
,
4

l
a
n
o
i
t
i
d
d
A

n
I
d
i
a
P

l
a
t
i
p
a
C

t
n
u
o
m
A

s
e
r
a
h
S

t
n
u
o
m
A

s
e
r
a
h
S

8
2
3
,
8
4

—
$

9
1

9
7
1
$

8
3
9
,
7
1

k
c
o
t
S
n
o
m
m
o
C

B
s
s
a
l
C

A
s
s
a
l
C

s
d
r
a
w
a
y
t
i
u
q
e
d
e
t
s
e
v

n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i

f
o
t
e
n
,
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
k
c
o
t
S

g
n
i
t
i
r

w
r
e
d
n
u
f
o
t
e
n
,
s
g
n
i
r
e
f
f

r
o
f
k
c
o
t

S
n
o
m
m
o
C
A
s
s
a
l
C

f
o
e
c
n
a
u
s
s
I

n
o
i
t
i
s
i
u
q
c
a

r
o
f
k
c
o
t
s
n
o
m
m
o
c
A
s
s
a
l
C

f
o
e
c
n
a
u
s
s
I

s
e
c
i
v
r
e
s

r
o
f
y
t
i
u
q
e

f
o
s
e
c
n
a
u
s
s
I

t
n
e
m
e
e
r
g
a

e
l
b
a
v
i
e
c
e
r
x
a
t

e
h
t
o
t

t
n
a
u
s
r
u
p
e
l
b
a
y
a
p
n
i

e
s
a
e
r
c
n
I

s
i
s
a
b
x
a
t
n
i
p
u
-
p
e
t
s
m
o
r
f

t
e
s
s
a
x
a
t
d
e
r
r
e
f
e
d
n
i

e
s
a
e
r
c
n
I

k
c
o
t

S
n
o
m
m
o
C
A
s
s
a
l
C

r
o
f

s
t
i
n
U
C
L
L
f
o

e
g
n
a
h
c
x
E

s
t
s
o
c
g
n
i
r
e
f
f

O
d
e
z
i
l
a
t
i
p
a
C

s
t
n
u
o
c
s
i
d

7
1
0
2

,
0
3

e
n
u
J
t
a
e
c
n
a
l
a
B

e
m
o
c
n
I

t
e
N

k
c
o
t

S
n
o
m
m
o
C
B
s
s
a
l
C

f
o
n
o
i
t
a
l
l
e
c
n
a
C

t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F

s
r
e
d
l
o
h
t
i
n
U
C
L
L
o
t

s
n
o
i
t
u
b
i
r
t
s
i
D

8
1
0
2

,
0
3

e
n
u
J
t
a
e
c
n
a
l
a
B

e
m
o
c
n
I

t
e
N

s
d
r
a
w
a
y
t
i
u
q
e
d
e
t
s
e
v

n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i

f
o
t
e
n
,
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
k
c
o
t
S

t
n
e
m
e
e
r
g
a

e
l
b
a
v
i
e
c
e
r
x
a
t

e
h
t
o
t

t
n
a
u
s
r
u
p
e
l
b
a
y
a
p
n
i

e
s
a
e
r
c
n
I

s
i
s
a
b
x
a
t
n
i
p
u
-
p
e
t
s
m
o
r
f

t
e
s
s
a
x
a
t
d
e
r
r
e
f
e
d
n
i

e
s
a
e
r
c
n
I

k
c
o
t

S
n
o
m
m
o
C
A
s
s
a
l
C

r
o
f

s
t
i
n
U
C
L
L
f
o

e
g
n
a
h
c
x
E

s
n
o
i
t
p
o
f
o
e
s
i
c
r
e
x
e

r
o
f
y
t
i
u
q
e

f
o
e
c
n
a
u
s
s
I

s
e
c
i
v
r
e
s

r
o
f
y
t
i
u
q
e

f
o
s
e
c
n
a
u
s
s
I

k
c
o
t

S
n
o
m
m
o
C
B
s
s
a
l
C

f
o
n
o
i
t
a
l
l
e
c
n
a
C

t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F

s
r
e
d
l
o
h
t
i
n
U
C
L
L
o
t

s
n
o
i
t
u
b
i
r
t
s
i
D

y
t
i
u
q
E

2
9
1
,
2

6
5
6
,
4
6

3
5
3
,
0
1
2

1
5
8

7
7
3

)
3
0
7
,
1
(

)
1
4
0
,
1
(

4
6
3
,
1

)
3
3
8
,
3
1
(

)
0
2
3
(

)
0
7
3
,
1
(

s
r
e
d
l
o
h
k
c
o
t
S

e
v
i
s
n
e
h
e
r
p
m
o
C

l
a
t
o
T

d
e
t
a
l
u
m
u
c
c
A

r
e
h
t
O

)
8
2
8
,
2
(

s
s
o
L

.
c
n
I

,
s
t
a
o
B
u
b
i
l
a
M

d
e
t
a
l
u
m
u
c
c
A

s
g
n
i
n
r
a
E

)
t
i
c
i
f
e
D

(

2
5
8
,
3
9

2
6
5
,
1
6

-
n
o
N

g
n
i
l
l
o
r
t
n
o
c

n
i

t
s
e
r
e
t
n
I

C
L
L

8
1
1
,
6

4
9
0
,
3

l
a
n
o
i
t
i
d
d
A

n
I
d
i
a
P

l
a
t
i
p
a
C

t
n
u
o
m
A

s
e
r
a
h
S

t
n
u
o
m
A

s
e
r
a
h
S

4
0
0
,
3
1
1

—

5
1

7
0
2

3
5
8
,
0
2

k
c
o
t
S
n
o
m
m
o
C

B
s
s
a
l
C

A
s
s
a
l
C

)
3
0
7
,
1
(

)
4
0
3
(

)
6
1
(

)
9
7
8
(

)
0
7
3
,
1
(

1
5
8

7
7
3

1
9
1
,
2

)
8
2
8
,
3
1
(

)
1
4
0
,
1
(

4
6
3
,
1

9
7
8

2
1

2
1
1

)
5
(

)
3
8
4
(

0
0
1

7
2
5
,
1
6
2
$

)
2
3
1
,
3
(
$

1
1
7
,
3
5
1
$

7
4
9
,
6

7
9
7
,
3
0
1
$

—
$

5
1

4
0
2
$

6
9
5
,
0
2

s
d
r
a
w
a
y
t
i
u
q
e
d
e
t
s
e
v

n
o
s
e
x
a
t
g
n
i
d
l
o
h
h
t
i

f
o
t
e
n
,
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
k
c
o
t
S

9
1
0
2

,
0
3

e
n
u
J
t
a
e
c
n
a
l
a
B

e
m
o
c
n
i

t
e
N

t
n
e
m
e
e
r
g
a

e
l
b
a
v
i
e
c
e
r
x
a
t

e
h
t
o
t

t
n
a
u
s
r
u
p
e
l
b
a
y
a
p
n
i

e
s
a
e
r
c
n
I

s
i
s
a
b
x
a
t
n
i
p
u
-
p
e
t
s
m
o
r
f

t
e
s
s
a
x
a
t
d
e
r
r
e
f
e
d
n
i

e
s
a
e
r
c
n
I

2
4
8
C
S
A

r
o
f

t
n
e
m
t
s
u
j
d
a
n
o
i
t
i
s
n
a
r
t

t
c
e
f
f
e
-
e
v
i
t
a
l
u
m
u
C

k
c
o
t
s
n
o
m
m
o
c

f
o
t
n
e
m
e
r
i
t
e
r
d
n
a

e
s
a
h
c
r
u
p
e
R

s
n
o
i
t
p
o
f
o
e
s
i
c
r
e
x
e

r
o
f
y
t
i
u
q
e

f
o
e
c
n
a
u
s
s
I

s
e
c
i
v
r
e
s

r
o
f
y
t
i
u
q
e

f
o
s
e
c
n
a
u
s
s
I

t
n
e
m
t
s
u
j
d
a
n
o
i
t
a
l
s
n
a
r
t
y
c
n
e
r
r
u
c
n
g
i
e
r
o
F

s
r
e
d
l
o
h
t
i
n
U
C
L
L
o
t

s
n
o
i
t
u
b
i
r
t
s
i
D

s
s
a
l
C

r
o
f

s
t
i
n
U
C
L
L
f
o

e
g
n
a
h
c
x
E

k
c
o
t

S
n
o
m
m
o
C
A

0
2
0
2

,
0
3

e
n
u
J
t
a
e
c
n
a
l
a
B

.
s
t
n
e
m
e
t
a
t

l
a
i
c
n
a
n
i

F
d
e
t
a
d
i
l
o
s
n
o
C
e
s
e
h
t

f
o

t
r
a
p

l
a
r
g
e
t
n
i

n
a

e
r
a

s
e
t
o
n

g
n
i
y
n
a
p
m
o
c
c
a

e
h
T

MALIBU BOATS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)

Operating activities:
Net income

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

Non-cash compensation expense
Non-cash compensation to directors
Depreciation
Amortization
Deferred income taxes
Adjustment to tax receivable agreement liability
Other items, net
Change in operating assets and liabilities (excluding effects of acquisition):

Trade receivables
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Income taxes receivable and payable
Other liabilities
Payment pursuant to tax receivable agreement

Net cash provided by operating activities

Investing activities:

Purchases of property and equipment
Proceeds from sale of property and equipment
Payment for acquisition, net of cash acquired
Net cash used in investing activities

Financing activities:

Principal payments on long-term borrowings
Proceeds from long-term borrowings
Payment of deferred financing costs
Proceeds from revolving credit facility
Payments on revolving credit facility
Proceeds from issuance of Class A Common Stock in offerings, net of underwriting

discounts

Payment of costs directly associated with offerings
Repurchase and retirement of Class A Common Stock
Cash paid for tax withholdings
Distributions to non-controlling LLC Unit holders
Proceeds received from exercise of stock options
Net cash provided by (used in) by financing activities

Effect of exchange rate changes on cash
Changes in cash
Cash—Beginning of period
Cash—End of period

Supplemental cash flow information:

Cash paid for interest
Cash paid for income taxes
Non-cash operating, investing and financing activities:
Establishment of deferred tax assets from step-up in tax basis
Establishment of amounts payable under tax receivable agreements
Equity issued as consideration for acquisition
Exchange of LLC Units for Class A Common Stock
Tax distributions payable to non-controlling LLC Unit holders
Capital expenditures in accounts payable

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

Fiscal Year Ended June 30,
2018
2019
2020

$ 64,656
3,042

$ 69,701

$ 30,969

829
12,249
6,131
8,715
(1,672)
2,211

14,193
(5,263)
551
(5,812)
(239)
(1,164)
(828)
(3,458)
94,141

2,607
791
10,004
5,956
6,794
(103)
802

(3,041)
(15,410)
(786)
(2,791)
9,598
125
1,118
(3,865)
81,500

1,973
834
7,656
5,198
45,793
(24,637)
793

(12,181)
(6,336)
(447)
4,612
6,547
1,723
251
(4,293)
58,455

(41,291)
897

(40,394)

(17,938)
—

(100,073)
(118,011)

