WARRANTY COSTS AND OTHER CONTINGENCIES

9 Months Ended

Sep. 30, 2014

WARRANTY COSTS AND OTHER CONTINGENCIES

6.	WARRANTY COSTS AND OTHER CONTINGENCIES

Warranty Costs

The Company warrants components of the boat, excluding the engine, against defects in materials and workmanship for a period of one year. Cockpit upholstery and canvas is warranted for three years. The Company also warrants the structural hull, including its transom and supporting stringer system, against defects in materials and workmanship for ten years. The structural deck is warranted for a period of five years to the original purchaser. An analysis of the warranty accruals for the nine months ended September 30, 2014 and 2013 is as follows:


(in thousands)	2014			2013
Balance at beginning of period	$	3,410		$	2,522
Less: Payments made during the period		(1,039	)		(1,232	)
Add: Warranty provision for the period		1,918			1,903
Changes to warranty provision for prior periods		(66	)		222
Balance at September 30	$	4,223		$	3,415

The warranty accruals are reflected in accrued expenses and other liabilities on the consolidated balance sheet.

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 expects to incur obligations for inventory repurchases totaling approximately $1.1 million in the fourth quarter of 2014 resulting from dealer defaults on floor plan financing. The Company recorded costs in connection with these repurchases of approximately $60 thousand during the third quarter of 2014 as a reduction to net sales. The Company had no material repurchases of inventory during the year ended December 31, 2013 or during the nine months ended September 30, 2014.

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.

The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is to not exceed 16 percent of the amount of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period, which was $8.1 million as of September 30, 2014. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $4.6 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 $12.7 million as of September 30, 2014.