Memorandum To: John Morales, Director, Accounting Research & Policy From: Khalid Mosuro, Research Intern Date: October 19, 2026 Re: Noncontrolling interests: guidance, Malibu Boats, and lessons for Sunbeam Energy Purpose This memo outlines the U.S. GAAP requirements for noncontrolling interests (NCI), evaluates Malibu Boats’ reporting, and identifies practical considerations for Sunbeam Energy. Background and guidance An NCI is the portion of a subsidiary’s equity that does not belong, directly or indirectly, to its parent (ASC 810-10-20). Control generally arises from owning more than half of a business’s voting shares. For a partnership or LLC, a managing member may have control when it can direct the activities that most affect the entity’s results and is exposed to those results (ASC 810-10-15-8; ASC 810-10-25-38A). A controlling parent consolidates 100% of the subsidiary’s assets, liabilities, revenue, and expenses, and presents NCI separately within equity (ASC 810-10-45-16). Net income and losses are attributed between the parent and NCI; losses continue to be allocated to NCI even if its balance becomes negative (ASC 810-10-45-20–21). If the parent’s ownership changes but it retains control, the change is an equity transaction, with no gain or loss recognized (ASC 810-10-45-23). Earnings per share reflects only the parent’s share of income (ASC 260-10-45-11A). If outside investors can require a cash payment, NCI may need to be classified outside permanent equity (ASC 480-10-S99-3A). ASC 810-10-50-1A requires companies to present the income attribution on the face of the financial statements, reconcile parent, NCI, and total equity, and provide a schedule showing how changes in the parent’s ownership affect its equity. The core NCI requirements have remained stable since FASB Statement No. 160 placed NCI within equity. A 2015 review found that the standard had met its objectives, while noting that income allocation in complex structures can remain challenging. Recent accounting updates affect NCI reporting indirectly through expanded income tax and segment disclosures and guidance on identifying the acquirer in certain variable interest entity transactions. Unlike IFRS, U.S. GAAP requires NCI to be measured at fair value in a business combination. Malibu Boats example Malibu Boats uses an Up-C structure: Malibu Boats, Inc. is the sole managing member of Malibu Boats Holdings, LLC, while pre-IPO owners retain LLC units. The company says it operates and controls the LLC’s business and affairs, and therefore consolidates the LLC and records NCI for outside unitholders (2024 Form 10-K, Note 1, p. 70). Financial statements: At June 30, 2024, NCI was $4.7 million, down from $7.9 million, within total equity of $534.7 million. Of the fiscal-year net loss of $56.4 million, $0.5 million was attributed to NCI and $55.9 million to Malibu. The $2.74 loss per share reflects Malibu’s share. Ownership and exchanges: Malibu owned 98.4% of the LLC, while outside holders owned 1.6%, compared with 97.8% and 2.2%, respectively, a year earlier. Four holders exchanged units for Class A shares, shifting about $2.5 million from NCI to Malibu’s equity without a gain or loss. Units can be exchanged one-for-one for stock or, at Malibu’s option, for cash. Tax receivable agreement: Malibu pays pre-IPO owners 85% of tax savings generated by exchanges. The related liability was $40.6 million and was measured on an undiscounted basis under ASC 450. Malibu’s key judgments concern control, permanent-equity classification of NCI, and estimating the tax receivable agreement liability. These considerations arise from its Up-C structure, which is also used in energy IPOs. Assessment and implications for Sunbeam Malibu appears to meet the main NCI presentation and attribution requirements: it separately reports NCI in equity, allocates income and losses, reconciles NCI, treats exchanges as equity transactions, and excludes NCI income from EPS. Its unit counts, reconciliations, and explanation of the structure and related risks help readers understand the arrangement. The disclosed distributions also reconcile: $114,000 recorded plus a $776,000 opening payable equals $890,000 paid. Several disclosures could be clearer. The filing does not provide a stand-alone schedule of how ownership changes affected Malibu’s equity, as required by ASC 810-10-50-1A. Note 1 also does not specify whether the control conclusion is based on the voting-interest or VIE model. In addition, Note 3 reports a $2.516 million reallocation, while the equity statement reports $2.521 million of exchanges; the figures reconcile after a $5,000 currency translation adjustment. Finally, the $40.6 million tax receivable agreement liability is roughly nine times the NCI balance, but the notes do not clearly connect the liability to the ownership structure. For Sunbeam, outside partners can provide equity financing without increasing debt, but they also share in profits, and buyouts generally affect equity rather than earnings when control is retained. Related agreements, such as tax receivable agreements, can create substantial liabilities. In tax equity partnerships, income may be allocated using the HLBV method rather than ownership percentages, which can make NCI earnings volatile. Recommended next steps: Document the basis for Sunbeam’s control conclusion. Review redemption and settlement terms to determine whether NCI qualifies for permanent-equity classification. Provide a schedule of the effects of ownership changes on the parent’s equity. Explain any significant agreements and related liabilities alongside the NCI disclosures. Selected references Bahnson, P. R., McAllister, B. P., & Miller, P. B. W. (2008). “Noncontrolling interest: Much more than a name change.” Journal of Accountancy, 206(5), 46–54. Deloitte. (n.d.). Roadmap: Noncontrolling interests, Appendix A, U.S. GAAP and IFRS differences. Deloitte Accounting Research Tool. Deloitte. (2025, May). “FASB releases ASU on identifying the acquirer in a business combination.” Deloitte Accounting Research Tool. Journal of Accountancy. (2015, August 1). “Review finds FASB’s noncontrolling interests standard achieves purpose.” Journal of Accountancy. Malibu Boats, Inc. 2024 Form 10-K, filed August 29, 2024. U.S. Securities and Exchange Commission filing. PwC. (2024). “Life after an Up-C IPO: Navigating the financial reporting complexities.” PwC. Shobe, G. (2018). “Private benefits in public offerings: Tax receivable agreements in IPOs.” Vanderbilt Law Review, 71(3), 889. FASB Codification references are cited in the text, as required by the assignment.