(10,449)
145
(125,552)
(135,856)

—
—
—
103,800
(135,000)

—
—
(13,833)
(831)
(1,836)
377
(47,323)
(29)
6,395
27,392
$ 33,787

3,810
10,529
1,364

1,041
—
879
104
1,129

(35,000)
—
(370)
90,000
(50,000)

(50,000)
105,000
(1,148)
—
—

—
—
—
(1,219)
(1,785)
749
2,375
(95)
(34,231)
61,623
$ 27,392

55,317
(650)
—
(691)
(1,626)
—
106,202
—
28,801
32,822
$ 61,623

6,011
14,173

3,275
2,676
—
1,136
568
647

4,352
9,887

3,004
1,685
1,000
920
511
1,053

MALIBU BOATS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Dollars in thousands, except per unit and per share data)

1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies

Organization

Malibu Boats, Inc. (together with its subsidiaries, the “Company” or “Malibu”), a Delaware corporation
formed on November 1, 2013, is the sole managing member of Malibu Boats Holdings, LLC, a Delaware limited
liability company (the “LLC”). The Company operates and controls all of the LLC’s business and affairs and,
therefore, pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 810, Consolidation, consolidates the financial results of the LLC and its subsidiaries, and records
a non-controlling interest for the economic interest in the Company held by the non-controlling holders of units
in the LLC (“LLC Units”). Malibu Boats Holdings, LLC was formed in 2006 with Malibu’s acquisition by an
investor group, including affiliates of Black Canyon Capital LLC, Horizon Holdings, LLC and then- current
management. The LLC, through its wholly owned subsidiary, Malibu Boats, LLC, is engaged in the design,
engineering, manufacturing and marketing of innovative, high-quality, recreational powerboats that are sold
through a world- wide network of independent dealers. On July 6, 2017, the Company acquired all the
outstanding units of Cobalt Boats, LLC (“Cobalt”) further expanding the Company’s product offering across a
broader segment of the recreational boating industry including performance sport boats, sterndrive and outboard
boats. As a result of the acquisition, the Company also consolidates the financial results of Cobalt. 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. Refer to Note 4. 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 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.

Principles of Consolidation

The accompanying consolidated financial statements include the operations and accounts of the Company

and all subsidiaries thereof. 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

The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates, and such differences could be material.

Certain Significant Risks and Uncertainties

The Company is subject to those risks common in manufacturing-driven markets, including, but not limited
to, competitive forces, dependence on key personnel, consumer demand for its products, the successful protection
of its proprietary technologies, compliance with government regulations and the possibility of not being able to
obtain additional financing if and when needed.

Concentration of Credit and Business Risk

A majority of the Company’s sales are made pursuant to floor plan financing programs in which the

Company participates on behalf of its dealers through a contingent repurchase agreement with various third-party
financing institutions. Under these arrangements, a dealer establishes a line of credit with one or more of these
third-party lenders for the purchase of dealer boat inventory. When a dealer purchases and takes delivery of a
boat pursuant to a floor plan financing arrangement, it draws against its line of credit and the lender pays the
invoice cost of the boat directly to the Company within approximately two weeks. 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. 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 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.

Cash

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, 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. This cash

on deposit may be, at times, in excess of insurance limits provided by the FDIC.

Trade Accounts Receivable

Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables
based on a review of all outstanding amounts on a monthly basis. As of June 30, 2020 and 2019, the allowance
for doubtful receivables was $0 and $69, respectively. Management determines the allowance for doubtful
accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts.
Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written
off are recorded when received. A trade receivable is considered to be past due if any portion of the receivable
balance is outstanding beyond customer terms.

Capitalization of Offering Costs

Capitalized offering costs are costs directly attributable to the Company’s shelf registration statement and

equity offerings. 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. For the fiscal
year ended June 30, 2019, the Company capitalized $60 related to a shelf registration statement. For the fiscal
year ended June 30, 2018 the Company netted $650 against the proceeds of future offerings under the shelf
registration statement based on the number of shares sold in the offering and total number of shares available for
issuance under the shelf registration statement. Refer to Note 15 for additional information regarding the
Company’s equity offerings.

Goodwill

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a
business combination that are not individually identified and separately recognized. Goodwill amounts are not
amortized, but rather are evaluated for potential impairment on an annual basis, as of June 30, in accordance with
the provisions of ASC Topic 350, Intangibles— Goodwill and Other. Under the guidance, the Company may
assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. If this assessment indicates the possibility of impairment, the income approach to
test for goodwill impairment would be used. Under the income approach, management calculates the fair value of
its reporting units based on the present value of estimated future cash flows. 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 goodwill exceeds its implied fair value, then the Company would record an
impairment loss equal to the difference. For fiscal years ended June 30, 2020 and 2019, the Company performed
a qualitative assessment which indicated that the fair value of its reporting units more likely than not exceeded
their respective carrying amounts. The Company did not recognize any goodwill impairment charges in the fiscal
years ended June 30, 2020, 2019 and 2018.

Intangible Assets

Intangible assets consist primarily of relationships, reacquired franchise rights, product trade names, legal

and contractual rights surrounding a patent and a non-compete agreement. These assets are recorded at their
estimated fair values at the acquisition dates using the income approach. Definite lived intangible assets are being
amortized using the straight-line method based on their estimated useful lives ranging from 5 to 20 years. The
estimated useful lives of dealer relationships consider the average length of dealer relationships at the time of
acquisition, historical rates of dealer attrition and retention, the Company’s history of renewal and extension of
dealer relationships, as well as competitive and economic factors resulting in a range of useful lives. 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 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. Significant data and
assumptions used in the valuations included cost, market and income comparisons, discount rates, royalty rates
and management forecasts. Discount rates for each intangible asset were selected based on judgment of relative
risk and approximate rates of returns investors in the subject assets might require. The royalty rates were based
on historical and projected sales and profits of products sold and management’s assessment of the intangibles’

importance to the sales and profitability of the product. Management provided forecasts of financial data
pertaining to assets, liabilities and income statement balances to be utilized in the valuations. While management
believes the assumptions, estimates, appraisal methods and ensuing results are appropriate and represent the best
evidence of fair value in the circumstances, modification or use of other assumptions or methods could have
yielded different results.

The carrying amount of definite lived intangible assets are reviewed whenever circumstances arise that
indicate the carrying amount of an asset may not be recoverable. The carrying value of these assets is compared
to the undiscounted future cash flows the assets are expected to generate. 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.

Dealer Incentives

The Company provides for various structured dealer rebate and sales promotions incentives, which are
recognized as a component of sales in measuring the amount of consideration the Company expects to receive in
exchange for transferring goods, at the time of sale to the dealer. Examples of such programs include rebates,
seasonal discounts, promotional co-op arrangements and other allowances. Dealer rebates and sales promotion
expenses are estimated based on current programs and historical achievement and/or usage rates. Actual results
may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and
incentive programs or if dealer achievement or other items vary from historical trends.

Free floor financing incentives include payments to the lenders providing floor plan financing to the dealers
or directly to the dealers themselves. Free floor financing incentives are estimated at the time of sale to the dealer
based on the expected expense to the Company over the term of the free flooring period and are recognized as a
reduction in sales. The Company accounts for both incentive payments directly to dealers and payment to third
party lenders in this manner.

Changes in the Company’s accrual for dealer rebates were as follows:

Balance at beginning of year
Add: Dealer rebate incentive

Additions for Pursuit acquisition

Less: Dealer rebates paid

Balance at end of year

Fiscal Year Ended June 30,

2020

2019

2018

$ 6,376
19,555
—
(19,066)

$ 5,559
20,712
205
(20,100)

$ 3,178
15,713
—
(13,332)

$ 6,865

$ 6,376

$ 5,559

Changes in the Company’s accrual for floor financing were as follows:

Balance at beginning of year
Add: Flooring incentive

Additions for Cobalt acquisition

Less: Flooring paid

Balance at end of year

Fiscal Year Ended June 30,

2020

2019

2018

681
9,492
—
(9,454)

211
8,526
—
(8,056)

117
5,813
132
(5,851)

719

681

211

Tax Receivable Agreement

As a result of exchanges of LLC Units into Class A Common Stock and purchases by the Company of LLC
Units from holders of LLC Units, the Company will become entitled to a proportionate share of the existing tax
basis of the assets of the LLC at the time of such exchanges or purchases. In addition, such exchanges or
purchases of LLC Units are expected to result in increases in the tax basis of the assets of the LLC that otherwise
would not have been available. These increases in tax basis may reduce the amount of tax that the Company
would otherwise be required to pay in the future. 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 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. For purposes of the
tax receivable agreement, the benefit deemed realized by the Company will be computed by comparing its actual
income tax liability (calculated with certain assumptions) to the amount of such taxes that it 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 timing and/or amount of aggregate payments due under the tax receivable agreement may vary based on
a number of factors, including the amount and timing of the taxable income the Company generates in the future
and the tax rate then applicable and amortizable basis.

The term of the tax receivable agreement will continue until all such tax benefits have been utilized or
expired, unless the Company exercises its right to terminate the tax receivable agreement for an amount based on
the agreed payments remaining to be made under the agreement. In 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 (or any permitted assignees) 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 all LLC Units and that the Company would have had
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.

Income Taxes

Malibu Boats, Inc. is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both

federal and state taxation at a corporate level. Following the IPO, the LLC continues to operate in the United
States as a partnership for U.S. federal income tax purposes.

The Company files various federal and state tax returns, including some returns that are consolidated with
subsidiaries. The Company accounts for the current and deferred tax effects of such returns using the asset and
liability method. Significant judgments and estimates are required in determining the Company’s current and
deferred tax assets and liabilities, which reflect management’s best assessment of the estimated future taxes it
will pay. These estimates are updated throughout the year to consider income tax return filings, its geographic
mix of earnings, legislative changes and other relevant items.

The Company recognizes deferred tax assets and liabilities based on the differences between the financial
statement carrying amounts of assets and liabilities and the amounts applicable for income tax purposes. Deferred
tax assets represent items to be realized as a tax deduction or credit in future tax returns. Realization of the
deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character
in either the carryback or carryforward period.

Each quarter the Company analyzes the likelihood that its deferred tax assets will be realized. A valuation

allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely
than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized (see
Note 13).

On an annual basis, the Company performs a comprehensive analysis of all forms of positive and negative

evidence based on year end results. During each interim period, the Company updates its annual analysis for
significant changes in the positive and negative evidence.

If the Company later determines that realization is more likely than not for deferred tax assets with a
valuation allowance, the related valuation allowance will be reduced. Conversely, if the Company determines
that it is more likely than not that the Company will not be able to realize a portion of our deferred tax assets, the
Company will increase the valuation allowance.

The Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is
more likely than not that the position will be sustained based upon the technical merits of the position. For a tax
position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently
measures the income tax benefit as the largest amount that it judges to have a greater than 50% likelihood of
being realized. The liability associated with unrecognized tax benefits is adjusted periodically due to changing
circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such
adjustments are recognized entirely in the period in which they are identified. The Company’s income tax
provision includes the net impact of changes in the liability for unrecognized tax benefits.

