The accompanying notes are an integral part of these consolidated
statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
statements.
The accompanying notes are an integral part of these consolidated
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying
unaudited condensed financial statements include the accounts of Marine Products Corporation and its wholly-owned subsidiaries
(“Marine Products” or the “Company”) and have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (all
of which consisted of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results
for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year
ending December 31, 2017.
The balance sheet
at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
For further information,
refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2016.
A group that includes
the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also a director of the Company,
and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.
|
|
2.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
Recently Adopted Accounting Pronouncements:
·
Accounting Standards Update (ASU) No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory.
Current requirements are to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximated normal profit margin. These amendments allow inventory to be measured at lower of cost or net realizable value and eliminates the market requirement. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted these provisions in the first quarter of 2017 on a prospective basis. The adoption of these provisions did not have a material impact on the Company’s consolidated financial statements.
·
ASU
No. 2016-09,
Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The
amendments simplify several aspects of the accounting for share-based payment award transactions, requiring excess tax benefits
and deficiencies to be recognized as a component of income tax expense rather than equity. This guidance also requires excess
tax benefits and deficiencies to be presented as an operating activity on the statement of cash flows and allows an entity to
make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. The Company will
continue to estimate expected forfeitures. The Company adopted these provisions in the first quarter of 2017 on a prospective
basis.
See Notes on Stock-Based Compensation and Income Taxes
for the effect of adoption on the financial statements.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Issued Accounting Pronouncements Not Yet Adopted:
To be adopted in 2018:
REVENUE RECOGNITION:
The Financial Accounting Standards Board and International Accounting
Standards Board issued their converged standard on revenue recognition in May 2014. The standard provides a comprehensive, industry-neutral
revenue recognition model intended to increase financial statement comparability across companies and industries and significantly
reduce the complexity inherent in today's revenue recognition guidance. The various ASUs related to
Revenue from Contracts with
Customers (Topic 606)
have been listed below:
·
ASU
No. 2014-09,
the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services using a five step process.
·
ASU
No. 2015-14,
deferred the effective date of ASU 2014-09 for all entities by one year to the first quarter of 2018 with early
application permitted.
·
ASU
No. 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
The amendments provide guidance
on whether an entity is a principal or agent when providing services to a customer along with another party.
·
ASU
No. 2016-10
, Identifying Performance Obligations and Licensing.
The amendments clarify the earlier guidance on identifying
performance obligations and licensing implementation.
·
ASU No. 2016-11
, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting.
This ASU rescinds certain SEC guidance related to issues that are currently codified under various topics
.
·
ASU
No. 2016-12
, Narrow-Scope Improvements and Practical Expedients.
The amendments provide clarifying guidance on certain
aspects of the five step process and practical expedients regarding the effect of modifications and status of completed contracts
under legacy GAAP and disclosures related to the application of this guidance using the modified retrospective or retrospective
transition method.
·
ASU
No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
The amendments
in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 and includes among others, loan guarantees, impairment
testing of contract costs, performance obligations disclosures and accrual of advertising costs.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Current Status of implementation:
The Company is currently analyzing
the effect of the standard
across all of its revenue streams to evaluate the impact of the
new standard on revenue contracts. This includes reviewing current accounting policies and practices to identify potential differences
that would result from applying the requirements under the new standard.
The Company currently recognizes revenue upon delivery
of products and the assessment at this stage is that the Company does not expect the adoption of the new revenue recognition standard
to have a material impact on its financial statements. As part of its preparation to adopt the standard, the Company established
an initial project governance framework, selected a working group and hired a third party service provider to assist with the evaluation.
The Company has completed a preliminary review of a representative sample of contracts with its customers and identified the variable
consideration provisions of the new guidance as potentially having the most impact on the Company’s method of recognizing
revenue.
In the next phases of solution development and implementation, the Company will prepare technical accounting memorandums,
draft new formal accounting policies, outline and refine required disclosures, identify new IT system requirements, as well as
assess the need for additional contract reviews to ensure a representative sample of how the Company
contracts with its customers has been chosen. The Company plans to adopt the standard in the first quarter of 2018 using the modified
retrospective method by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening
balance of retained earnings.
