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SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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Dec. 31, 2014
SIGNIFICANT ACCOUNTING POLICIES |
SIGNIFICANT ACCOUNTING POLICIES | NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation and Presentation — The consolidated financial statements include the accounts of Marine Products Corporation (a Delaware corporation) and its wholly owned subsidiaries (“Marine Products” or the “Company”). Marine Products, through Chaparral Boats, Inc. (“Chaparral”) and Robalo Acquisition Company LLC (“Robalo”), operates as a manufacturer of fiberglass powerboats and related products and services to a broad range of consumers worldwide. The consolidated financial statements included herein may not necessarily be indicative of the future results of operations, financial position and cash flows of Marine Products. The Company has only one reportable segment — its Powerboat Manufacturing business. The Company’s results of operations and its financial condition are not significantly reliant upon any single customer or product model. No single dealer accounted for more than 10 percent of net sales during 2014, 2013 or 2012. Net sales to the Company’s international dealers were approximately $26 million in 2014, $29 million in 2013, and $30 million in 2012. Nature of Operations — Marine Products is principally engaged in manufacturing powerboats and providing related products and services. Marine Products distributes fiberglass recreational boats through a network of domestic and international independent dealers. Common Stock — Marine Products is authorized to issue 74,000,000 shares of common stock, $0.10 par value. Holders of common stock are entitled to receive dividends when, as, and if declared by our Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders. Preferred Stock — Marine Products is authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value. As of December 31, 2014, there were no shares of preferred stock issued. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of preferred stock as a class without series or, if so determined from time to time, in one or more series, and by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations, powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any preferred stock to be issued could rank prior to the common stock with respect to dividend rights and rights on liquidation. Share Repurchases — The Company records the cost of share repurchases in stockholders’ equity as a reduction to common stock to the extent of par value of the shares acquired and the remainder is allocated to capital in excess of par value or retained earnings if capital in excess of par value has been depleted. Dividend — On January 27, 2015, the Board of Directors approved a quarterly dividend of $0.04 per common share payable March 10, 2015 to stockholders of record at the close of business on February 10, 2015. Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are used in the determination of sales incentives and discounts, warranty costs, and income taxes. Sales Recognition — Marine Products recognizes sales when a fully executed agreement exists, prices are established, products are delivered to the dealer in the case of domestic dealers and collectability is reasonably assured. See “Deferred Revenue” below for recognition of sales to international dealers. Deferred Revenue — Marine Products requires payment from international dealers, other than Canada, prior to shipment of products to these dealers. Amounts received from international dealers toward the purchase of boats are classified as deferred revenue and recognized as sales when the products are shipped. Shipping and Handling Charges — The shipping and handling of the Company’s products to dealers is handled through a combination of third-party marine transporters and a company owned fleet of delivery trucks. Fees charged to customers for shipping and handling are included in net sales in the accompanying consolidated statements of operations and the related costs incurred by the Company are included in cost of goods sold. Advertising — Advertising expenses are charged to expense during the period in which they are incurred. Expenses associated with product brochures and other inventoriable marketing materials are deferred and amortized over the related model year which approximates the consumption of these materials. As of December 31, 2014 and 2013 the Company had approximately $303,000 and $264,000 in prepaid expenses related to unamortized product brochure costs. Advertising expenses totaled approximately $2,291,000 in 2014, $2,113,000 in 2013 and $2,000,000 in 2012 and are recorded in selling, general and administrative expenses. Sales Incentives and Discounts — Sales incentives including dealer discounts and retail sales promotions are provided for and recorded as a reduction of sales or as a cost of sales as appropriate. The Company records the estimated cost of these incentives at the later of the recognition of the related sales or the announcement of a promotional program. Cash and Cash Equivalents — Highly liquid investments with original maturities of three months or less when acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts, which at times, may exceed federally insured limits. Marketable Securities — Marine Products maintains investments at a large, well-capitalized financial institution. Marine Products’ investment policy does not allow investment in any securities rated less than “investment grade” by national rating services. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates 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 taxes, 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. Net realized gains on marketable securities totaled $57,000 in 2014, $61,000 in 2013, and $290,000 in 2012. Of the total gains realized, reclassification from other comprehensive income totaled approximately $57,000 in 2014, $61,000 in 2013, and $290,000 in 2012. Gross unrealized gains on marketable securities totaled $122,000 as of December 31, 2014 and $229,000 as of December 31, 2013. Gross unrealized losses on marketable securities totaled $37,000 as of December 31, 2014 and $16,000 as of December 31, 2013. The amortized cost basis, fair value and net unrealized gains of the available-for-sale securities are as follows:
December 31, | 2014 |  | 2013 |
Type of Securities | Amortized Cost Basis |  | Fair Value |  | Net Unrealized Gain |  | Amortized Cost Basis |  | Fair Value |  | Net Unrealized Gain |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal Obligations |  | $ | 31,990 |  |  | $ | 32,080 |  |  | $ | 90 |  |  | $ | 35,925 |  |  | $ | 36,132 |  |  | $ | 207 |
Corporate Obligations |  |  | 5,409 |  |  |  | 5,404 |  |  |  | (5 | ) |  |  | 450 |  |  |  | 456 |  |  |  | 6 |
Total |  | $ | 37,399 |  |  | $ | 37,484 |  |  | $ | 85 |  |  | $ | 36,375 |  |  | $ | 36,588 |  |  | $ | 213 |
Municipal debt obligations consist primarily of municipal notes rated A- or higher ranging in maturity from less than one year to over 10 years. Corporate obligations consist primarily of debentures and notes issued by other companies ranging in maturity from one to five years. These securities are rated A- or higher. 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 as of December 31, 2014 are scheduled to mature between 2016 and 2037. Accounts Receivable — The majority of the Company’s accounts receivable are due from dealers located in markets throughout the United States. Approximately 59 percent of Marine Products’ domestic shipments are made pursuant to “floor plan financing” programs in which Marine Products’ subsidiaries participate on behalf of their dealers with various major third-party financing institutions. Under these arrangements, a dealer establishes lines of credit with one or more of these third-party lenders for the purchase of boat inventory for sales to retail customers in their show room or during boat show exhibitions. When a dealer purchases and takes delivery of a boat pursuant to a floor plan financing arrangement, it draws against its line of credit and the lender pays the invoice cost of the boat directly to Marine Products within approximately ten business days. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance. Inventories — Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market value. Market value is determined based on replacement cost for raw materials and net realizable value for work in process and finished goods. Property, Plant and Equipment — Property, plant and equipment is carried at cost. Depreciation is provided principally on a straight-line basis over the estimated useful lives of the assets. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal with the resulting gain or loss credited or charged to income. Expenditures for additions, major renewals, and betterments are capitalized while expenditures for routine maintenance and repairs are expensed as incurred. Depreciation expense on operating equipment used in production is included in cost of goods sold in the accompanying consolidated statements of operations. All other depreciation is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. Property, plant and equipment are reviewed for impairment when indicators of impairment exist. Goodwill and Other Intangibles — Intangibles consist primarily of goodwill and trade names related to businesses acquired. Goodwill represents the excess of the purchase price over the fair value of net assets of businesses acquired. The carrying amount of goodwill was $3,308,000 as of December 31, 2014 and 2013. The Company evaluates whether goodwill is impaired by comparing its market capitalization based on its closing stock price (Level 1 input) to the book value of its equity on the annual evaluation date. Based on this evaluation, the Company concluded that no impairment of its goodwill has occurred for the years ended December 