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 years 2016 through 2019.

The Company considers an issue to be resolved at the earlier of the issue being “effectively settled,”
settlement of an examination, or the expiration of the statute of limitations. Upon resolution, unrecognized tax
benefits will be reversed as a discrete event.

The Company’s liability for unrecognized tax benefits is generally presented as noncurrent. However, if it

anticipates paying cash within one year to settle an uncertain tax position, the liability is presented as current.
The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as income
tax expense.

Revenue Recognition

Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied;

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 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.

Dealers generally have no rights to return unsold boats. From time to time, however, the Company may

accept returns in limited circumstances and at the Company’s discretion under its warranty policy, which
generally limits returns to instances of manufacturing defects. The Company may be obligated, in the event of
default by a dealer, to accept returns of unsold boats under its repurchase commitment to floor financing
providers, who are able to obtain such boats through foreclosure. The Company accrues returns when a
repurchase and return, due to the default of one of its dealers, is determined to be probable and the amount of the
return is reasonably estimable. Historically, product returns, resulting from repurchases made under the floorplan
financing program, have not been material and the returned boats have been subsequently resold above their cost.
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 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 other boat manufacturers and industry suppliers. The usage of our
technology satisfies the performance obligation in the contract.

See Note 2 for more information.

Delivery Costs

Shipping and freight costs are included in cost of sales in the accompanying consolidated statements of

operations and comprehensive income.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses are included in selling and marketing

expenses and were not material for the fiscal years ended June 30, 2020, 2019, and 2018.

Fair Value of Financial Instruments

Financial instruments for which the Company did not elect the fair value option include accounts receivable,

prepaid expenses and other current assets, credit facilities, accounts payable, accrued expenses and other current
liabilities. The carrying amounts of these financial instruments approximate their fair values as a result of their
short-term nature or variable interest rates.

Fair Value Measurements

The Company applies the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, for fair
value measurements of financial assets and financial liabilities, and for fair value measurements of nonfinancial
items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a

framework for measuring fair value and expands disclosures about fair value measurements. In addition to the
financial assets and liabilities measured on a recurring basis, certain nonfinancial assets and liabilities are to be
measured at fair value on a nonrecurring basis in accordance with applicable GAAP. This includes items such as
nonfinancial assets and liabilities initially measured at fair value in a business combination (but not measured at
fair value in subsequent periods) and nonfinancial long-lived asset groups measured at fair value for an
impairment assessment. In general, non-financial assets including goodwill, other intangible assets and property
and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value
only when any impairment is recognized. See Note 14 for more information.

Equity-Based Compensation

The Company expenses employee share-based awards under ASC Topic 718, Compensation—Stock
Compensation, which requires compensation cost for the grant-date fair value of share-based awards to be
recognized over the requisite service period. The Company estimated the grant date fair value of the share-based
awards issued in the form of profit interests granted prior to November 1, 2013 using the Black-Scholes option
pricing model and those granted on November 1, 2013 under the Probability-Weighted Expected Return method.
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.

Foreign Currency Translation

The functional currency for the Company’s consolidated foreign subsidiary is the applicable local currency.
The assets and liabilities are translated at the foreign exchange rate in effect at the applicable reporting date, and
the consolidated statements of operations and comprehensive income and cash flows are translated at the average
exchange rate in effect during the applicable period. Exchange rate fluctuations on translating the foreign
currency financial statements into U.S. 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.

Comprehensive Income

Components of comprehensive income include net income and foreign currency translation adjustments.

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. The cumulative effect of adopting the new
revenue standard was immaterial and no adjustment has been recorded to the opening balance of retained
earnings. Prior year information has not been restated and continues to be reported under the accounting
standards in effect for those periods. Substantially all of the Company’s revenue continues to be recognized at a
point in time when the product is either shipped or received from the Company’s facilities and control of the
product is transferred to the customer. 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 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.

2. Revenue Recognition

The following table disaggregates the Company’s revenue by major product type and geography:

Revenue by product:

Boat and trailer sales
Part and other sales

Total revenue

Fiscal Year Ended June 30, 2020

Malibu

Cobalt

Pursuit

Consolidated

$341,886
12,883

$172,267
2,501

$122,850
776

$637,003
16,160

$354,769

$174,768

$123,626

$653,163

Revenue by geography:
North America
International

Total revenue

Revenue by product:

Boat and trailer sales
Part and other sales

Total revenue

Revenue by geography:
North America
International

Total revenue

Boat and Trailer Sales

Fiscal Year Ended June 30, 2020

Malibu

Cobalt

Pursuit

Consolidated

$327,049
27,720

$167,755
7,013

$115,363
8,263

$610,167
42,996

$354,769

$174,768

$123,626

$653,163

Fiscal Year Ended June 30, 2019

Malibu

Cobalt

Pursuit

Consolidated

$362,200
12,411

$203,825
2,773

$102,070
737

$668,095
15,921

$374,611

$206,598

$102,807

$684,016

$341,190
33,421

$196,734
9,864

$ 93,003
9,804

$630,927
53,089

$374,611

$206,598

$102,807

$684,016

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

Part and Other Sales

Consists primarily of parts and accessories sales, royalty income and clothing sales. Parts and accessories

sales include replacement and aftermarket boat parts and accessories sold to the Company’s dealer network.
Royalty income is earned from license agreements with various boat manufacturers, including Nautique,
Chaparral, Mastercraft, and Tige related to the use of the Company’s intellectual property.

3. Non-controlling Interest

The non-controlling interest on the consolidated statement of operations and comprehensive income

represents the portion of earnings or loss attributable to the economic interest in the Company’s subsidiary,
Malibu Boats Holdings, LLC, held by the non-controlling LLC Unit holders. Non-controlling interest on the
consolidated balance sheets represents the portion of net assets of the Company attributable to the
non-controlling LLC Unit holders, based on the portion of the LLC Units owned by such Unit holders. The
ownership of Malibu Boats Holdings, LLC is summarized as follows:

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%

Malibu Boats, Inc. 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
Allocation of income to non-controlling LLC Unit holders for period
Distributions paid and payable to non-controlling LLC Unit holders for period
Reallocation of non-controlling interest

Balance of non-controlling interest as of June 30, 2019
Allocation of income to non-controlling LLC Unit holders for period
Distributions paid and payable to non-controlling LLC Unit holders for period
Reallocation of non-controlling interest

Balance of non-controlling interest as of June 30, 2020

$ 5,502
3,635
(1,845)
(1,174)

6,118
3,094
(1,370)
(895)

$ 6,947

Issuance of Additional LLC Units

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, 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

Distributions for Taxes

As a limited liability company (treated as a partnership for income tax purposes), Malibu Boats Holdings,

LLC does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of
its members. As authorized by the LLC Agreement, the LLC is required to distribute cash, to the extent that the
LLC has cash available, on a pro rata basis, to its members to the extent necessary to cover the members’ tax
liabilities, if any, with respect to their share of LLC earnings. The LLC makes such tax distributions to its
members based on an estimated tax rate and projections of taxable income. If the actual taxable income of the
LLC multiplied by the estimated tax rate exceeds the tax distributions made in a calendar year, the LLC may
make true-up distributions to its members, if cash or borrowings are available for such purposes. As of June 30,
2020 and 2019, tax distributions payable to non-controlling LLC Unit holders were $104 and $568, respectively.
During the fiscal years ended June 30, 2020, 2019, and 2018, tax distributions paid to the non-controlling LLC
Unit holders were $1,836, $1,785, and $1,647, respectively.

Other Distributions

Pursuant to the LLC Agreement, the Company has the right to determine when distributions will be made to

LLC members and the amount of any such distributions. If the Company authorizes a distribution, such
distribution will be made to the members of the LLC (including the Company) pro rata in accordance with the
percentages of their respective LLC units.

4. Acquisitions

Pursuit

On October 15, 2018, the Company completed its acquisition of the assets of Pursuit. The aggregate
purchase price for the transaction was $100,073, funded with cash and borrowings under the Company’s credit
agreement. The aggregate purchase price was subject to certain adjustments, including customary adjustments for
the amount of working capital in the business at the closing date. The Company accounted for the transaction in
accordance with ASC 805, Business Combinations.

The total consideration given to the former owners of Pursuit has been allocated to the assets acquired and

liabilities assumed based on estimates of fair value as of the date of the acquisition. The measurements of fair
value were determined based upon estimates utilizing the assistance of third party valuation specialists.

The following table summarizes the purchase price allocation based on the estimated fair values of the

assets acquired and liabilities of Pursuit assumed at the acquisition date:

Consideration:
Cash consideration paid

Recognized amounts of identifiable assets acquired and

liabilities assumed, at fair value:

Inventories
Other current assets
Property, plant and equipment
Identifiable intangible assets
Current liabilities

Fair value of assets acquired and liabilities assumed
Goodwill

Total purchase price

$100,073

8,332
350
17,454
57,900
(3,488)

80,548
19,525

$100,073

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

are as follows:

Definite-lived intangibles:

Dealer relationships

Total definite-lived intangibles

Indefinite-lived intangible:

Trade name

Total other intangible assets

Estimates of Fair
Value

Estimated Useful Life
(in years)

$25,400

25,400

32,500

$57,900

The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the

expected sales price of the inventory, less an estimated cost to complete and a reasonable profit margin. The fair
value of the identifiable intangible assets were determined based on the following approaches:

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

Trade Name—The value attributed to Pursuit’s trade name was determined using a variation of the

income approach called the relief from royalty method, which requires an estimate or forecast of the
expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible assets are being amortized using the straight-line method to
general and administrative expenses over their estimated useful lives. Indefinite-lived intangible assets are not
amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the
provisions of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable
definite-lived intangible assets acquired was 20 years. Goodwill of $19,525 arising from the acquisition consists
of expected synergies and cost savings as well as intangible assets that do not qualify for separate recognition.
The indefinite-lived intangible asset and goodwill acquired are expected to be deductible for income tax
purposes.

Acquisition-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):

The following unaudited pro forma consolidated results of operations for the fiscal years ended June 30,
2020 and 2019, assumes that the acquisition of Pursuit occurred as of July 1, 2017. The unaudited pro forma
financial information combines historical results of Malibu and Pursuit, with adjustments for depreciation and
amortization attributable to preliminary fair value estimates on acquired tangible and intangible assets for the
respective periods. Non-recurring pro forma adjustments associated with the fair value step up of inventory were
included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial information is
presented for informational purposes only and is not indicative of the results of operations that would have been
achieved if the acquisition had taken place at the beginning of fiscal year 2018 or the results that may occur in
the future:

Net sales
Net income
Net income attributable to Malibu Boats, Inc.
Basic earnings per share
Diluted earnings per share

Fiscal Year Ended June 30,

2020

2019

2018

$653,163
64,656
61,562
2.98
2.95

$
$

$725,658
73,672
69,830
3.35
3.33

$
$

$620,908
33,618
29,871
1.48
1.47

$
$

Cobalt

On July 6, 2017, the Company completed its acquisition of Cobalt. The aggregate purchase price for the
transaction was $130,525, consisting of $129,525 funded with cash and borrowings under the Company’s credit
agreement and $1,000 in equity equal to 39,262 shares of the Company’s Class A Common Stock based on a
closing stock price of $25.47 per share on June 27, 2017. The aggregate purchase price was subject to certain
adjustments, including customary adjustments for the amount of working capital in the business at the closing
date and subject to adjustment for any judgment or settlement in connection with a pending litigation matter
between Cobalt and Sea Ray Boats, Inc. and Brunswick Corporation. William Paxson St. Clair, Jr., a former
owner of Cobalt, was appointed as a director to the Company’s Board of Directors and as President of Cobalt.
The Company accounted for the transaction in accordance with ASC 805, Business Combinations.