OTHER PRONOUNCEMENTS:
·
ASU
No. 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities.
The amendments make targeted improvements to existing U.S. GAAP and affects accounting for equity investments
and financial instruments and liabilities and related disclosures. The amendments are effective starting in the first quarter of
2018, with early adoption permitted for certain provisions. The Company is currently evaluating the impact of these provisions
on its consolidated financial statements.
·
ASU
No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
The amendments
provide guidance in the presentation and classification of certain cash receipts and cash payments in the statement of cash flows
including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds
from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions
received from equity method investees. The amendments are effective starting in the first quarter of 2018 with early adoption
permitted. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable
to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively
as of the earliest date practicable. The Company is currently evaluating the impact of adopting these provisions on its consolidated
financial statements.
·
ASU
No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
The amendments require
an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. Two common examples
of assets included in the scope of the amendments are intellectual property and property, plant, and equipment. The amendments
do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the
current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments are effective starting
in the first quarter of 2018 with early adoption permitted. The amendments are required to be applied on a modified retrospective
basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company
is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
·
ASU
No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
The amendments are intended
to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals)
of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The amendments provide a more robust framework to use in determining when a set of assets and activities is
a business. They also provide more consistency in applying the guidance, reduce the costs of application, and make the definition
of a business more operable. The amendments are effective beginning in the first quarter of 2018 with early application permitted
under certain circumstances. The Company expects to adopt these provisions as it completes future acquisitions and plans to evaluate
the impact of adoption on its consolidated financial statements as acquisitions are completed.
·
ASU
No. 2017-09 —
Compensation —Stock Compensation (Topic 718): Scope of Modification Accounting.
The provisions
are applicable when there are changes to the terms or conditions of a share-based payment award. The amendments require an entity
to apply modification accounting for the effects of changes to the terms and conditions of a share-based payment award unless
certain conditions including fair value, vesting conditions and classification are met. The amendments are effective beginning
in the first quarter of 2018 with early application permitted under certain circumstances. The Company is currently evaluating
the impact of adopting these provisions on its consolidated financial statements.
To be adopted in 2019 and later:
·
ASU
No. 2016-02 —
Leases (Topic 842).
Under the new guidance, lessees will need to recognize a right-of-use asset and
a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease), at the
commencement of the lease term. The liability will be equal to the present value of lease payments. The asset will be based on
the liability, subject to adjustment, such as for initial direct costs. The amendments in this standard are effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees
(for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective
transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in
the financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
·
ASU
No. 2016-13,
Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
The amendments require the credit losses on available-for-sale debt securities and purchased financial assets with credit
deterioration should presented as an allowance rather than a write-down. It also allows recording of credit loss reversals in
current period net income. The amendments are effective starting in the first quarter of 2020 with early application permitted
a year earlier. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
·
ASU
No. 2017-04
—Intangibles —Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
To
simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual,
or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An
impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments are
effective for annual or any interim goodwill impairment tests beginning in 2020 applied on a prospective basis. Early adoption
is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
·
ASU
No. 2017-08 —
Receivables —Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased
Callable Debt Securities.
The amendments shorten the amortization period for certain callable debt securities held at
a premium and requires the premium to be amortized to the earliest call date. However, the amendments do not require an accounting
change for securities held at a discount; the discount continues to be amortized to maturity. The amendments are effective starting
in the first quarter of 2019 with early application permitted. The amendments are to be applied on a modified retrospective basis
through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The entity
is required to provide disclosures about a change in accounting principle in the period of adoption. The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
Basic and diluted earnings per share are computed
by dividing net income by the weighted average number of shares outstanding during the respective periods. In addition, the Company
has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered
participating securities. Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted
average shares outstanding is as follows:
|
|
|
Three
months ended
September 30
|
|
|
Nine
months ended
September 30
|
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Net income available for stockholders:
|
|
$
|
4,564
|
|
|
$
|
4,284
|
|
|
$
|
15,944
|
|
|
$
|
13,023
|
|
|
Less: Adjustments for earnings attributable to participating securities
|
|
|
(136
|
)
|
|
|
(134
|
)
|
|
|
(498
|
)
|
|
|
(421
|
)
|
|
Net income used in calculating earnings per share
|
|
$
|
4,428
|
|
|
$
|
4,150
|
|
|
$
|
15,446
|
|
|
$
|
12,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (including participating securities)
|
|
|
34,829
|
|
|
|
38,355
|
|
|
|
34,898
|
|
|
|
38,339
|
|
|
Adjustment for participating securities
|
|
|
(1,056
|
)
|
|
|
(1,201
|
)
|
|
|
(1,101
|
)
|
|
|
(1,263
|
)
|
|
Shares used in calculating basic and diluted earnings per share
|
|
|
33,773
|
|
|
|
37,154
|
|
|
|
33,797
|
|
|
|
37,076
|
|
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
4.