31, 2014, 2013 and 2012. Investments — The Company maintains certain securities in the non-qualified Supplemental Executive Retirement Plan that have been classified as trading. See Note 10 for further information regarding these securities. Warranty Costs — The Company warrants the entire boat, excluding the engine, against defects in materials and workmanship for a period of one year. The Company also warrants the entire deck and hull, including its bulkhead and supporting stringer system, against defects in materials and workmanship for periods extending up to a lifetime. The Company accrues for estimated future warranty costs at the time of the sale based on its historical claims experience. An analysis of the warranty accruals for the years ended December 31, 2014 and 2013 is as follows:
(in thousands) |  | 2014 |  |  | 2013 |
Balance at beginning of year |  | $ | 3,410 |  |  | $ | 2,522 |
Less: Payments made during the year |  |  | (1,551 | ) |  |  | (1,558 | )
Add: Warranty provision for the current year |  |  | 1,863 |  |  |  | 2,511 |
Changes to warranty provision for prior years |  |  | 114 |  |  |  | (65 | )
Balance at end of year |  | $ | 3,836 |  |  | $ | 3,410 |
Insurance Accruals — The Company fully insures its risks related to general liability, product liability, workers’ compensation, and vehicle liability, whereas the health insurance plan is self-funded up to a maximum annual claim amount for each covered employee and related dependents. The estimated cost of claims under the self-insurance program is accrued as the claims are incurred and may subsequently be revised based on developments relating to such claims. Research and Development Costs — The Company expenses research and development costs for new products and components as incurred. Research and development costs are included in selling, general and administrative expenses and totaled $743,000 in 2014, $1,069,000 in 2013, and $768,000 in 2012. Repurchase Obligations — The Company has entered into agreements with third-party floor plan lenders where it has agreed, in the event of default by the dealer, to repurchase MPC boats repossessed from the dealer. These arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the boats repurchased. The Company accrues estimated losses when a loss, due primarily to the default of one of our dealers, is determined to be probable and the amount of the loss is reasonably estimable. Income Taxes — Deferred tax liabilities and assets are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets if the Company concludes that it is more likely than not that the asset will not be realized through future taxable income. Stock-Based Compensation — Stock-based compensation expense is recognized for all share-based payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for additional information. Earnings per Share —Financial Accounting Standards Board (FASB) Auditing Standards Codification (ASC) Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share presentation. See Note 10 for further information on restricted stock granted to employees. Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the respective periods. The basic and diluted calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares included in diluted earnings per share, but excluded from basic earnings per share. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities. A reconciliation of weighted average shares outstanding along with the earnings per share attributable to restricted shares of common stock (participating securities) is as follows:
(In thousands except per share data) |  | 2014 |  |  | 2013 |  |  | 2012 |
Net income available for stockholders: |  | $ | 8,914 |  |  | $ | 7,528 |  |  | $ | 6,979 |
Less: Dividends paid |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  |  | (5,911 | ) |  |  | (5,525 | ) |  |  | (23,135 | )
Restricted shares of common stock |  |  | (191 | ) |  |  | (180 | ) |  |  | (677 | )
Undistributed earnings (loss) |  | $ | 2,812 |  |  | $ | 1,823 |  |  | $ | (16,833 | )
Allocation of undistributed earnings (loss): |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  | $ | 2,720 |  |  | $ | 1,762 |  |  | $ | (16,329 | )
Restricted shares of common stock |  |  | 92 |  |  |  | 61 |  |  |  | (504 | )
Basic shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  |  | 35,691 |  |  |  | 35,556 |  |  |  | 35,530 |
Restricted shares of common stock |  |  | 1,246 |  |  |  | 1,264 |  |  |  | 1,126 |
|  |  | 36,937 |  |  |  | 36,820 |  |  |  | 36,656 |
Diluted shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock |  |  | 35,691 |  |  |  | 35,556 |  |  |  | 35,530 |
Dilutive effect of options |  |  | 291 |  |  |  | 324 |  |  |  | 148 |
|  |  | 35,982 |  |  |  | 35,880 |  |  |  | 35,678 |
Restricted shares of common stock |  |  | 1,246 |  |  |  | 1,264 |  |  |  | 1,126 |
|  |  | 37,228 |  |  |  | 37,144 |  |  |  | 36,804 |
Basic earnings per share: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock: |  |  |  |  |  |  |  |  |  |  |  |