The total consideration given to the former members of Cobalt has been allocated to the assets acquired and

liabilities assumed based on estimated fair values as of the date of the acquisition. The measurements of fair
value were determined based upon estimates utilizing the assistance of third party valuation specialists.

The following table summarizes the purchase price allocation based on the estimated fair values of the

assets acquired and liabilities of Cobalt assumed at the acquisition date:

Consideration:
Cash consideration paid
Equity consideration paid

Fair value of total consideration transferred

Recognized amounts of identifiable assets acquired and

liabilities assumed, at fair value:

Cash
Trade receivables
Inventories
Other current assets
Property, plant, and equipment
Identifiable intangible assets
Current liabilities

Fair value of assets acquired and liabilities assumed
Goodwill

Total purchase price

$129,525
1,000

$130,525

3,973
2,329
14,343
363
12,934
89,900
(13,108)

110,734
19,791

$130,525

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

are as follows:

Definite-lived intangibles
Dealer relationships
Patent

Total definite-lived intangibles

Indefinite-lived intangible:

Trade name

Total other intangible assets

Estimates of
Fair Value

Estimated Useful Life
(in years)

20
15

$56,300
2,600

58,900

31,000

$89,900

The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the

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

Patent—The value associated with the patented technology was based on financial projections and the

patent’s estimated remaining legal life of approximately fifteen years using a variation of the income
approach called the royalty savings method.

Trade Name—The value attributed to Cobalt’s trade name was determined using a variation of the

income approach called the relief from royalty method, which requires an estimate or forecast of the
expected future cash flows. The trade name has an indefinite life.

The fair value of the definite-lived intangible assets are being amortized using the straight-line method to
general and administrative expenses over their estimated useful lives. Indefinite-lived intangible assets are not
amortized, but instead are evaluated for potential impairment on an annual basis in accordance with the
provisions of ASC Topic 350, Intangibles—Goodwill and Other. The weighted average useful life of identifiable
definite-lived intangible assets acquired was 19.8 years. Goodwill of $19,791 arising from the acquisition
consists of expected synergies and cost savings as well as intangible assets that do not qualify for separate
recognition. The indefinite-lived intangible asset and goodwill acquired are deductible for income tax purposes.

Acquisition-related costs of $489 and $3,056 incurred by the Company for fiscal years ended June 30, 2019
and 2018, were expensed as incurred, and are included in general and administrative expenses in the consolidated
statements of operations and comprehensive income.

Pro Forma Financial Information (unaudited):

The following unaudited pro forma consolidated results of operations for the fiscal years ended June 30,

2020, 2019 and 2018, assumes that the acquisition of Cobalt occurred as of July 1, 2017. The unaudited pro
forma consolidated financial information combines historical results of Malibu and Cobalt, with adjustments for
depreciation and amortization attributable to preliminary fair value estimates on acquired tangible and intangible
assets for the respective periods. Non-recurring pro forma adjustments associated with the fair value step up of
inventory were included in the reported pro forma cost of sales and earnings. The unaudited pro forma financial
information is presented for informational purposes only and is not indicative of the results of operations that
would have been achieved if the acquisition had taken place at the beginning of fiscal year 2018 or the results
that may occur in the future:

Net sales
Net income
Net income attributable to Malibu

Boats, Inc.

Basic earnings per share
Diluted earnings per share

Fiscal Year Ended June 30,

2020

2019

2018

$653,163
64,656

$684,016
69,701

$497,002
30,696

61,562
2.98
2.95

$
$

66,066
3.17
3.15

$
$

27,361
1.36
1.35

$
$

5. Inventories

Inventories are stated at the lower of cost or net realizable value, determined on the first in, first out

(“FIFO”) basis. Manufacturing cost includes materials, labor and manufacturing overhead. Unallocated overhead
and abnormal costs are expensed as incurred. Inventories consisted of the following:

Raw materials
Work in progress
Finished goods

Total inventories

As of June 30,

2020

2019

$52,530
10,778
9,638

$45,910
10,839
11,019

$72,946

$67,768

6. Property, Plant, and Equipment

Property, plant, and equipment acquired outside of acquisition are stated at cost. When property, plant, and
equipment is retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the
accounts and any resulting gain or loss is accounted for in the statement of operations and comprehensive
income. Major additions are capitalized; maintenance, repairs and minor improvements are charged to operating

expenses as incurred if they do not increase the life or productivity of the related capitalized asset. 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:

Building
Leasehold improvements
Machinery and equipment
Furniture and fixtures

Years

20
Shorter of useful life or lease term
3-5
3-5

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC
Topic 360, Property, Plant, and Equipment. 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. 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. No impairment charges were recorded for the fiscal
years ended June 30, 2020, 2019 and 2018 in the Company’s consolidated financial statement.

Property, plant, and equipment, net consisted of the following:

Land
Building and leasehold improvements
Machinery and equipment
Furniture and fixtures
Construction in process

Less accumulated depreciation

As of June 30,

2020

2019

$ 2,540
54,318
55,831
7,031
10,470

$ 2,194
28,957
46,618
6,734
9,764

130,190
(35,880)

94,267
(28,511)

$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

In March 2008, the Company sold its two primary manufacturing and office facilities for a total of $18,250,
which resulted in a gain of $726. Expenses incurred related to the sale were $523. 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 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.

7. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the fiscal years ended June 30, 2020 and 2019 were as

follows:

Goodwill as of June 30, 2018

Addition related to the acquisition of Pursuit
Effect of foreign currency changes on goodwill

Goodwill as of June 30, 2019

Effect of foreign currency changes on goodwill

Goodwill as of June 30, 2020

$32,230
19,525
(351)

51,404
(131)

$51,273

The components of other intangible assets were as follows:

As of June 30,

2020

2019

Estimated
Useful Life (in
years)

Reacquired franchise rights
Dealer relationships
Patent
Trade name
Non-compete agreement

Total
Less: Accumulated amortization

Total definite-lived intangible assets, net
Indefinite-lived intangible:
Trade names

Total other intangible assets

$ —
111,293
3,986
24,667
48

1,264
111,339
3,986
24,667
49

139,994
(63,602)

141,305
(58,744)

76,392

82,561

63,500

$139,892

$146,061

5
8-20
12-15
15
10

Weighted
Average
Remaining
Useful Life (in
years)

0.0
17.3
12.0
1.4
4.3

Amortization expense recognized on all amortizable intangibles was $6,131, $5,956 and $5,198 for the

fiscal years ended June 30, 2020, 2019 and 2018, respectively.

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

Fiscal Year

2021
2022
2023
2024
2025
Thereafter

As of June 30, 2020

$ 6,054
4,553
4,417
4,417
4,413
52,538

$76,392

8. Accrued Expenses

Accrued expenses consisted of the following:

Warranties
Dealer incentives
Accrued compensation
Current operating lease liabilities
Accrued legal and professional fees
Accrued interest
Other accrued expenses

Total accrued expenses

As of June 30,

2020

2019

$27,500
7,777
9,885
2,006
1,055
—
2,262

$23,820
7,394
13,122
—
740
161
3,860

$50,485

$49,097

9. Product Warranties

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. 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 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.

100

Changes in the Company’s product warranty liability, which are included in accrued expenses in the

accompanying consolidated balance sheet, were as follows:

Beginning balance
Add: Warranty Expense

Additions for Cobalt acquisition
Additions for Pursuit acquisition

Less: Warranty claims paid

Ending balance

10. Financing

Outstanding debt consisted of the following:

Term loan
Revolving credit loan

Less unamortized debt issuance costs

Total debt

Less current maturities

Long term debt less current maturities

Fiscal Year Ended June 30,

2020

2019

2018

$ 23,820
14,339
—
—
(10,659)

$17,217
12,331
—
1,872
(7,600)

$10,050
9,861
4,404
—
(7,098)

$ 27,500

$23,820

$17,217

As of June 30,

2020

2019

$75,000
8,800
(961)

$ 75,000
40,000
(1,367)

82,839
—

113,633
—

$82,839

$113,633

Long-Term Debt

The Company currently has a revolving credit facility with borrowing capacity of up to $120,000 and a

$75,000 term loan outstanding. 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 Truist Financial Corp.
(previously known as 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 LLC, Boats LLC and such subsidiary guarantors. Malibu Boats, Inc. is not a
party to the Credit Agreement.

Borrowings under the Credit Agreement bear interest at a rate equal to either, at the Company’s option,
(i) the highest of the prime rate, the Federal Funds Rate plus 0.5%, or one-month LIBOR plus 1% (the “Base
Rate”) or (ii) LIBOR, in each case plus an applicable margin ranging from 1.25% to 2.25% with respect to
LIBOR borrowings and 0.25% to 1.25% with respect to Base Rate borrowings. 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, 2020, the interest rate on the Company’s term loan and revolving credit facility was 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

101

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. As a result, the term loan is subject to a quarterly
installment of approximately $3,000 on March 31, 2022 and the balance of the term loan is due on the scheduled
maturity date of July 1, 2022. The Credit Agreement is also subject to prepayments from the net cash proceeds
received by Boats LLC or any guarantors from certain asset sales and recovery events, subject to certain
reinvestment rights, and from excess cash flow, subject to the terms and conditions of the Credit Agreement. As
of June 30, 2020, the outstanding principal amount of the Company’s term loan and revolving credit facility was
$83,800.

The Credit Agreement contains certain customary representations and warranties, and notice requirements

for the occurrence of specific events such as the occurrence of any event of default, or pending or threatened
litigation. The Credit Agreement also requires compliance with certain customary financial covenants, including
a minimum ratio of EBITDA to fixed charges and a maximum ratio of total debt to EBITDA. The Credit
Agreement contains certain restrictive covenants, which, among other things, place limits on certain activities of
the loan parties under the Credit Agreement, such as the incurrence of additional indebtedness and additional
liens on property and limit the future payment of dividends or distributions. For example, the Credit Agreement
generally prohibits the LLC, Boats LLC and the subsidiary guarantors from paying dividends or making
distributions, including to the Company. The credit facility permits, however, (i) distributions based on a
member’s allocated taxable income, (ii) distributions to fund payments that are required under the LLC’s tax
receivable agreement, (iii) purchase of stock or stock options of the LLC from former officers, directors or
employees of loan parties or payments pursuant to stock option and other benefit plans up to $2,000 in any fiscal
year, and (iv) share repurchase payments up to $35,000 in any fiscal year subject to one-year carry forward and
compliance with other financial covenants. 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 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.