|
STOCK-BASED COMPENSATION
|
The Company reserved 3,000,000 shares of common stock
under the 2014 Stock Incentive Plan with a term of ten years expiring in April 2024. All future equity compensation awards by the
Company will be issued under the 2014 plan. This plan provides for the issuance of various forms of stock incentives, including
among others, incentive and non-qualified stock options and restricted shares. As of September 30, 2017, there were approximately
2,054,200 shares available for grant.
Stock-based compensation for the three and nine months
ended September 30, 2017 and 2016 were as follows:
|
(in thousands)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Pre – tax cost
|
|
$
|
874
|
|
|
$
|
487
|
|
|
$
|
2,235
|
|
|
$
|
2,142
|
|
|
After tax cost
|
|
$
|
563
|
|
|
$
|
314
|
|
|
$
|
1,441
|
|
|
$
|
1,381
|
|
Restricted Stock
The following is a summary of the changes in non-vested
restricted shares for the nine months ended September 30, 2017:
|
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
Non-vested shares at December 31, 2016
|
|
|
1,200,900
|
|
|
$
|
6.58
|
|
|
Granted
|
|
|
202,400
|
|
|
|
13.39
|
|
|
Vested
|
|
|
(344,250
|
)
|
|
|
6.93
|
|
|
Forfeited
|
|
|
(7,350
|
)
|
|
|
8.62
|
|
|
Non-vested shares at September 30, 2017
|
|
|
1,051,700
|
|
|
|
7.76
|
|
The total fair value of shares vested was approximately
$4,182,680 during the nine months ended September 30, 2017 and $2,560,000 during the nine months ended September 30, 2016. Excess
tax benefits realized from tax compensation deductions in excess of compensation expense have been reflected as follows:
|
|
·
|
Approximately
$672,000
for the nine months ended September 30, 2017 has been recorded as a discrete income tax provision adjustment and classified
within
operating activities in the consolidated statements of cash flows; and
|
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
·
|
Approximately
$134,000 for the nine months ended September 30, 2016 were credited
to capital in excess of par value and classified within financing activities as an inflow in addition to being disclosed as an
outflow within operating activities in the consolidated statements of cash flows.
|
The change in classification beginning in the first
quarter of 2017 resulted from the adoption of the amendments in ASU 2016-09.
Other Information
As of September 30, 2017, total unrecognized compensation
cost related to non-vested restricted shares was approximately $6,906,000. This cost is expected to be recognized over a weighted-average
period of 3.5 years.
Marine Products’ marketable securities are held
with a large, well-capitalized financial institution. Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designations as of each balance sheet date. Debt securities are classified as available-for-sale
because the Company does not have the intent to hold the securities to maturity. Available-for-sale securities are stated at their
fair values, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity.
The cost of securities sold is based on the specific identification method. Realized gains and losses, declines in value judged
to be other than temporary, interest and dividends on available-for-sale securities are included in interest income.