Distributed earnings |  | $ | 0.16 |  |  | $ | 0.15 |  |  | $ | 0.65 |
Undistributed earnings (loss) |  |  | 0.08 |  |  |  | 0.05 |  |  |  | (0.46 | )
|  | $ | 0.24 |  |  | $ | 0.20 |  |  | $ | 0.19 |
Restricted shares of common stock: |  |  |  |  |  |  |  |  |  |  |  |
Distributed earnings |  | $ | 0.15 |  |  | $ | 0.14 |  |  | $ | 0.60 |
Undistributed earnings (loss) |  |  | 0.08 |  |  |  | 0.05 |  |  |  | (0.45 | )
|  | $ | 0.23 |  |  | $ | 0.19 |  |  | $ | 0.15 |
Diluted earnings per share: |  |  |  |  |  |  |  |  |  |  |  |
Common Stock: |  |  |  |  |  |  |  |  |  |  |  |
Distributed earnings |  | $ | 0.16 |  |  | $ | 0.15 |  |  | $ | 0.65 |
Undistributed earnings (loss) |  |  | 0.08 |  |  |  | 0.05 |  |  |  | (0.46 | )
|  | $ | 0.24 |  |  | $ | 0.20 |  |  | $ | 0.19 |
Fair Value of Financial Instruments — The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and marketable securities. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short-term nature of such instruments. The Company’s marketable securities are classified as available-for-sale securities with the exception of investments held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) which are classified as trading securities. All of these securities are carried at fair value in the accompanying consolidated balance sheets. See Note 8 for further information regarding the fair value measurement of assets and liabilities. Concentration of Suppliers — The Company purchases a significant number of its sterndrive engines from only two available suppliers. This concentration of suppliers could impact our sales and profitability in the event of a sudden interruption in the delivery of these engines. Recent Accounting Pronouncements During the year ended December 31, 2014, the FASB issued the following Accounting Standards Updates (ASU): Recently Adopted Accounting Pronouncements:
· | Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this ASU requires an unrecognized tax benefit, or a portion of thereof, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward. The only exception would be if the deferred taxes related to these items are not available to settle any additional income taxes that would result from the disallowance of a tax position either by statute or at the entity’s choosing. In such cases, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The Company adopted these provisions in the first quarter of 2014 with no material impact.
Recently Issued Accounting Pronouncements Not Yet Adopted:
· | Accounting Standards Update No. 2015-01, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, then the extraordinary item needs to be segregated from the results of ordinary operations and disclosed separately in the income statement, net of tax, after income from continuing operations Disclosure of all applicable income taxes and presentation or disclosure of earnings-per-share data applicable to the extraordinary item is required. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company plans to adopt the provisions for the year ending December 31, 2016 and currently does not expect the adoption to have a material impact on its consolidated financial statements.
· | Accounting Standards Update No. 2014-15, Presentation of Financial Statements —Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The provisions in this ASU are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Currently, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. This going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. This ASU provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern and the related footnote disclosures. The amendments are effective for the year ending December 31, 2016, and for interim periods beginning the first quarter of 2017, with early application permitted. The Company plans to adopt the provisions for the year ending December 31, 2016 and will provide such disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue as a going concern. The Company currently does not expect the adoption to have a material impact on its consolidated financial statements.
· | Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). 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. To achieve that core principle, an entity should apply a five step process – (i) identifying the contract(s) with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. The Company plans to adopt these provisions in the first quarter of 2017 and is currently evaluating the impact of these provisions on its financial statements. Early adoption is not permitted.
· | Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU require that only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective in the first quarter of 2015 with early adoption permitted. The Company plans to adopt these provisions in the first quarter of 2015 and does not expect the adoption to have a material impact on the Company’s consolidated financial statements.

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