On May 8, 2019, the Company entered into the Second Incremental Facility Amendment and Second
Amendment (the “Amendment”) to the Credit Agreement dated as of June 28, 2017. The Amendment converted
$35,000 of the outstanding principal amount under the term loan to outstanding borrowings under the revolving
credit facility, increased the borrowing capacity of the revolving credit facility by $35,000 and extended the
maturity date of the revolving credit facility by two years to July 1, 2024. In connection with the Amendment, the
Company wrote off $137 of deferred financing costs and capitalized an additional $370 of deferred financing
cost related to insubstantial modification leaving an unamortized balance of $1,367 in deferred financing costs.
These are being amortized into interest expense using the effective interest method and presented as a direct
offset to the total debt outstanding on the consolidated balance sheet.

102

Covenant Compliance

As of June 30, 2020 and 2019, the Company was in compliance with the covenants contained in the Credit

Agreement.

Interest Rate Swap

On July 1, 2015, the Company entered into a five year floating to fixed interest rate swap with an effective
start date of July 1, 2015. The swap is based on a one-month LIBOR rate versus a 1.52% fixed rate on a notional
value of $39,250, which under terms of the previously existing credit agreement is equal to 50% of the
outstanding balance of the term loan at the time of the swap arrangement. Under ASC Topic 815, Derivatives
and Hedging, all derivative instruments are recorded on the consolidated balance sheets at fair value as either
short term or long term assets or liabilities based on their anticipated settlement date. Refer to Fair Value
Measurements in Note 14. The Company has elected not to designate its interest rate swap as a hedge; 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. 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.

11. Leases

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

Assets
Right-of-use assets

Liabilities
Current operating lease liabilities
Long-term operating lease liabilities

Total lease liabilities

Other assets

Accrued expenses
Other liabilities

As of June 30,
2020

$14,315

$ 2,006
14,013

$16,019

103

Classification

Operating lease costs (1)

Sublease income
Cash paid for amounts included in the
measurement of operating lease
liabilities

Cost of sales
Selling, general and
administrative
Other income (expense)

Cash flows from operating
activities

Ended June 30,
2020

$1,966

863
38

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:

2021
2022
2023
2024
2025
2026 and thereafter

Total

Less imputed interest

Present value of lease liabilities

Amount

$ 2,548
2,391
2,442
2,570
2,308
6,014

18,273
(2,254)

$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:

2020
2021
2022
2023
2024
2025 and thereafter

Total

Amount

$ 2,552
2,541
2,432
2,489
2,649
8,577

$21,240

12. Tax Receivable Agreement Liability

The Company has 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 their permitted assignees) of 85% of the amount of the
benefits, if any, that the Company is deemed to realize as a result of (i) increases in tax basis and (ii) certain other
tax benefits related to the Company entering into the Tax Receivable Agreement, including those attributable to

104

payments under the Tax Receivable Agreement. These contractual payment obligations are obligations of the
Company and not of the LLC. 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 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:

Beginning balance
Additions (reductions) to tax receivable agreement:

Exchange of LLC Units for Class A Common Stock
Adjustment for change in estimated tax rate

Payment under tax receivable agreement

Less current portion under tax receivable agreement

Ending balance

As of June 30,

2020

2019

$53,754

$55,046

1,041
(1,672)
(3,458)

49,665
(3,589)

2,676
(103)
(3,865)

53,754
(3,592)

$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. 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.

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. These basis differences are included in the overall partnership basis differences
disclosed in Note 13. The aggregate Tax Receivable Agreement liability represents 85% of the tax benefits that
the Company expects to receive in connection with the Section 754 election. In accordance with the Tax
Receivable Agreement, the next annual payment is anticipated approximately 75 days after filing the federal tax
return due by April 15, 2021.

105

13. Income Taxes

Malibu Boats, Inc. is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both
federal and state taxation at a corporate level. The LLC continues to operate in the United States as a partnership
for U.S. federal income tax purposes.

Income taxes are computed in accordance with ASC Topic 740, Income Taxes , and reflect the net tax
effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the
corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation
allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the
extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such
deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this
determination is made.

On December 22, 2017, the Tax Act was enacted which, among a number of its provisions, lowered the U.S.

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

Current tax expense:

Federal
State
Foreign

Total current

Deferred tax expense:

Federal
State
Foreign

Total deferred

Income tax expense

Fiscal Year Ended June 30,

2020

2019

2018

$ 8,062
1,979
378

$11,240
3,368
725

$10,111
1,758
756

10,419

15,333

12,625

7,849
917
(109)

8,657

5,336
1,609
(182)

6,763

51,358
(5,369)
(196)

45,793

$19,076

$22,096

$58,418

106

The income tax expense differs from the amount computed by applying the federal statutory income tax rate

to income from continuing operations before income taxes. The sources and tax effects of the differences are as
follows:

Fiscal Year Ended June 30,

2020

2019

2018

Federal tax provision at statutory rate
Change in federal statutory rate
State income taxes, net of federal benefit
Permanent differences attributable to partnership investment
Section 199 deductions
Non-controlling interest
Change in valuation allowance
Other, net

21.0% 21.0% 28.0%
—
2.9
(0.2)
—
(0.9)
—
—

36.2
3.9
(0.1)
(1.2)
(1.0)
(0.4)
—

—
4.4
(0.8)
—
(0.9)
—
0.4

Total income tax expense on continuing operations

22.8% 24.1% 65.4%

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s

subsidiary operated as a limited liability company which was not subject to federal income tax. Accordingly, the
portion of the Company’s subsidiary earnings attributable to the non-controlling interest are subject to tax when
reported as a component of the non-controlling interests’ taxable income.

The components of the Company’s net deferred income tax assets and liabilities at June 30, 2020 and 2019

are as follows:

Deferred tax assets:
Partnership basis differences
Accrued liabilities and reserves
State tax credits and NOLs
Foreign tax credits
Acquisition costs
Other

Less valuation allowance

Total deferred tax assets

Deferred tax liabilities:
Fixed assets and intangibles
Other

Total deferred tax liabilities
Total net deferred tax assets

As of June 30,

2020

2019

$ 61,650
496
5,004
580
—
275
(14,582)

$ 69,632
428
3,902
761
6
337
(14,252)

53,423

60,814

467
35

545
7

502
$ 52,921

552
$ 60,262

On an annual basis, the Company performs a comprehensive analysis of all forms of positive and negative

evidence to determine whether realizability of deferred tax assets is more likely than not. During each interim
period, the Company updates its annual analysis for significant changes in the positive and negative evidence. At
June 30, 2020 and 2019, the Company concluded that $14,582 and $14,252, respectively, of valuation allowance
against deferred tax assets was necessary. The Company continues to record the valuation allowance on state net
operating losses generated by current and future amortization deductions (with respect to the Section 754
election) that are reported in the Tennessee corporate tax return without offsetting income, which is taxable at the
LLC. These net operating losses have a 15 year carryover and will expire, if unused, between 2030 and 2035.
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.

107

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 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:

Balance as of July 1
Additions based on tax positions taken during the current period
Reductions for settlements with taxing authorities
Reductions due to statute settlements
Reductions for tax positions of prior years

Balance as of June 30

Fiscal Year Ended June 30,

2020

2019

2018

$1,401
314
(93)
(64)
(113)

$113
$ 329
1,216
216
(144) —
—
—
—
—

$1,445

$1,401

$329

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. Of the total unrecognized tax benefits recorded on
the balance sheet, $1,226 would impact the effective tax rate once settled.

As discussed in Note 1 to the Consolidated Financial Statements, our policy is to accrue interest related to

potential underpayment of income taxes within the provision for income taxes. At June 30, 2020, we had $231 of
accrued interest related to unrecognized tax benefits.

The Company did not provide for U.S. federal, state income taxes or foreign withholding taxes in fiscal year

2020 on the outside basis difference of its non-U.S. subsidiary, as such foreign earnings are considered to be
permanently reinvested. The estimated income and withholding tax liability associated with the remittance of
these earnings is nominal.

14. Fair Value Measurements

In determining the fair value of certain assets and liabilities, the Company employs a fair value hierarchy

that prioritizes the inputs to valuation techniques used to measure fair value. As defined in ASC Topic 820, Fair
Value Measurements and Disclosures, fair value is the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit
price). Financial assets and financial liabilities recorded on the consolidated balance sheets at fair value are
categorized based on the reliability of inputs to the valuation techniques as follows:

• Level 1—Financial assets and financial liabilities whose values are based on unadjusted quoted prices

in active markets for identical assets.

• Level 2—Financial assets and financial liabilities whose values are based on quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
non-active markets; or valuation models whose inputs are observable, directly or indirectly, for
substantially the full term of the asset or liability.

108

• Level 3—Financial assets and financial liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and significant to the overall fair value
measurement. These inputs reflect the Company’s estimates of the assumptions that market participants
would use in valuing the financial assets and financial liabilities.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain

cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been
determined based on the lowest level input that is significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or liability.

Assets and liabilities that had recurring fair value measurements as of June 30, 2020 and 2019 were as

follows:

As of June 30, 2020:
Interest rate swap not designated as cash flow hedge

Total assets at fair value

As of June 30, 2019:
Interest rate swap not designated as cash flow

Total liabilities at fair value

Fair Value Measurements at Reporting Date Using

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$—

$ 68

$—

Total

$—

$ 68

Fair value measurement for the Company’s interest rate swap are classified under Level 2 because such
measurements are based on significant other observable inputs. There were no transfers of assets or liabilities
between Level 1 and Level 2 as of June 30, 2020 or 2019, respectively.

The Company’s nonfinancial assets and liabilities that have nonrecurring fair value measurements include

property, plant and equipment, goodwill and intangibles.

In assessing the need for goodwill impairment, management relies on a number of factors, including

operating results, business plans, economic projections, anticipated future cash flows, transactions and
marketplace data. 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.
Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain
liabilities are measured at fair value on a nonrecurring basis as part of the Company’s impairment assessments
and as circumstances require.

There were no impairments recorded in connection with tangible and intangible long-lived assets for fiscal

years ended June 30, 2020, 2019 or 2018, respectively.

15. Stockholders’ Equity

The Company is authorized to issue 150,000,000 shares of capital stock, consisting of 100,000,000 shares of

Class A Common Stock, 25,000,000 shares of Class B Common Stock, and 25,000,000 shares of Preferred
Stock, par value $0.01 per share.

109

Offerings

On August 14, 2017, the Company completed an offering of 2,300,000 shares of Class A Common Stock

that were issued and sold by the Company at a price to the public of $24.05 per share (the “Offering”). This
included 300,000 shares issued and sold by the Company pursuant to the option granted to the underwriters,
which was exercised concurrently with the closing of the Offering.

The aggregate gross proceeds from the Offering was $58,075. Of these proceeds, the Company received

$55,317 after deducting $2,758 in underwriting discounts and commissions. Of the net proceeds received from
the Offering, $50,000 was used to repay amounts outstanding on its loans under the Credit Agreement (Refer to
Note 10). The remaining net proceeds were used for general working capital purposes.

