Stock-Based Compensation

The Company adopted a long term incentive plan which became effective on January 1, 2014 (the "Incentive Plan"), and 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 include unrestricted shares of Class A Common Stock, stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent awards and performance awards. As of December 31, 2017, 1,000,816 shares remain available for future issuance under the long term incentive plan. Readers should refer to Note 13 to the fiscal 2017 audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017, for additional information related to the Company's awards and the Incentive Plan.

On November 6, 2017, the Company granted 78,900 restricted stock units and restricted stock awards to key employees under the Incentive Plan. 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, 72% of the awards will vest ratably over four years on each anniversary of their grant date and approximately 28% 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 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 commence 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 the 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 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.

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.

The following is a summary of the changes in the Company's stock options for the six months ended December 31, 2017:



	December 31, 2017
	Shares	Price per share		Weighted Average Exercise Price/Share
Total outstanding options at beginning of year	104,000	$	25.85	$	25.85
Options granted	40,000	30.87		30.87
Options exercised	—	—		—
Options canceled	—	—		—
Outstanding options at end of period	144,000	27.24		27.24
Exercisable at end of period	—	—		—
Vested and expected to vest at end of year	144,000	$	27.24	$	27.24

The following is a summary of the changes in non-vested restricted stock units and restricted stock awards for the six months ended December 31, 2017:



	Number of Restricted Stock Units and Restricted Stock Awards Outstanding		Weighted Average Grant Date Fair Value
Total Non-vested Restricted Stock Units as of June 30, 2017	225,854		$	15.77
Granted	99,242		30.78
Vested	(85,432	)	(19.01		)
Forfeited	—		—
Total Non-vested Restricted Stock Units as of December 31, 2017	239,664		$	20.83

Stock compensation expense attributable to the Company's share-based equity awards was $488 and $280 for the three months ended December 31, 2017 and 2016, respectively, and $850 and $745 for the six months ended December 31, 2017 and 2016, respectively. Stock compensation expense attributed to share-based equity awards issued under the Incentive Plan is recognized on a straight-line basis over the terms of the respective awards and is included in general and administrative expense in the Company's unaudited condensed consolidated statement of operations and comprehensive (loss) income. As of December 31, 2017 and June 30, 2017, unrecognized compensation cost related to nonvested, share-based compensation was $5,592 and $3,601, respectively. As of December 31, 2017, the weighted average years outstanding for unvested awards under the Incentive Plan was 2.4 years. During the six months ended December 31, 2017, the Company withheld approximately 18,335 shares at an aggregate cost of approximately $543, as permitted by the applicable equity award agreements, to satisfy employee tax withholding requirements for employee share-based equity awards that have vested and were issued. Awards vesting during the six months ended December 31, 2017, include 20,342 fully vested restricted stock units and 3,534 shares of Class A common stock issued to non-employee directors for their service as directors for the Company.