The net realized gains and the reclassification of
net realized gains from other comprehensive income are as follows:
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Net realized gain
|
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
38
|
|
|
$
|
30
|
|
|
Reclassification of net realized gains from other comprehensive income
|
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
38
|
|
|
$
|
30
|
|
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Gross unrealized gains (losses) on marketable securities
are as follows:
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
Gross unrealized
|
|
|
Gross unrealized
|
|
|
(in thousands)
|
|
Gains
|
|
|
(Losses)
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Municipal Obligations
|
|
$
|
24
|
|
|
$
|
(3
|
)
|
|
$
|
4
|
|
|
$
|
(53
|
)
|
|
Corporate Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
24
|
|
|
$
|
(3
|
)
|
|
$
|
4
|
|
|
$
|
(53
|
)
|
The amortized cost basis, fair value and net unrealized
gains on the available-for-sale securities are as follows:
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
Type of Securities
|
|
Amortized
Cost Basis
|
|
|
Fair
Value
|
|
|
Net
Unrealized
Gains
|
|
|
Amortized
Cost Basis
|
|
|
Fair
Value
|
|
|
Net
Unrealized
Losses
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Obligations
|
|
$
|
13,485
|
|
|
$
|
13,506
|
|
|
$
|
21
|
|
|
$
|
9,379
|
|
|
$
|
9,330
|
|
|
$
|
(49
|
)
|
|
Corporate Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
13,485
|
|
|
$
|
13,506
|
|
|
$
|
21
|
|
|
$
|
9,379
|
|
|
$
|
9,330
|
|
|
$
|
(49
|
)
|
Municipal obligations consist primarily of municipal
notes rated AA- or higher ranging in maturity from less than one year to over 20 years. Investments with remaining maturities of
less than 12 months are considered to be current marketable securities. Investments with remaining maturities greater than 12 months
are considered to be non-current marketable securities. The Company’s non-current marketable securities are scheduled to
mature between 2018 and 2047.
|
|
6.
|
WARRANTY COSTS AND OTHER CONTINGENCIES
|
Warranty Costs
For our Chaparral products, Marine Products
provides a lifetime limited structural hull warranty, a five-year limited structural deck warranty, and a transferable
one-year limited warranty to the original owner. Warranties for additional items are provided for periods of one to five
years and are not transferrable. Additionally, as it relates to the first subsequent owner, a five-year transferrable hull
warranty and the remainder of the original one-year limited warranty on certain components are available. The five-year
transferable hull warranty terminates five years after the date of the original retail purchase. Claim costs related to
components are generally absorbed by the original component manufacturer.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For our Robalo products, Marine Products
provides a ten-year limited structural hull warranty and a transferable one-year limited warranty on certain components to
the original owner. Warranties on additional items are provided for periods of one to five years and are not transferrable.
Additionally, as it relates to the first subsequent owner, a five-year transferrable hull warranty and the remainder of the
original one-year limited warranty on certain components are available. The five-year transferable hull warranty terminates
five years after the date of the original retail purchase. Claim costs related to components are generally absorbed by the
original component manufacturer.
The manufacturers of the engines, generators, and
navigation electronics included on our boats provide and administer their own warranties for various lengths of time.
An analysis of the warranty accruals for the nine
months ended September 30, 2017 and 2016 is as follows:
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
Balance at beginning of period
|
|
$
|
4,629
|
|
|
$
|
3,405
|
|
|
Less: Payments made during the period
|
|
|
(2,013
|
)
|
|
|
(2,184
|
)
|
|
Add: Warranty provision for the period
|
|
|
2,561
|
|
|
|
2,357
|
|
|
Changes to warranty provision for prior periods
|
|
|
60
|
|
|
|
299
|
|
|
Balance at September 30
|
|
$
|
5,237
|
|
|
$
|
3,877
|
|
The warranty accruals are reflected
in accrued expenses and other liabilities on the consolidated balance sheets.
Repurchase Obligations
The Company is a party to various agreements with
third party lenders that provide floor plan financing to qualifying dealers whereby the Company guarantees varying amounts of debt
on boats in dealer inventory. The Company’s obligation under these guarantees becomes effective in the case of a default
under the financing arrangement between the dealer and the third party lender. The agreements provide for the return of repossessed
boats to the Company in new and unused condition subject to normal wear and tear as defined, in exchange for the Company’s
assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits
by the lenders. The Company had no material repurchases of inventory under contractual agreements during the three months ended
September 30, 2017 and September 30, 2016.
