Subsequent Events (Tables)

6 Months Ended

Dec. 31, 2013

Pro Forma Condensed Consolidated Statements

Pro Forma Condensed Consolidated Statement of Income (Unaudited)

Three Months Ended December 31, 2013



	Malibu Boats Holdings, LLC Historical (1)			Pro Forma Adjustments				Malibu Boats, Inc. (2) Pro Forma
	(In thousands, except per unit and per share data)
Net sales	$	43,938		$	—			$	43,938
Cost of sales	32,242			—				32,242
Gross profit	11,696			—				11,696
Operating expenses:
Selling and marketing	1,510			—				1,510
General and administrative	3,068			(21		)	(3)	3,047
Amortization	1,295			—				1,295
Operating income	5,823			21				5,844
Other income (expense):
Other	6			—				6
Interest expense	(609		)	609			(4)	—
Other expense	(603		)	609				6
Net income before provision for income taxes	5,220			630				5,850
Provision for income taxes	—			1,126			(5)	1,126
Net income	5,220			(496		)		4,724
Non-controlling interest	—			2,967			(6)	2,967
Net income attributable to members and stockholders	$	5,220		$	(3,463	)		$	1,757
Basic and diluted earnings per unit:
Class A Units	$	0.12
Class B Units	$	0.12
Class M Units	$	0.12
Basic weighted average units used in computing earnings per unit:
Class A Units	36,742
Class B Units	3,885
Class M Units	1,677
Diluted weighted average units used in computing earnings per unit:
Class A Units	36,742
Class B Units	3,885
Class M Units	1,970
Pro forma net income available to Class A Common Stock per share:
Basic								$	0.16
Diluted								$	0.16
Pro forma basic and diluted weighted average units used in computing net income per share ⁽⁷⁾:
Basic								10,869,830
Diluted								10,869,830

(1)

The Company's business has historically been operated through the LLC. As of December 31, 2013, the LLC held all of the assets and liabilities and Malibu did not have any material assets or liabilities and did not conduct operations. Accordingly, the unaudited pro forma condensed consolidated statement of income for the three months ended December 31, 2013 presents the historical results of the LLC as a starting point for the pro forma amounts.


(2)	As a newly formed entity, the Company had no results of operations until the completion of the IPO.

(3)

As described above, the Company terminated the LLC's existing management agreement with Malibu Boats Investor, LLC, an affiliate upon completion of the IPO. The adjustment represents the removal of the management fees incurred during the period. The adjustment does not include the non-recurring fee of $3.75 million the Company paid to Malibu Boats Investor, LLC at the completion of the IPO in connection with the termination of the management agreement.


(4)	As described above, the LLC paid down all of the amounts owned on the credit facilities and term loans with the proceeds from the IPO. This adjustment represents the removal of interest expense associated with the term loans incurred during the period.

(5)

As described above, the Company will be subject to U.S. federal income taxes, in addition to state taxes, with respect to the Company's allocable share of any net taxable income of the LLC that will result in higher income taxes. As a result, the pro forma statement of income reflects an adjustment to the LLC's provision for corporate income taxes to reflect an effective income tax rate of 39.1%. The effective income tax rate includes adjustments to the statutory federal income tax rate of 35% for state taxes and permanent items such as stock compensation expense attributable to profits interests, the domestic production activities deduction, and strategic and financial restructuring costs incurred in connection with the IPO. A reconciliation of the statutory federal income tax rate to the effective rate is as follows:



Statutory federal income tax rate	35.0	%
State income taxes, net of federal taxes	3.3
Permanent items	0.8
	39.1	%

The provision for income taxes is computed by applying the effective income tax rate of 39.1% to pre-tax income multiplied by the percentage ownership in the LLC attributable to the Company at the completion of the IPO.

(6)

The Company's only material asset after the completion of the Recapitalization and IPO is the ownership of 49.3% of the LLC Units and the Company's only business is to act as the sole managing member of the LLC. Therefore, pursuant to ASC Topic 810 the Company will consolidate the financial results of the LLC into its financial statements for periods ending on or after the IPO completed on February 5, 2014. The ownership interests of the other members of the LLC will be accounted for as a non-controlling interest in the Company's consolidated financial statements after the IPO. Immediately following the IPO, the non-controlling interest was 50.7%. These amounts have been determined based on the initial public offering price of $14.00. The amount of non-controlling interest is computed by multiplying pre-tax income by the percentage ownership in the LLC not directly attributable to the Company, or 50.7%, after the underwriters exercised their option to purchase an additional 1,071,427 shares of Class A Common Stock.