Exchange of LLC Units for Class A Common Stock

During fiscal year 2018, eleven 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, 2018, the Company had a total of 17 shares
of its Class B Common Stock issued and outstanding.

During fiscal year 2019, five non-controlling LLC Unit holders exchanged LLC Units for the issuance of

Class A Common Stock. In connection with the exchange, two shares of Class B Common Stock was
automatically transferred to the Company and retired. 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

On June 18, 2019, the board of directors of the Company authorized a stock repurchase program to allow for

repurchase of up to $35,000 of the Company’s Class A Common Stock and the LLC’s LLC units for the period
from July 1, 2019 to July 1, 2020 (the “Repurchase Program”).

Under the Repurchase Program, the Company may repurchase its Class A Common Stock and the LLC

Units at any time or from time to time, without prior notice, subject to market conditions and other
considerations. The Company’s repurchases may be made through 10b5-1 plans, open market purchases,
privately negotiated transactions, block purchases or other transactions. The Company intends to fund
repurchases under the Repurchase Program from cash on hand. In accordance with the LLC Agreement, in
connection with any repurchases by the Company under the Repurchase Program, the LLC must redeem an equal
number of LLC Units held by the Company as shares of Class A Common Stock repurchased by the Company at
a redemption price equal to the redemption price paid for the Class A Common Stock repurchased by the
Company. 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, 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.

110

Class A Common Stock and Class B Common Stock

Voting Rights

Holders of Class A Common Stock and Class B Common Stock will have voting power over Malibu Boats,
Inc., the sole managing member of the LLC, at a level that is consistent with their overall equity ownership of the
Company’s business. Pursuant to the Company’s certificate of incorporation and bylaws, each share of Class A
Common Stock entitles the holder to one vote with respect to each matter presented to the Company’s
stockholders on which the holders of Class A Common Stock are entitled to vote. Each holder of Class B
Common Stock shall be entitled to the number of votes equal to the total number of LLC Units held by such
holder multiplied by the exchange rate specified in the Exchange Agreement with respect to each matter
presented to the Company’s stockholders on which the holders of Class B Common Stock are entitled to vote.
Accordingly, the holders of LLC Units collectively have a number of votes that is equal to the aggregate number
of LLC Units that they hold. Subject to any rights that may be applicable to any then outstanding preferred stock,
the Company’s Class A and Class B Common Stock vote as a single class on all matters presented to the
Company’s stockholders for their vote or approval, except as otherwise provided in the Company’s certificate of
incorporation or bylaws or required by applicable law. Holders of the Company’s Class A and Class B Common
Stock do not have cumulative voting rights. Except in respect of matters relating to the election and removal of
directors on the Company’s board of directors and as otherwise provided in the Company’s certificate of
incorporation, the Company’s bylaws, or as required by law, all matters to be voted on by the Company’s
stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and
entitled to vote on the subject matter.

Equity Consideration

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, as equity consideration. Refer to
Note 4 for more information on the acquisition.

Dividends

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of
the Company’s Class A Common Stock will be entitled to share equally, identically and ratably in any dividends
that the board of directors may determine to issue from time to time. Holders of the Company’s Class B Common
Stock do not have any right to receive dividends.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, holders of

the Company’s Class A Common Stock would be entitled to share ratably in the Company’s assets that are
legally available for distribution to stockholders after payment of its debts and other liabilities. If the Company
has any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution
and/or liquidation preferences. In either such case, the Company must pay the applicable distribution to the
holders of its preferred stock before it may pay distributions to the holders of its Class A Common Stock.
Holders of the Company Class B Common Stock do not have any right to receive a distribution upon a voluntary
or involuntary liquidation, dissolution or winding up of the Company’s affairs.

Other Rights

Holders of the Company’s Class A Common Stock will have no preemptive, conversion or other rights to
subscribe for additional shares. The rights, preferences and privileges of the holders of the Company’s Class A
Common Stock will be subject to, and may be adversely affected by, the rights of the holders of shares of any
series of the Company’s preferred stock that the Company may designate and issue in the future.

111

Preferred Stock

Though the Company currently has no plans to issue any shares of preferred stock, its board of directors has

the authority, without further action by the Company’s stockholders, to designate and issue up to 25,000,000
shares of preferred stock in one or more series. 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:

•

diluting the voting power of the holders of common stock;

reducing the likelihood that holders of common stock will receive dividend payments;

reducing the likelihood that holders of common stock will receive payments in the event of the
Company’s liquidation, dissolution, or winding up; and

delaying, deterring or preventing a change-in-control or other corporate takeover.

LLC Units

In connection with the recapitalization we completed in connection with our IPO, the LLC Agreement was

amended and restated to, among other things; modify its capital structure by replacing the different classes of
interests previously held by the LLC unit holders to a single new class of units called “LLC Units.” As a result of
our IPO and the recapitalization we completed in connection with our IPO, the Company holds LLC Units in the
LLC and is the sole managing member of the LLC. Holders of LLC Units do not have voting rights under the
LLC Agreement.

Further, the LLC and the pre-IPO owners entered into the Exchange Agreement under which (subject to the
terms of the Exchange Agreement) they have the right to exchange their LLC Units for shares of the Company’s
Class A Common Stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits,
stock dividends and reclassifications, or at the Company’s option, except in the event of a change in control, for a
cash payment equal to the market value of the Class A Common Stock. As of June 30, 2020, the Company held
20,595,969 LLC Units, representing a 96.6% economic interest in the LLC, while non-controlling LLC Unit
holders held 730,652 LLC Units, representing a 3.4% interest in the LLC. Refer to Note 3 for additional
information on non-controlling interest.

As discussed in Note 3, net profits and net losses of the LLC will generally be allocated to the LLC’s

members (including the Company) pro rata in accordance with the percentages of their respective limited liability
company interests. The LLC Agreement provides for cash distributions to the holders of LLC Units if the
Company determines that the taxable income of the LLC will give rise to taxable income for its members. In
accordance with the LLC Agreement, the Company intends to cause the LLC to make cash distributions to
holders of LLC Units for purposes of funding their tax obligations in respect of the income of the LLC that is
allocated to them.

16. Stock-Based Compensation

Equity Awards Issued Under the Malibu Boats, Inc. Long-Term Incentive Plan

On January 6, 2014, the Company’s board of directors adopted the Malibu Boats, Inc. Incentive Plan. The

Incentive Plan, which became effective on January 1, 2014, reserves for issuance up to 1,700,000 shares of
Malibu Boats, Inc. Class A Common Stock for the Company’s employees, consultants, members of its board of
directors and other independent contractors at the discretion of the compensation committee. 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, 2020, there were 713,346 shares available for future issuance under the Incentive Plan.

112

On November 6, 2017, the Company granted 78,900 restricted stock units and restricted stock awards to
certain key employees. The grant date fair value of these awards was $2,436 based on a stock price of $30.87 per
share on the date of grant. Under the terms of the agreements, approximately 72% of the awards vest in
substantially equal annual installments over a four year period, and the remaining 28% 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.

On November 6, 2017, the Company granted 40,000 options to certain key employees to purchase from the

Company shares of Class A Common Stock at a price of $30.87 per share. The term of the options commenced
on November 6, 2017 and will expire on November 5, 2023, the day before the sixth anniversary of the grant
date. Under the terms of the agreements, approximately 50% of the awards will vest ratably over four years on
each anniversary of their grant date and approximately 50% of the awards will vest in tranches based on the
achievement of annual or cumulative performance targets. At November 6, 2017, the fair value of the option
awards was $405 and is estimated using the Black-Scholes option-pricing model with the following assumptions:
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. Compensation costs associated with performance based option awards are recognized
over the requisite service period based on probability of achievement.

On August 22, 2018, the Company granted 50,000 options to certain key employees to purchase from the
Company shares of Class A Common Stock at a price of $42.13 per share. The term of the options commenced
on August 22, 2018 and will expire on August 21, 2024, the day before the sixth anniversary of the grant date.
Under the terms of the agreements, the awards will vest ratably over four years on each anniversary of their grant
date. At August 22, 2018, the fair value of the option awards was $733 and was estimated using the Black-
Scholes option-pricing model with the following assumptions: risk-free rate of 2.7%, expected volatility of
38.4%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the
service 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 in accordance with ASC Topic 718, Compensation—Stock Compensation.

On November 1, 2018, the Company granted 35,000 restricted stock units and 48,000 restricted stock
awards to key employees under the Incentive Plan. The grant date fair value of these awards was $3,474 based on
a stock price of $41.85 per share on the date of grant. Under the terms of the agreements, 71% of the awards will
vest ratably over four years beginning on November 6, 2019 and approximately 29% of the awards will vest in
tranches based on the achievement of annual or cumulative 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 January 14, 2019, the Company granted 19,973 options to certain key employees to purchase from the
Company shares of Class A Common Stock at a price of $37.55 per share. The term of the options commenced
on January 14, 2019 and will expire on January 13, 2025, the day before the sixth anniversary of the grant date.
Under the terms of the agreements, the awards will vest ratably over four years on each anniversary of their grant
date. At January 14, 2019, the fair value of the option awards was $263 and was estimated using the Black-
Scholes option-pricing model with the following assumptions: risk-free rate of 2.53%, expected volatility of
39.0%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to the
service 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 in accordance with ASC Topic 718, Compensation—Stock Compensation.

Risk-free interest rate. The risk-free rate for the expected term of the option is based on the U.S. Treasury

yield curve at the date of grant.

113

Expected term. The Company used the simplified method to estimate the expected term of stock options.

The simplified method assumes that employees will exercise share options evenly between the period when the
share options are vested and ending on the date when the share options would expire.

Expected volatility. 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.

114

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:

Total outstanding Options
at beginning of year

Options granted
Options exercised
Options canceled

Outstanding options at end

of year

185,473

—
(12,125)
—

173,348

Exercisable at end of year

74,869

2020

Weighted Average
Exercise
Price/Share

$32.51
—
31.08
—

$32.61

$29.67

Fiscal Year Ended June 30,

2019

Weighted Average
Exercise
Price/Share

$27.24
40.82
26.29
—

$32.51

$26.97

2018

Weighted Average
Exercise
Price/Share

$25.85
30.87
—
—

$27.24

$25.85

104,000
40,000
—
—

144,000

26,000

144,000
69,973
(28,500)
—

185,473

33,500

The Company expects all outstanding options to vest. The weighted average remaining contractual life of
options outstanding and options outstanding and exercisable as of June 30, 2020 was 3.56 years and 3.31 years,
respectively. The total intrinsic value of options exercised during the year ended June 30, 2020 was $200. The
total intrinsic value of options outstanding and options outstanding and exercisable at June 30, 2020 was $3,532
and $1,668, respectively. The total intrinsic values are based on the Company’s closing stock price on the last
trading day of the applicable year for in-the-money options.