Management continues to monitor the risk of defaults
and resulting repurchase obligations based in part on information provided by third-party floor plan lenders and will adjust the
guarantee liability at the end of each reporting period based on information reasonably available at that time.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company currently has an agreement with one of
the floor plan lenders whereby the contractual repurchase limit is 16 percent of the amount of the average net receivables financed
by the floor plan lender for our dealers during the prior 12 month period, which was $11.7 million as of September 30, 2017. The
Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately
$5.3 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with
all floor plan financing institutions of approximately $17.0 million as of September 30, 2017.
|
|
7.
|
BUSINESS SEGMENT INFORMATION
|
The Company has only one reportable
segment, its powerboat manufacturing business; therefore, the majority of segment-related disclosures are not relevant to the Company.
In addition, the Company’s results of operations and its financial condition are not significantly reliant upon any single
customer or product model.
Inventories consist of the following:
|
(in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Raw materials and supplies
|
|
$
|
24,008
|
|
|
$
|
26,106
|
|
|
Work in process
|
|
|
7,950
|
|
|
|
9,007
|
|
|
Finished goods
|
|
|
9,484
|
|
|
|
7,375
|
|
|
Total inventories
|
|
$
|
41,442
|
|
|
$
|
42,488
|
|
The Company determines its periodic income tax provision
based upon the current period income and the annual estimated tax rate for the Company adjusted for discrete items including tax
credits and changes to prior year estimates. The estimated tax rate is revised, if necessary, as of the end of each successive
interim period during the fiscal year to the Company's current annual estimated tax rate.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Income tax provision for the third quarter of 2017
reflects an effective tax rate of 32.4 percent, compared to an effective tax rate of 23.3 percent for the comparable period in
the prior year. The effective rate in both periods includes the effect of beneficial permanent differences including tax-exempt
interest income and favorable U.S. manufacturing deductions. The Company adopted the amendments of ASU 2016-09 in the first quarter
of 2017 that requires excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than equity.
This resulted in a detrimental discrete adjustment of $130 thousand to the provision for income taxes in the third quarter of 2017.
The third quarter 2016 effective tax rate included certain beneficial discrete tax adjustments related to the implementation
of state tax planning strategies that provided for the increased use of previously suspended net operating losses.
|
|
10.
|
EMPLOYEE BENEFIT PLANS
|
The Company participates in a
multiple employer pension plan. The following represents the net periodic benefit (credit) cost and related components for the
plan:
|
(in thousands)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Interest cost
|
|
$
|
66
|
|
|
$
|
68
|
|
|
$
|
198
|
|
|
$
|
205
|
|
|
Expected return on plan assets
|
|
|
(103
|
)
|
|
|
(101
|
)
|
|
|
(310
|
)
|
|
|
(304
|
)
|
|
Amortization of net losses
|
|
|
22
|
|
|
|
21
|
|
|
|
68
|
|
|
|
63
|
|
|
Net periodic benefit
|
|
$
|
(15
|
)
|
|
$
|
(12
|
)
|
|
$
|
(44
|
)
|
|
$
|
(36
|
)
|
The Company did not make a contribution to this plan
during the nine months ended September 30, 2017.
The Company permits selected highly compensated
employees to defer a portion of their compensation into a non-qualified Supplemental Executive Retirement Plan
(“SERP”). The Company maintains certain securities in the SERP that have been classified as trading. The SERP
assets are marked to market and totaled $5,856,000 as of September 30, 2017 and $5,547,000 as of December 31, 2016. The SERP
assets are reported in other non-current assets on the consolidated balance sheets and changes to the fair value of the
assets are reported in selling, general and administrative expenses in the consolidated statements of operations. Trading
gains related to the SERP assets totaled approximately $300,000 during the nine months ended September 30, 2017, compared to
trading gains of $105,000 during the nine months ended September 30, 2016.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
11.
|
FAIR VALUE MEASUREMENTS
|
The various inputs used to measure assets at fair
value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s
assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:
1. Level
1 – Quoted market prices in active markets for identical assets or liabilities.
2. Level
2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or
can be corroborated by observable market data for substantially the full term of the assets or liabilities.
3. Level
3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants
would use.