(7)

Pro forma basic and diluted net income per share were computed by dividing the pro forma net income attributable to members and stockholders by 10,869,830. The number of shares is based on the 11,054,830 shares of Class A Common Stock outstanding after the IPO, 8,214,285 of which were sold in the IPO and 2,840,545 of which continue to be owned by the selling stockholders in the IPO and excluding 185,000 shares outstanding after the IPO the proceeds from which were used for general corporate purposes. Because the shares of Class B Common Stock do not share in the Company's earnings, they are not included in the weighted average number of shares outstanding or net income available per share.

Pro Forma Condensed Consolidated Statement of Income (Unaudited)

Six Months Ended December 31, 2013



	Malibu Boats Holdings, LLC Historical (1)			Pro Forma Adjustments				Malibu Boats, Inc. (2) Pro Forma
	(In thousands, except per unit and per share data)
Net sales	$	87,242		$	—			$	87,242
Cost of sales	64,525			—				64,525
Gross profit	22,717			—				22,717
Operating expenses:
Selling and marketing	2,942			—				2,942
General and administrative	5,023			(43		)	(3)	4,980
Amortization	2,589			—				2,589
Operating income	12,163			43				12,206
Other income (expense):
Other	9			—				9
Interest expense	(1,773		)	1,771			(4)	(2		)
Other expense	(1,764		)	1,771				7
Net income before provision for income taxes	10,399			1,814				12,213
Provision for income taxes	—			2,244			(5)	2,244
Net income	10,399			(430		)		9,969
Non-controlling interest	—			6,193			(6)	6,193
Net income attributable to members and stockholders	$	10,399		$	(6,623	)		$	3,776
Basic earnings per unit:
Class A Units	$	0.25
Class B Units	$	0.25
Class M Units	$	0.25
Diluted earnings per unit:
Class A Units	$	0.24
Class B Units	$	0.24
Class M Units	$	0.24
Basic weighted average units used in computing earnings per unit:
Class A Units	36,742
Class B Units	3,885
Class M Units	1,677
Diluted weighted average units used in computing earnings per unit:
Class A Units	36,742
Class B Units	3,885
Class M Units	1,970
Pro forma net income available to Class A Common Stock per share:
Basic								$	0.35
Diluted								$	0.35
Pro forma basic and diluted weighted average units used in computing net income per share ⁽⁷⁾:
Basic								10,869,830
Diluted								10,869,830

(1)

The Company's business has historically been operated through the LLC. As of December 31, 2013, the LLC held all of the assets and liabilities and the Company did not have any assets or liabilities and did not conduct operations. Accordingly, the unaudited pro forma consolidated statement of income for the six months ended December 31, 2013 presents the historical results of the LLC as a starting point for the pro forma amounts.


(2)	As a newly formed entity, the Company had no results of operations until the completion of the IPO.

(3)

As described above, the Company terminated the LLC's existing management agreement with Malibu Boats Investor, LLC, an affiliate, upon completion of the IPO. The adjustment represents the removal of the management fees incurred during the period. The adjustment does not include the non-recurring fee of $3.75 million paid to Malibu Boats Investor, LLC at the completion of the IPO in connection with the termination of the management agreement.


(4)	As described above, the LLC paid down all of the amounts owned on the credit facilities and term loans with the proceeds from the IPO. This adjustment represents the removal of interest expense associated with the term loans incurred during the period.

(5)

As described above, the Company will be subject to U.S. federal income taxes, in addition to state taxes, with respect to the Company's allocable share of any net taxable income of the LLC that will result in higher income taxes. As a result, the pro forma statement of income reflects an adjustment to the LLC's provision for corporate income taxes to reflect an effective income tax rate of 37.3%. The effective income tax rate includes adjustments to the statutory federal income tax rate of 35% for state taxes and permanent items such as stock compensation expense attributable to profits interests, the domestic production activities deduction, and strategic and financial restructuring costs incurred in connection with the IPO. A reconciliation of the statutory federal income tax rate to the effective rate is as follows:



Statutory federal income tax rate	35.0	%
State income taxes, net of federal taxes	3.3
Permanent items	(1.0	)
	37.3	%

The provision for income taxes is computed by applying the effective income tax rate of 37.3% to pre-tax income multiplied by the percentage ownership in the LLC attributable to the Company at the completion of the IPO.