The Company’s non-employee directors receive an annual retainer for their services as directors consisting

of both a cash retainer and equity awards in the form of Class A Common Stock or restricted stock units.
Directors may elect that their cash annual retainer be converted into either fully vested shares of Class A
Common Stock or restricted stock units paid on a deferral basis. 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. 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. For the
fiscal year ended June 30, 2018, the Company issued 4,567 shares of Class A Common Stock and 23,838
restricted stock units with a weighted- average grant date fair value of $30.52 to its non-employee directors for
their services as directors pursuant to the Incentive Plan. For the fiscal year ended June 30, 2019, the Company
issued 853 shares of Class A Common Stock and 17,663 restricted stock units with a weighted-average grant date
fair value of $42.29 to its non-employee directors for their services as directors pursuant to the Incentive Plan.
For the fiscal year ended June 30, 2020, the Company issued 2,870 shares of Class A Common Stock and 22,206
restricted stock units with a weighted-average grant date fair value of $32.93 to its non-employee directors for
their services as directors pursuant to the Incentive Plan.

115

The following table presents the number and weighted-average grant date fair value of the Company’s

director and employee restricted stock units and restricted stock awards:

Fiscal Year Ended June 30,

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

Granted
Vested
Forfeited

Total Non-vested Restricted Stock Units
and Restricted Stock Awards at end of
year

226,240
168,048
(112,084)
(4,508)

$29.64
37.49
26.89
34.27

227,154
107,321
(103,811)
(4,424)

$20.84
41.63
22.98
25.00

225,854
102,738
(99,613)
(1,825)

$15.77
30.80
19.57
22.58

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 $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. During fiscal year 2020, the Company
withheld approximately 25,469 shares at an aggregate cost of approximately $831, as permitted by the applicable
equity award agreements, to satisfy employee tax withholding requirements for employee share-based equity
awards that have vested. As of June 30, 2020 and 2019, unrecognized compensation cost related to nonvested,
share-based compensation was $7,931 and $6,431, respectively.

17. Net Earnings Per Share

Basic net income per share of Class A Common Stock is computed by dividing net income attributable to

the Company’s earnings by the weighted average number of shares of Class A Common Stock outstanding
during the period. The weighted average number of shares of Class A Common Stock outstanding used in
computing basic net income per share includes fully vested restricted stock units awarded to directors that are
entitled to participate in distributions to common shareholders through receipt of additional units of equivalent
value to the dividends paid to Class A Common Stock holders.

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 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.

116

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):

Basic:
Net income attributable to Malibu Boats, Inc.

Shares used in computing basic net income per share:
Weighted-average Class A Common Stock
Weighted-average participating restricted stock units convertible

into Class A Common Stock

Basic weighted-average shares outstanding

Basic net income per share

Diluted:
Net income attributable to Malibu Boats, Inc.

Shares used in computing diluted net income per share:
Basic weighted-average shares outstanding
Restricted stock units granted to employees
Weighted-average stock options convertible into Class A Common

Stock

Weighted-average market performance awards convertible into

Class A Common Stock

Fiscal Year Ended June 30,

2020

2019

2018

61,562

66,066

27,613

20,455,895

20,645,973

20,012,627

206,855

186,472

166,754

20,662,750

20,832,445

20,179,381

2.98

3.17

1.37

61,562

66,066

27,613

20,662,750
131,314

20,832,445
119,476

20,179,381
101,563

15,721

14,618

42,576

—

266

—

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

1 The Company excluded 826,250, 930,125, and 1,205,249 potentially dilutive shares from the calculation of
diluted net income per share for the fiscal year ended June 30, 2020, 2019, and 2018, respectively, as these
units would have been antidilutive.

The shares of Class B Common Stock do not share in the earnings or losses of Malibu Boats, Inc. and are

therefore not included in the calculation. Accordingly, basic and diluted net income per share of Class B
Common Stock has not been presented.

18. Commitments and Contingencies

Repurchase Commitments

In connection with its dealers’ wholesale floor-plan financing of boats, the Company has entered into
repurchase agreements with various lending institutions. 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 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. The total amount

117

financed under the floor financing programs with repurchase obligations was $161,356 and $239,315 as of
June 30, 2020 and 2019, respectively.

Repurchases and subsequent sales are recorded as a revenue transaction. 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.

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

Product Liability

The Company is engaged in a business that exposes it to claims for product liability and warranty claims in
the event the Company’s products actually or allegedly fail to perform as expected or the use of the Company’s
products results, or is alleged to result, in property damage, personal injury or death. Although the Company
maintains product and general liability insurance of the types and in the amounts that the Company believes are
customary for the industry, the Company is not fully insured against all such potential claims. The Company may
have the ability to refer claims to its suppliers and their insurers to pay the costs associated with any claims
arising from the suppliers’ products. The Company’s insurance covers such claims that are not adequately
covered by a supplier’s insurance and provides for excess secondary coverage above the limits provided by the
Company’s suppliers.

The Company may experience legal claims in excess of its insurance coverage or claims that are not covered

by insurance, either of which could adversely affect its business, financial condition and results of operations.
Adverse determination of material product liability and warranty claims made against the Company could have a
material adverse effect on its financial condition and harm its reputation. In addition, if any of the Company
products are, or are alleged to be, defective, the Company may be required to participate in a recall of that
product if the defect or alleged defect relates to safety. These and other claims that the Company faces could be
costly to the Company and require substantial management attention. Refer to Note 9 for discussion of warranty
claims. The Company insures against product liability claims and believes there are no material product liability
claims as of June 30, 2020 that would not be covered by our insurance.

Litigation

Certain conditions may exist which could result in a loss, but which will only be resolved when future
events occur. The Company, in consultation with its legal counsel, assesses such contingent liabilities, and such
assessments inherently involve an exercise of judgment. If the assessment of a contingency indicates that it is

118

probable that a loss has been incurred, the Company accrues for such contingent loss when it can be reasonably
estimated. 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. Except as disclosed below, management does
not believe there are any pending claims (asserted or unasserted) at June 30, 2020 or June 30, 2019 that will have
a material adverse impact on the Company’s financial condition, results of operations or cash flows.

Legal Proceedings

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. The Company’s
complaint alleges Skier’s Choice’s infringement of three utility patents - U.S. Patent Nos. 9,260,161, 8,578,873,
and 9,199,695 - 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 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. Patent No. 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.

19. Related Party Transactions

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

20. Segment Reporting

119

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

Net sales
Depreciation and amortization
Net income before provision for income taxes
Capital expenditures
Long-lived assets
Total assets

Fiscal Year Ended June 30, 2019

Net sales
Depreciation and amortization
Net income before provision for income taxes
Capital expenditures
Long-lived assets
Total assets

Fiscal Year Ended June 30, 2018

Net sales
Depreciation and amortization
Net income before provision for income taxes
Capital expenditures
Long-lived assets
Total assets

Malibu

Cobalt

Pursuit 1

Total

$354,769
8,809
55,567
10,260
49,771
$194,502

$174,768
5,258
17,275
8,850
121,508
$153,820

$123,626
4,313
10,890
22,181
114,196
$129,024

$653,163
18,380
83,732
41,291
285,475
$477,346

Malibu

Cobalt

Pursuit 1

Total

$374,611
7,674
54,160
9,153
49,207
$185,154

$206,598
5,252
28,691
4,404
117,702
$151,481

$102,807
3,034
8,946
4,381
96,312
$114,679

$684,016
15,960
91,797
17,938
263,221
$451,314

Malibu

Cobalt

Pursuit 1

Total

$316,687
7,468
69,670
9,279
48,784
$208,152

$180,315

$— $497,002
12,854
89,387
10,449
167,296
$157,616 — $365,768

5,386 —
19,717 —
1,170 —
118,512 —

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

120

21. Quarterly Financial Reporting (Unaudited)

Net sales
Gross profit
Operating income
Net income
Net income attributable to non-controlling

interest

Net income attributable to Malibu Boats, Inc.
Basic net income per share
Diluted net income per share

Quarter Ended

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

$118,661
23,552
8,907
6,510

$182,310
45,849
30,133
23,866

307
6,203
0.30
0.29

1,088
$ 22,778
1.11
$
1.09
$

$
$
$

$180,112
39,868
23,587
17,598

876
$ 16,722
0.81
$
0.81
$

$172,080
40,001
22,683
16,682

823
$ 15,859
0.76
$
0.76
$

Quarter Ended

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

Net sales
Gross profit
Operating income
Net income (loss)
Net income (loss) attributable to non-controlling

interest

Net income attributable to Malibu Boats, Inc.
Basic net income per share
Diluted net income per share

$194,822
47,732
29,854
20,485

$199,918
49,722
30,562
22,203

1,073
$ 19,412
0.93
$
0.92
$

1,104
$ 21,099
1.01
$
1.01
$

$165,793
38,315
20,944
14,998

741
$ 14,257
0.68
$
0.68
$

$123,483
30,501
16,752
12,015

717
$ 11,298
0.55
$
0.54
$

Fiscal Year
Ended
June 30,
2020

$653,163
149,270
85,310
64,656

3,094
$ 61,562
2.98
$
2.95
$

Fiscal Year
Ended
June 30,
2019

$684,016
166,270
98,112
69,701

3,635
$ 66,066
3.17
$
3.15
$

121

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that are

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

As of the end of the period covered by this Form 10-K Annual Report, we carried out an evaluation under

the supervision and with the participation of our management, including our chief executive officer and chief
financial officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our
chief executive officer and chief financial officer have concluded that our disclosure controls and procedures
were effective at a reasonable assurance level as of June 30, 2020.

Management’s Report on Internal Control over Financial Reporting

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company included a report of
management’s assessment of the effectiveness of its internal control over financial reporting as part of this
Annual Report on Form 10-K for the fiscal year ended June 30, 2020. Management’s report is included in the
Company’s 2020 Financial Statements under the captions entitled “Report of Management on Internal Control
Over Financial Reporting” and is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

KPMG LLP, the independent registered public accounting firm that audited the fiscal year 2020

consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report
on the effectiveness of our internal control over financial reporting as of June 30, 2020, which is included herein.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fourth quarter ended

June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information

Stock Repurchase Program

On August 27, 2020, our Board of Directors authorized a stock repurchase program to allow for repurchase
of up to $50.0 million of our Class A Common Stock and the LLC’s LLC Units for the period from September 2,
2020 to July 1, 2021.

Under the New Repurchase Program, we may repurchase our Class A Common Stock and the LLC’s LLC

Units at any time or from time to time, without prior notice, subject to market conditions and other
considerations. Our repurchases may be made through 10b5-1 plans, open market purchases, privately negotiated
transactions, block purchases or other transactions. We intend to fund repurchases under the New Repurchase
Program from cash on hand. We have no obligation to repurchase any shares under the New Repurchase Program
and may suspend or discontinue it at any time.

122

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

The Company has adopted a Code of Business Conduct applicable to our employees, directors, and officers

and a Code of Ethics. This Code of Ethics is applicable to our principal executive officer, principal financial
officer, principal accounting officer and controller, or persons performing similar functions. The codes are
available on the Company’s website at www.malibuboats.com. To the extent required by rules adopted by the
SEC and Nasdaq, we intend to promptly disclose future amendments to certain provisions of the codes, or
waivers of such provisions granted to executive officers and directors on our website at www.malibuboats.com.

The remaining information required by this Item 10 will be included the Proxy Statement and is

incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item 11 will be included in the Proxy Statement and is incorporated herein

by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this Item 12 will be included in the Proxy Statement and is incorporated herein

by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 will be included in the Proxy Statement and is incorporated herein

by reference.

Item 14. Principal Accountant Fees and Services

The information required by this Item 14 will be included in the Proxy Statement and is incorporated herein

by reference.

123

PART IV.

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as part of this Annual Report on Form 10-K:

1. Consolidated Financial Statements

The following financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K:

• Consolidated Statements of Operations and Comprehensive Income for the fiscal years ended June 30,

2020, 2019, and 2018.

• Consolidated Balance Sheets as of June 30, 2020 and 2019.

• Consolidated Statements of Stockholders’ Equity for the fiscal years ended June 30, 2020, 2019, and

2018.

• Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2020, 2019, and 2018.

• Notes to Consolidated Financial Statements.

• Reports of Independent Registered Public Accounting Firm.

Financial Statement Schedules

Separate financial statement schedules have been omitted because such information is inapplicable or is

included in the financial statements or notes described above.

Exhibits

The exhibits filed as part of this Annual Report are listed in the exhibit index immediately preceding such

exhibits, which exhibit index is incorporated herein by reference.

Exhibit No.

Description

3.1

3.2

3.3

3.4

3.4.1

3.4.2

4.1

4.2

4.3

4.4

4.5

Certificate of Incorporation of Malibu Boats, Inc. 2

Bylaws of Malibu Boats, Inc. 2

Certificate of Formation of Malibu Boats Holdings, LLC 2

First Amended and Restated Limited Liability Company Agreement of Malibu Boats Holdings,
LLC, dated as of February 5, 2014 3

First Amendment, dated as of February 5, 2014, to First Amended and Restated Limited Liability
Company Agreement of Malibu Boats Holdings, LLC 4

Second Amendment, dated as of June 27, 2014, to First Amended and Restated Limited Liability
Company Agreement of Malibu Boats Holdings, LLC 5

Description of Class A Common Stock 11

Form of Class A Common Stock Certificate 2

Form of Class B Common Stock Certificate 2

Exchange Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc. and
Affiliates of Black Canyon Capital LLC and Horizon Holdings, LLC 3

Exchange Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc. and the
Members of Malibu Boats Holdings, LLC 3

124

Exhibit No.

Description

4.6

10.1

10.2

10.3

10.4

10.5+

10.6*

10.7*

10.8*

Tax Receivable Agreement, dated as of February 5, 2014, by and among Malibu Boats, Inc.,
Malibu Boats Holdings, LLC and the Other Members of Malibu Boats Holdings, LLC 3

Second Amended and Restated Credit Agreement, dated June 28, 2017, by and among Malibu
Boats, LLC, Malibu Boats Holdings, LLC, the other guarantors party thereto, the lenders party
thereto, and SunTrust Bank, as administrative agent, as issuing bank and as swingline lender 1

Second Amended and Restated Security Agreement, dated June 28, 2017, by and among Malibu
Boats, LLC, Malibu Boats Holdings, LLC, the other debtors party thereto, and SunTrust Bank, as
administrative agent 1

First Incremental Facility Amendment and First Amendment dated August 21, 2018 to the Second
Amended and Restated Credit Agreement, by and among Malibu Boats, LLC, Malibu Boats
Holdings, LLC, the other guarantors party thereto, the lenders party thereto, and SunTrust Bank, as
administrative agent, as issuing bank and as swingline lender 9

Second Incremental Facility Amendment and Second Amendment, dated May 14, 2019, by and
among Malibu Boats, LLC, Malibu Boats Holdings, LLC, the other guarantors party thereto, the
lenders party thereto, and SunTrust Bank, as administrative agent, swingline lender and issuing
bank 10

Engine Supply Agreement dated November 14, 2016 between Malibu Boats, LLC and General
Motors LLC 7

Employment Agreement by and between Malibu Boats, Inc. and Ritchie Anderson, dated
February 5, 2014 3

Employment Agreement by and between Malibu Boats, Inc. and Jack Springer, dated February 5,
2014 3

Employment Agreement by and between Malibu Boats, Inc. and Wayne Wilson, dated February 5,
2014 3

10.9*

Long-Term Incentive Plan 2

10.10*

Amendment Number One, dated as of June 24, 2014, to the Long Term Incentive Plan 5

10.11*

Form of Stock Option Agreement for Long-Term Incentive Plan 8

10.12*

Form of Restricted Stock Agreement for Long-Term Incentive Plan 8

10.13*

Form of Restricted Stock Unit Award Agreement for Long-Term Incentive Plan (executive) 8

10.14*

Form of Restricted Stock Unit Award Agreement for Long-Term Incentive Plan (non-executive) 8

10.15*

Form of Indemnification Agreement 6

10.16*

Director Compensation Policy 11

10.17*

Form of Time and Performance Based Restricted Stock Award Agreement (executive) 12

21.1

23.1

31.1

31.2

Subsidiaries of Malibu Boats, Inc.

Consent of KPMG LLP, independent registered public accounting firm for Malibu Boats, Inc.

Certificate of the Chief Executive Officer of Malibu Boats, Inc. pursuant to Rule 13a-14 or 15d-14
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certificate of the Chief Financial Officer of Malibu Boats, Inc. pursuant to Rule 13a-14 or 15d-14
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

125

Exhibit No.

101

104

Description

Certification of the Chief Executive Officer and Chief Financial Officer of Malibu Boats, Inc.
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002

The following financial statements from the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2020 were formatted in Inline XBRL: (i) Consolidated Statements of
Operations and Comprehensive Income, (ii) Consolidated Balance Sheets, (iii) Consolidated
Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes
to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2020, formatted in Inline XBRL (Included as Exhibit 101).

* Management contract or compensatory plan or arrangement.
+

Portions of this exhibit have been omitted pursuant to a confidential treatment request. Omitted information
has been filed separately with the SEC.

(1) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on June 29,

2017.

(2) Filed as an exhibit to Amendment No. 1 to the Company’s registration statement on Form S-1 (Registration

No. 333-192862) filed on January 8, 2014.

(3) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on February 6,

2014.

(4) Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q/A (File No. 001-36290) filed on

May 13, 2014.

(5) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on June 27,

2014.

(6) Filed as an exhibit to the Company’s registration statement on Form S-1 (File No. 333-192862) filed on

December 13, 2013.

(7) Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 001-36290) filed on

February 1, 2017.

(8) Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 001-36290) filed on

September 8, 2017.

(9) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on August 22,

2018.

(10) Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 001-36290) filed on May 15,

2019.

(11) Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 001-36290) filed on

August 29, 2019.

(12) Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 001-36290) filed on

February 6, 2020.

126

Item 16. Form 10-K Summary

None.

127

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this

report to be signed on its behalf by the undersigned thereunto duly authorized.

SIGNATURE

August 31, 2020

MALIBU BOATS, INC.

/s/ Jack D. Springer

Jack D. Springer

Chief Executive Officer
(Principal Executive Officer)

/s/ Wayne R. Wilson

Wayne R. Wilson

Chief Financial Officer
(Principal Financial and Accounting Officer)

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

Signature

Title

Date

/s/ Jack D. Springer
Jack D. Springer

/s/ Wayne R. Wilson
Wayne R. Wilson

/s/ Michael K. Hooks
Michael K. Hooks

/s/ James R. Buch
James R. Buch

/s/ Ivar S. Chhina
Ivar S. Chhina

/s/ Michael J. Connolly
Michael J. Connolly

/s/ Mark W. Lanigan
Mark W. Lanigan

/s/ Joan M. Lewis
Joan M. Lewis

/s/ Peter E. Murphy
Peter E. Murphy

/s/ John E. Stokely
John E. Stokely

Chief Executive Officer and Director
(Principal Executive Officer)

Chief Financial Officer (Principal
Financial and Accounting Officer)

Chairman of the Board and Director

Director

128

August 31, 2020

Board of Directors

Michael K. Hooks (3)
Chairman of the Board
Malibu Boats, Inc.

Jack D. Springer
Chief Executive Officer
Malibu Boats, Inc.

Michael J. Connolly (2) (3)*
Founding Partner
Breakaway Capital Partners LLC

Joan M. Lewis(2) (3)
Principal
Joan M. Lewis LLC

Peter E. Murphy (2) (3)
Founder and Chief Executive Officer
Wentworth Capital Management

James R. Buch (1) (3)
Retired

Mark W. Lanigan(2)* (3)
Co-Founder and Managing Director
Black Canyon Capital LLC

John E. Stokely (1) (3)
Chairman of the Board
Pool Corporation

Ivar S. Chhina(1)* (3)
Retired

Jack D. Springer
Chief Executive Officer

Wayne R. Wilson
Chief Financial Officer

Ritchie L. Anderson
Chief Operating Officer

(1) Audit Committee, (2) Compensation Committee, (3) Nominating and Governance Committee, * Committee Chair

Management

Transfer Agent and Registrar
American Stock Transfer
& Trust Company LLC
6201 15th Ave
Brooklyn, NY 11219
Telephone: (800) 937-5449
www.amstock.com

Annual Meeting
The annual meeting of Malibu
Boats will be held at 1:00 p.m.
CST, on November 3, 2020,
at Grand Hyatt DFW,
2337 South International Parkway,
Dallas, Texas 75261.

Investor Relations Website
investors.malibuboats.com

Form 10-K / Quarterly Report
Stockholders may obtain, free of charge,
a copy of Malibu Boats’ annual report
on Form 10-K, its quarterly reports on
Form 10-Q as filed with the Securities
and Exchange Commission and
quarterly press releases by contacting:

•

Investor Relations at Malibu Boats,
Inc. 5075 Kimberly Way
Loudon, Tennessee 37774
Telephone: (865) 458-5478

Copies of all documents filed by Malibu
Boats with the Securities and Exchange
Commission, including Form 10-K and
Form 10-Q, are also available at the
SEC’s EDGAR server at www.sec.gov.

Company Website
www.malibuboats.com

Stock Exchange Listing
The NASDAQ Stock Market
Ticker Symbol: MBUU

Independent Accounting Firm
KPMG LLP

Code of Ethics
Malibu Boat’s Code of Ethics is
available on its Investor Relations
website at investors.malibuboats.com.

Stockholder of Record
As of September 17, 2020:

•
•

7 holders of Class A common stock
13 holders of Class B common
stock

All-New Malibu 23 LSV, The World’s Best Selling Towboat

Malibu M240

All-New Axis A24

All-New Cobalt R6Z

Boating Industry’s Top Products of 2020. All-New Pursuit S378

VERTICAL INTEGRATION
& INNOVATIONS

Made by Malibu Monsoon™ Engines
Powered By GM Marine®

Made by Malibu Trailers

Pursuit S 378 Multi-Function Forward Lounge Seating

Made by Malibu Softgrip Flooring

Made by Malibu G5 & Gx™ Towers

Electronic Made by Cobalt E-Step®

Cobalt Splash & Stow

THERE’S NEVER BEEN
A BETTER TIME TO BOAT

Cover: All-New Malibu M220