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, 2017, there were 1,125,257 shares available for future issuance under Incentive Plan.

On May 16, 2015, the Company granted 12,050 restricted stock unit awards to key employees under the Incentive Plan with a grant date fair value of $20.67 per unit. On June 27, 2014, the Company granted 46,250 restricted stock unit awards to key employees under the Incentive Plan with a grant date fair value of $20.03 per unit. Under the terms of the agreements, the awards will vest 25% ratably on each anniversary of their grant date. Stock-based compensation expense attributable to these restricted stock units is amortized on a straight-line basis over the requisite service period.

On November 6, 2015, the Company granted 130,564 restricted stock unit and restricted stock awards to certain key employees. The grant date fair value of these awards was $1,994 based on a stock price of $15.27 per share on the date of grant. Under the terms of the agreements, approximately 12% of the awards vested immediately on the grant date, approximately 38% vest in substantially equal annual installments over a three or four year period, and the remaining 50% of the awards 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 November 4, 2016, the Company granted 130,500 restricted stock units and restricted stock awards to certain key employees. The grant date fair value of these awards was $2,039 based on a stock price of $15.62 per share on the date of grant. Under the terms of the agreements, approximately 63% of the awards vest in substantially equal annual installments over a four year period, and the remaining 37% of the awards vest in tranches based on the achievement of annual performance targets. Compensation costs associated with performance based awards are recognized over the requisite service period based on probability of achievement in accordance with ASC Topic 718, Compensation—Stock Compensation.

On June 29, 2017, the Company granted 104,000 options to certain key employees to purchase from the Company shares of Class A Common Stock at a price of $25.85 per share. The term of the options commence on June 29, 2017 and will expire on June 28, 2023, the day before the sixth anniversary of the grant date. Under the terms of the agreements, the awards will vest 25% ratably on each anniversary of their grant date. At June 30, 2017, the fair value of the option awards was $866 and is estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free rate of 2.1%, expected volatility of 36.1%, expected term of 4.25 years, and no dividends. Stock-based compensation expense attributable to these options is amortized on a straight-line basis over the requisite service period.

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.

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 publicaly 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.



	Fiscal Year Ended June 30, 2017
	Shares	Price per share		Weighted Average Exercise Price/Share
Total outstanding Options at beginning of year	—	$	—	$	—
Options granted	104,000	25.85		25.85
Options exercised	—	—		—
Options canceled	—	—		—
Outstanding options at end of year	104,000	25.85		25.85
Exercisable at end of year	—	—		—
Vested and expected to vest at end of year	104,000	$	25.85	$	25.85

As of June 30, 2017, the weighted-average years non-vested for service period awards and performance target awards was approximately 2.3 years and 1.0 year, respectively.

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, 2015, the Company issued 3,101 shares of Class A Common Stock and 9,303 restricted stock units with a weighted-average grant date fair value of $18.52 to its non-employee directors for their services as directors pursuant to the Incentive Plan. For the fiscal year ended June 30, 2016, the Company issued 8,688 shares of Class A Common Stock and 43,508 restricted stock units with a weighted-average grant date fair value of $14.38 to its non-employee directors for their services as directors pursuant to the Incentive Plan. For the fiscal year ended June 30, 2017, the Company issued 6,857 shares of Class A Common Stock and 37,727 restricted stock units with a weighted-average grant date fair value of $15.42 to its non-employee directors for their services as directors pursuant to the Incentive Plan.

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,
	2017				2016				2015
	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	140,908		$	16.17	44,775		$	20.20	$	46,155		$	20.03
Granted	168,227		15.55		174,072		15.05		21,353			20.44
Vested	(81,181	)	15.95		(69,751	)	15.62		(20,733		)	15.83
Forfeited	(2,100	)	18.52		(8,188	)	20.13		(2,000		)	20.03
Total Non-vested Restricted Stock Units and Restricted Stock Awards at end of year	225,854		$	15.77	140,908		$	16.17	44,775			$	20.20

Stock compensation expense attributable to all of the Company's equity awards was $1,396, $1,947 and $1,467 for fiscal years 2017, 2016 and 2015, respectively, including $283, $1,066 and $1,242 of expense related to profit interest awards previously granted prior to the IPO under the former LLC agreement for fiscal years 2017, 2016 and 2015, respectively, and 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 2017, the Company withheld approximately 15,581 shares at an aggregate cost of approximately $258, 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, 2017 and 2016, unrecognized compensation cost related to nonvested, share-based compensation was $3,601 and $2,131, respectively, of which $0 and $283 represent the unearned portion attributable to profit interest awards as of June 30, 2017 and 2016, respectively.