(6)

The Company's only material asset after the completion of the Recapitalization and IPO is the ownership of 49.3% of the LLC Units and the Company's only business is to act as the sole managing member of the LLC. Therefore, pursuant to ASC Topic 810 the Company will consolidate the financial results of the LLC into its financial statements for the periods ending on or after the IPO completed on February 5, 2014. The ownership interests of the other members of the LLC will be accounted for as a non-controlling interest in the Company's consolidated financial statements after the IPO. Immediately following the IPO, the non-controlling interest was 50.7%. These amounts have been determined based on the initial public offering price of $14.00. The amount of non-controlling interest is computed by multiplying pre-tax income by the percentage ownership in the LLC not directly attributable to the Company, or 50.7%, after the underwriters exercised their option to purchase an additional 1,071,427 shares of Class A Common Stock.

(7)

Pro Forma Condensed Consolidated Balance Sheet (Unaudited)

December 31, 2013



	Malibu Boats Holdings, LLC Historical (1)		Pro Forma Adjustments			Malibu Boats, Inc. (2) Pro Forma
	(In thousands, except share data)
Assets:
Current assets:
Cash	4,531		2,590		(3) (4)	7,121
Trade receivables, net	2,683		—			2,683
Inventories, net	15,992		—			15,992
Prepaid expenses	1,250		(823	)	(10)	427
Total current assets	24,456		1,767			26,223
Property and equipment, net	8,246		—			8,246
Goodwill	5,718		—			5,718
Other intangible assets, net	14,946		—			14,946
Debt issuance costs, net	915		(915	)	(5)	—
Deferred tax asset	—		20,904		(6)	20,904
Other assets	39		—			39
Total assets	54,320		21,756			76,076
Liabilities:
Current liabilities:
Current maturities of long-term debt	4,098		(4,098	)	(5)	—
Accounts payable	9,999		—			9,999
Accrued expenses	11,532		—			11,532
Total current liabilities	25,629		(4,098	)		21,531
Deferred gain on sale-leaseback	140		—			140
Payable pursuant to tax receivable agreement	—		15,446		(6)	15,446
Long-term debt, less current maturities	59,312		(59,312	)	(5)	—
Total liabilities	85,081		(47,964	)		37,117
Equity:
Class A Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 11,054,830 shares issued and outstanding on a pro forma basis	—		110		(7)	110
Class B Common Stock, par value $0.01 per share; 25,000,000 shares authorized; 34 shares issued and outstanding on a pro forma basis	—		—		(7)	—
Preferred Stock, par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding on a pro forma basis	—		—		(7)	—
Class A Units, 37,000 units authorized, 36,742 units issued and outstanding	(35,601	)	35,601		(7)	—
Class B Units, 3,885 units authorized, issued and outstanding	(8,273	)	8,273		(7)	—
Class M Units, 4,602 units authorized, 1,677 units issued and outstanding	(3,197	)	3,197		(7)	—
Additional paid-in capital	—		16,122		(7)	16,122
Accumulated earnings	16,310		(10,570	)	(8)	5,740
Total (deficit) equity	(30,761	)	52,733			21,972
Non-controlling interest	—		16,987		(9)	16,987
Total members’ and stockholders’ (deficit) equity	(30,761	)	69,720			38,959
Total liabilities and equity	54,320		21,756			76,076

(1)

The Company's business has historically been operated through the LLC. As of December 31, 2013, the LLC held all of the assets and liabilities and the Company did not have any material assets or liabilities and did not conduct operations. Accordingly, the unaudited pro forma condensed consolidated balance sheet as of December 31, 2013 presents the historical financial condition of the LLC as a starting point for the pro forma amounts.


(2)	As a newly formed entity, the Company had no material assets until the completion of the IPO.


(3)	Reflects the net effect on cash of the receipt of net proceeds of $99.5 million in the IPO, which amount will be used for general corporate purposes. Cash adjustments are as follows (in thousands):



Actual cash, as reported	4,531
Pro forma adjustments:
Net proceeds to the Company from the IPO	99,512
Purchase of LLC units from existing owners	(29,762	)
Purchase of LLC units from the LLC	69,750
Repayment of term loan	(63,410	)
Payment of termination fee for management agreement	(3,750	)
Remaining proceeds to the Company from the IPO	2,590
Pro forma cash balance	7,121

(4) As described above, the Company paid Malibu Boats Investor, LLC, an affiliate, a non-recurring fee of $3.75 million upon completion of the IPO in connection with the termination of the LLC's management agreement.


(5)	As described above, the LLC paid down all of the amounts owed on its credit facilities and term loans with the proceeds from the IPO. In connection with the pay down, debt issuance costs associated with the term loans were written off to interest expense.

(6)

The LLC intends to have in effect an election under Section 754 of the Internal Revenue Code of 1986, as amended, or the Code, and comparable elections under state and local tax law, such that the sale of LLC Units by existing owners will result in adjustments to the tax basis of the assets of the LLC. These increases in tax basis are expected to increase (for tax purposes) the depreciation and amortization deductions by the LLC, and therefore, to reduce the amount of income tax that the Company would otherwise be required to pay in the future. In connection with the Recapitalization and IPO, the Company has entered into a Tax Receivable Agreement with the existing owners of the LLC which became effective upon the completion of the Recapitalization and IPO, pursuant to which the Company agreed to pay to the existing owners, generally over a 15-year period (under current law), 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local and franchise income tax that the Company actually realized as a result of the increases in tax basis resulting from the sale or exchange of LLC Units by the existing owners. The unaudited pro forma condensed consolidated financial statements reflect adjustments (shown in the pro forma adjustments column above) to give effect to the Section 754 election and the Tax Receivable Agreement (as further described above) as a result of the Recapitalization and IPO based on the following assumptions:

•

The unaudited pro forma consolidated financial statements include adjustments to reflect the expected increase in deferred tax assets representing the income tax effects of the increases in the tax basis as a result of the LLC’s election under Section 754 of the Code in connection with the sale of LLC Units described above. This adjustment is calculated based on an estimated effective income tax rate for the Company of 37.3%, which includes a provision for U.S. federal income taxes and assumes (i) the Company’s estimated statutory rates apportioned to each state and local tax jurisdiction, (ii) that there are no material changes in the relevant tax law, and (iii) that the Company earns sufficient taxable income in each year to realize the full tax benefit of the amortization of its assets;

•

The adjustments were determined in connection with the Section 754 election by first calculating the excess of each selling LLC Unit holder and the LLC’s assumed selling price over such holder’s share of the LLC’s tax basis in its assets attributable to the LLC Units being sold to the Company. The Company then allocated the aggregate excess among the LLC’s assets following applicable tax regulations governing adjustments that result from the Section 754 election. The Company determined each selling LLC Unit holder’s share of the tax basis in the LLC’s assets attributable to the LLC Units sold to the Company by multiplying the selling LLC Unit holder’s tax capital account balance as of the date of sale as maintained in LLC’s books and records by a fraction, the numerator of which is the number of LLC Units sold to the Company, and the denominator of which is the number of LLC Units held by the selling LLC Unit holder immediately prior to the sale. For purposes of the calculation, the selling price per LLC Unit was equal to $14.00 per share, the price paid by the public for each Class A Common Stock. The adjustments are expected to increase the LLC’s basis in its assets (for tax purposes), and the Company will calculate the amount of any depreciation, amortization and other deductions to which it will be entitled as a result of these adjustments. The Company will then calculate its tax liability with and without the deductions attributable to these adjustments, assuming that the Company earns sufficient taxable income in each year to realize the full benefit of the deductions. The Company will compute the estimated tax benefit attributable to the election as the excess of the Company’s tax liability as so computed without the deductions over its tax liability as so computed with the deductions. Additionally, the Tax Receivable Agreement payments may give rise to adjustments that result in the LLC becoming entitled to additional deductions, and the calculation of the Company’s liability under the Tax Receivable Agreement would take these adjustments and additional resulting deductions into account;

•

The unaudited pro forma condensed consolidated financial statements include an increase in deferred tax assets of $18.1 million to reflect the Company's future tax benefit attributable to the increase in the tax basis of the assets upon purchase of LLC Units in connection with the IPO and the subsequent Section 754 election. In connection with the Recapitalization and IPO, an adjustment to recognize additional deferred tax assets of $2.8 million will be included to account for the Company’s share of the benefit from differences between historical tax basis and book basis in the assets of the LLC. The adjustments related to the LLC’s Section 754 election described above are a component of the Company’s tax basis in the LLC;

•

The LLC’s election under Section 754 of the Code is at the discretion of the LLC and is not subject to review or approval by the Internal Revenue Service or other tax authorities. The computation of the adjustments resulting from the Section 754 election and the Company’s tax liability is subject to audit by the Internal Revenue Service and other tax authorities in the same manner as all other items reported on income tax returns;


•	The unaudited pro forma condensed consolidated financial statements include an adjustment of $15.4 million to reflect a liability with respect to the Tax Receivable Agreement equal to 85% of the estimated realizable tax benefit resulting from the estimated increase in tax basis due to the LLC’s Section 754 election in connection with the sale of LLC Units by the existing owners; and


•	The unaudited pro forma condensed consolidated financial statements include the cumulative net effect of accounting for income taxes and the Tax Receivable Agreement, which will be a net increase in stockholders’ equity of 14.8% of the estimated realizable tax benefit.

Pursuant to the terms of the Exchange Agreement, the Company's existing owners may exchange LLC Units for shares of Class A Common Stock or cash, at the Company's election, as a result of the IPO. Any subsequent exchanges of LLC Units for shares of Class A Common Stock pursuant to the Exchange Agreement may result in increases in the tax basis of the tangible and intangible assets of the LLC (85% of the realized tax benefits from which will be due to the exchanging LLC Unit holders and recorded as an additional payable pursuant to the Tax Receivable Agreement) that otherwise would not have been available. These subsequent exchanges have not been reflected in the unaudited pro forma condensed consolidated financial statements.

(7)

Reflects the Recapitalization and IPO, as described above, including (i) the elimination of existing members’ equity for $47.1 million in consolidation of the LLC into the financial statements of the Company, (ii) the issuance of Class B Common Stock in connection with the Recapitalization and IPO, (iii) the issuance of Class A Common Stock in connection with the IPO for $0.1 million, (iv) The net proceeds from the purchase of LLC Units from the existing owners for $69.8 million, and (v) the net effect of accounting for income taxes and the Tax Receivable Agreement of $5.5 million, and the portion of additional paid-in capital including these items attributable to our non-controlling interest in the LLC.

(8)

Reflects the net effect of adjustments for the payment of the $3.75 million management termination fee, write-off of debt issuance costs of approximately $915,000 in connection with the payoff of the LLC's credit facilities and term loans, and portion of accumulated earnings including these items attributable to the Company's non-controlling interest in the LLC multiplied by the 50.7% ownership not directly attributable to the Company.

(9)

As a result of the Recapitalization and IPO, the Company's only material asset is the ownership of 49.3% of the LLC Units and its only business is to act as the sole managing member of the LLC. Therefore, pursuant to ASC Topic 810, the Company consolidated the financial results of the LLC into its financial statements for periods ending on or after the IPO completed on February 5, 2014. The ownership interests of the other members of the LLC, or 50.7%, are accounted for as a non-controlling interest in the Company's consolidated financial statements as a result of the IPO. This amount was based on the initial public offering price of $14.00, after the underwriter’s option to purchase additional shares was exercised in the IPO.


	The non-controlling interest of the Company is equal to the net effect of adjustments on additional paid-in capital (noted in (7) above) and accumulated earnings (noted in (8) above) multiplied by the percentage ownership not directly attributable to the Company, or 50.7%, after the underwriters exercised their option to purchase an additional 1,071,427 shares of Class A Common Stock in the IPO.


(10)	Reflects the reduction of prepaid expenses directly related to the IPO, with an offset to the proceeds of the IPO in additional paid-in capital.