The following table summarizes the valuation of financial
instruments measured at fair value on a recurring basis on the balance sheet as of September 30, 2017 and December 31, 2016:
|
|
|
Fair Value Measurements at September 30, 2017 with:
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
Quoted prices in
active markets
for
identical assets
|
|
|
Significant
other
observable
inputs
|
|
|
Significant
unobservable
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Obligations
|
|
$
|
13,506
|
|
|
$
|
—
|
|
|
$
|
13,506
|
|
|
$
|
—
|
|
|
Corporate Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
13,506
|
|
|
$
|
—
|
|
|
$
|
13,506
|
|
|
$
|
—
|
|
|
Investments measured at Net Asset Value - Trading securities
|
|
$
|
5,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016 with:
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
Quoted prices in
active markets
for
identical assets
|
|
|
Significant
other
observable
inputs
|
|
|
Significant
unobservable
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Obligations
|
|
$
|
9,330
|
|
|
$
|
—
|
|
|
$
|
9,330
|
|
|
$
|
—
|
|
|
Corporate Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
9,330
|
|
|
$
|
—
|
|
|
$
|
9,330
|
|
|
$
|
—
|
|
|
Investments measured at Net Asset Value - Trading securities
|
|
$
|
5,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company determines the fair value of marketable
securities classified as available-for-sale through quoted market prices. The total fair value is the final closing price, as defined
by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units
held without consideration of transaction costs. Marketable securities classified as trading are comprised of the SERP assets,
as described in Note 10, and are recorded primarily at their net cash surrender values, calculated using their net asset values,
which approximates fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to quoted
market prices, were used to value the trading securities. The Company’s policy is to recognize transfers between levels at
the beginning of quarterly reporting periods. For the period ended September 30, 2017, there were no significant transfers in or
out of levels 1, 2 or 3.
The carrying amount of other financial instruments
reported in the consolidated balance sheets for current assets and current liabilities approximate their fair values because of
the short-term nature of these instruments. The Company currently does not use the fair value option to measure any of its existing
financial instruments and has not determined whether or not it will elect this option for financial instruments it may acquire
in the future.
|
|
12.
|
ACCUMULATED OTHER COMPREHENSIVE
LOSS
|
Accumulated other comprehensive loss consists
of the following:
|
(in thousands)
|
|
Pension
Adjustment
|
|
|
Unrealized
Gain (Loss) On
Securities
|
|
|
Total
|
|
|
Balance at December 31, 2016
|
|
$
|
(2,151
|
)
|
|
$
|
(31
|
)
|
|
$
|
(2,182
|
)
|
|
Change during the period ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
|
_
|
|
|
|
108
|
|
|
|
108
|
|
|
Tax provision
|
|
|
_
|
|
|
|
(38
|
)
|
|
|
(38
|
)
|
|
Reclassification adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
|
44
|
|
|
|
-
|
|
|
|
44
|
|
|
Net realized gain
(2)
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
Total activity for the period
|
|
|
44
|
|
|
|
45
|
|
|
|
89
|
|
|
Balance at September 30, 2017
|
|
$
|
(2,107
|
)
|
|
$
|
14
|
|
|
$
|
(2,093
|
)
|
|
|
(1)
|
Reported as part of selling, general and administrative
expenses.
|
|
|
(2)
|
Reported as part of interest income.
|
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
(in thousands)
|
|
Pension
Adjustment
|
|
|
Unrealized
Gain (Loss) On
Securities
|
|
|
Total
|
|
|
Balance at December 31, 2015
|
|
$
|
(1,899
|
)
|
|
$
|
(2
|
)
|
|
$
|
(1,901
|
)
|
Change during the period
ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax amount
|
|
|
_
|
|
|
|
90
|
|
|
|
90
|
|
|
Tax provision
|
|
|
_
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
Reclassification adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
(1)
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
|
Net realized gain
(2)
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
Total activity for the period
|
|
|
41
|
|
|
|
39
|
|
|
|
80
|
|
|
Balance at September 30, 2016
|
|
$
|
(1,858
|
)
|
|
$
|
37
|
|
|
$
|
(1,821
|
)
|
|
|
(1)
|
Reported as part of selling, general and administrative expenses.
|
|
|
(2)
|
Reported as part of interest income.
|
On October 24, 2017, the Board of Directors approved a $0.07
per share cash dividend in addition to a special dividend of $0.05 per share both payable December 11, 2017 to stockholders of
record at the close of business November 10, 2017.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES