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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

Commission File No. 1-16263

MARINE PRODUCTS CORPORATION

(exact name of registrant as specified in its charter)

Delaware

58-2572419

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

2801 Buford Highway, Suite 300, Atlanta, Georgia 30329

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code -- (404) 321-7910

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol(s)

    

Name of each exchange on which registered:

Common stock, par value $0.10

 

MPX

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of October 20, 2023, Marine Products Corporation had 34,466,726 shares of common stock outstanding.

Marine Products Corporation

Table of Contents

Page
No.

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets – As of September 30, 2023 and December 31, 2022

3

Consolidated Statements of Operations – for the three and nine months ended September 30, 2023 and 2022

4

Consolidated Statements of Comprehensive Income – for the three and nine months ended September 30, 2023 and 2022

5

Consolidated Statements of Stockholders’ Equity – for the three and nine months ended September 30, 2023 and 2022

6

Consolidated Statements of Cash Flows – for the nine months ended September 30, 2023 and 2022

8

Notes to Consolidated Financial Statements

9 - 17

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18 - 25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

Part II. Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

27

Item 3.

Defaults upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

28

Signatures

29

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

(In thousands)

    

September 30, 

    

December 31, 

 

    

2023

2022

 

ASSETS

 

(Unaudited)

 

(Note 1)

Cash and cash equivalents

$

60,705

$

43,171

Accounts receivable, net of allowance for credit losses of $11 in 2023 and $12 in 2022

 

10,743

 

5,340

Inventories

 

69,784

 

73,015

Income taxes receivable

 

199

 

28

Pension plan assets

113

356

Prepaid expenses and other current assets

 

3,671

 

3,088

Total current assets

 

145,215

 

124,998

Property, plant and equipment, net of accumulated depreciation of $32,450 in 2023 and $33,055 in 2022

 

21,356

 

14,965

Goodwill

 

3,308

 

3,308

Other intangibles, net

 

465

 

465

Deferred income taxes

 

7,833

 

6,027

Other assets

 

18,556

 

13,952

Total assets

$

196,733

$

163,715

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Accounts payable

$

12,066

$

8,250

Accrued expenses and other liabilities

16,218

 

15,340

Total current liabilities

28,284

 

23,590

Retirement plan liabilities

16,714

 

14,440

Other long-term liabilities

1,622

 

1,304

Total liabilities

46,620

 

39,334

Commitments and contingencies (Note 15)

Stockholders’ Equity

Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued

Common stock, $0.10 par value, 74,000,000 shares authorized, issued and outstanding34,466,726 shares in 2023 and 34,217,582 shares in 2022

3,447

 

3,422

Capital in excess of par value

Retained earnings

146,678

 

122,954

Accumulated other comprehensive loss

(12)

 

(1,995)

Total stockholders’ equity

150,113

 

124,381

Total liabilities and stockholders’ equity

$

196,733

$

163,715

The accompanying notes are an integral part of these consolidated financial statements.

3

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands except per share data)

(Unaudited)

    

Three months ended September 30, 

Nine months ended September 30, 

    

2023

    

2022

    

2023

    

2022

    

Net sales

$

77,786

$

100,061

$

312,858

$

272,486

Cost of goods sold

 

58,548

 

75,056

 

235,942

 

206,089

Gross profit

 

19,238

 

25,005

 

76,916

 

66,397

Selling, general and administrative expenses

 

8,789

 

10,326

 

35,495

 

29,449

Gain on disposition of assets, net

(1,962)

(1,962)

Operating income

 

12,411

 

14,679

 

43,383

 

36,948

Interest income, net

 

860

 

76

 

2,066

 

52

Income before income taxes

 

13,271

 

14,755

 

45,449

 

37,000

Income tax provision

 

2,868

 

3,283

 

9,176

 

8,510

Net income

$

10,403

$

11,472

$

36,273

$

28,490

Earnings per share

 

 

 

 

Basic

$

0.30

$

0.34

$

1.05

$

0.83

Diluted

$

0.30

$

0.34

$

1.05

$

0.83

Dividends paid per share

$

0.14

$

0.12

$

0.42

$

0.36

The accompanying notes are an integral part of these consolidated financial statements.

4

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands)

(Unaudited)

Three months ended September 30, 

Nine months ended September 30, 

    

2023

    

2022

    

2023

    

2022

    

Net income

$

10,403

$

11,472

$

36,273

$

28,490

Other comprehensive income, net of taxes:

Pension adjustment

 

 

23

 

1,983

 

67

Comprehensive income

$

10,403

$

11,495

$

38,256

$

28,557

The accompanying notes are an integral part of these consolidated financial statements.

5

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands)

(Unaudited)

Nine Months Ended September 30, 2023

Accumulated

Capital in

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

Loss

    

Total

Balance, December 31, 2022

 

34,218

$

3,422

$

$

122,954

$

(1,995)

$

124,381

Stock issued for stock incentive plans, net

 

289

 

29

 

748

 

 

 

777

Stock purchased and retired

 

(69)

 

(7)

 

(748)

 

(155)

 

 

(910)

Net income

 

 

 

 

11,549

 

 

11,549

Pension adjustment, net of taxes

 

 

 

 

 

1,886

 

1,886

Dividends paid

 

 

 

 

(4,817)

 

 

(4,817)

Balance, March 31, 2023

34,438

3,444

129,531

(109)

132,866

Stock issued for stock incentive plans, net

29

3

1,230

1,233

Stock purchased and retired

(1,230)

1,230

Net income

14,321

14,321

Pension adjustment, net of taxes

97

97

Dividends paid

(4,820)

(4,820)

Balance, June 30, 2023

34,467

3,447

140,262

(12)

143,697

Stock issued for stock incentive plans, net

834

834

Stock purchased and retired

(834)

834

Net income

10,403

10,403

Dividends paid

(4,821)

(4,821)

Balance, September 30, 2023

34,467

$

3,447

$

$

146,678

$

(12)

$

150,113

6

Nine Months Ended September 30, 2022

Accumulated

Capital in

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

Loss

    

Total

Balance, December 31, 2021

 

33,993

$

3,399

$

$

97,702

$

(2,576)

$

98,525

Stock issued for stock incentive plans, net

 

211

 

21

 

589

 

 

 

610

Stock purchased and retired

 

(60)

 

(6)

 

(589)

 

(107)

 

 

(702)

Net income

 

 

 

 

7,063

 

 

7,063

Pension adjustment, net of taxes

 

 

 

 

 

22

 

22

Dividends paid

 

 

 

 

(4,095)

 

 

(4,095)

Balance, March 31, 2022

34,144

3,414

100,563

(2,554)

101,423

Stock issued for stock incentive plans, net

94

10

810

820

Stock purchased and retired

(810)

810

Net income

9,955

9,955

Pension adjustment, net of taxes

22

22

Dividends paid

(4,096)

(4,096)

Balance, June 30, 2022

34,238

3,424

107,232

(2,532)

108,124

Stock issued for stock incentive plans, net

(20)

(2)

680

678

Stock purchased and retired

(680)

680

Net income

11,472

11,472

Pension adjustment, net of taxes

23

23

Dividends paid

(4,104)

(4,104)

Balance, September 30, 2022

34,218

$

3,422

$

$

115,280

$

(2,509)

$

116,193

The accompanying notes are an integral part of these consolidated financial statements.

7

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands)

(Unaudited)

Nine months ended September 30, 

    

2023

    

2022

OPERATING ACTIVITIES

 

  

 

 

Net income

$

36,273

$

28,490

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

Depreciation and amortization

 

1,750

 

1,416

Stock-based compensation expense

 

2,844

 

2,108

Gain on disposition of assets, net

(1,962)

Deferred income tax benefit

(2,366)

(1,146)

Pension settlement loss

2,277

(Increase) decrease in assets:

 

 

Accounts receivable

 

(5,403)

 

(8,230)

Income taxes receivable

 

(171)

 

(88)

Inventories

 

3,231

 

(9,551)

Current pension assets

509

Prepaid expenses and other current assets

 

514

 

(64)

Other non-current assets

 

(4,477)

 

3,039

Increase (decrease) in liabilities:

 

 

Accounts payable

 

3,816

7,870

Income taxes payable

755

573

Accrued expenses and other liabilities

97

4,202

Other long-term liabilities

2,491

(1,491)

Net cash provided by operating activities

 

40,178

 

27,128

 

 

INVESTING ACTIVITIES

Capital expenditures

 

(8,405)

 

(1,373)

Proceeds from sale of assets

 

1,129

 

Net cash used for investing activities

 

(7,276)

 

(1,373)

FINANCING ACTIVITIES

 

  

 

Payment of dividends

(14,458)

 

(12,295)

Cash paid for common stock purchased and retired

(910)

 

(702)

Net cash used for financing activities

(15,368)

 

(12,997)

Net increase in cash and cash equivalents

 

17,534

 

12,758

Cash and cash equivalents at beginning of period

 

43,171

 

14,102

Cash and cash equivalents at end of period

$

60,705

$

26,860

Supplemental information:

Income tax payments, net

$

10,736

$

8,782

The accompanying notes are an integral part of these consolidated financial statements.

8

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    GENERAL

The accompanying unaudited consolidated financial statements 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 nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The Consolidated Balance Sheet at December 31, 2022 has been derived from the audited consolidated 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 annual report of Marine Products Corporation (“Marine Products,” the “Company” or “MPC”) on Form 10-K for the year ended December 31, 2022.

A group that includes Gary W. Rollins, Pamela R. Rollins, Amy Rollins Kreisler and Timothy C. Rollins, each of whom is a director of the Company, controls in excess of fifty percent of the Company’s voting power.

2.    RECENT ACCOUNTING STANDARDS

The FASB issued the following Accounting Standards Updates (ASUs):

Recently Adopted Accounting Standards:

ASU No. 2021-08 — Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU address diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination, by adopting guidance requiring an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer would recognize and measure the acquired contract assets and contract liabilities in the same manner that they were recognized and measured in the acquiree's financial statements before the acquisition. The Company adopted these provisions in the first quarter of 2023 prospectively to future business combinations and the adoption did not have a material impact on its consolidated financial statements.

3.    NET SALES

Accounting Policy:

MPC’s contract revenues are generated principally from selling: (1) fiberglass motorized boats and accessories and (2) parts to independent dealers. Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. Satisfaction of contract terms occurs with the transfer of title of our boats and accessories and parts to our dealers. Net sales are measured as the amount of consideration we expect to receive in exchange for transferring the goods to the dealer. The amount of consideration we expect to receive consists of the sales price adjusted for dealer incentives. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold as they are deemed to be assurance-type warranties (see Note 6). Incidental promotional items that are immaterial in the context of the contract are recognized as expense. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Nature of goods:

MPC’s performance obligations within its contracts consist of: (1) boats and accessories and (2) parts. The Company transfers control and recognizes revenue on the satisfaction of its performance obligations (point in time) as follows:

Boats and accessories (domestic sales) – upon delivery and acceptance by the dealer
Boats and accessories (international sales) – upon delivery to shipping port
Parts – upon shipment/delivery to carrier

Payment terms:

For most domestic customers, MPC manufactures and delivers boats and accessories and parts ahead of payment - i.e., MPC has fulfilled its performance obligations prior to submitting an invoice to the dealer. MPC invoices the customer when the products are delivered and typically receives the payment within seven to ten business days after invoicing. For some domestic customers and all international customers, MPC requires payment prior to transferring control of the goods. These amounts are classified as deferred revenue and recognized when control has transferred, which generally occurs within three months of receiving the payment.

When the Company enters into contracts with its customers, it generally expects there to be no significant timing difference between the date the goods have been delivered to the customer (satisfaction of the performance obligation) and the date cash consideration is received. Accordingly, there is no financing component to the Company’s arrangements with its customers.

Significant judgments:

Determining the transaction price

The transaction price for MPC’s boats and accessories is the invoice price adjusted for dealer incentives. Key inputs and assumptions in determining variable consideration related to dealer incentives include:

Inputs: Current model year boat sales, total potential program incentive percentage, prior model year results of dealer incentive activity (i.e., incentive earned as a percentage of total incentive potential).
Assumption: Current model year incentive activity will closely reflect prior model year actual results, adjusted as necessary for dealer purchasing trends or economic factors.

Other:

Our contracts with dealers do not provide them with a right of return. Accordingly, we do not have any obligations recorded for returns or refunds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Disaggregation of revenues:

The following table disaggregates our sales by major source:

Three months ended

Nine months ended

(in thousands)

    

September 30, 2023

    

September 30, 2022

    

September 30, 2023

    

September 30, 2022

    

Boats and accessories

$

76,155

$

98,687

$

308,436

$

268,358

Parts

 

1,631

 

1,374

 

4,422

 

4,128

Net sales

$

77,786

$

100,061

$

312,858

$

272,486

The following table disaggregates our revenues between domestic and international:

Three months ended

Nine months ended

(in thousands)

    

September 30, 2023

    

September 30, 2022

    

September 30, 2023

    

September 30, 2022

    

Domestic

$

73,227

$

94,894

$

292,298

$

255,435

International

 

4,559

 

5,167

 

20,560

 

17,051

Net sales

$

77,786

$

100,061

$

312,858

$

272,486

Contract balances:

Amounts received from international and certain domestic dealers toward the purchase of boats are classified as deferred revenue and are included in Accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

September 30, 

    

December 31, 

(in thousands)

    

2023

2022

    

Deferred revenue

$

1,212

$

1,989

Substantially all of the amounts of deferred revenue disclosed above were or will be recognized as sales during the immediately following quarters, respectively, when control is transferred.

4.    EARNINGS PER SHARE

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

Nine months ended

September 30, 

September 30, 

(in thousands)

    

2023

    

2022

    

2023

    

2022

Net income available for stockholders:

$

10,403

$

11,472

$

36,273

$

28,490

Less: Adjustments for earnings attributable to participating securities

 

(249)

 

(254)

 

(866)

 

(602)

Net income used in calculating earnings per share

$

10,154

$

11,218

$

35,407

$

27,888

Weighted average shares outstanding (including participating securities)

 

34,467

 

34,225

 

34,435

 

34,172

Adjustment for participating securities

 

(839)

 

(768)

 

(833)

 

(737)

Shares used in calculating basic and diluted earnings per share

 

33,628

 

33,457

 

33,602

 

33,435

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.    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. 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, 2023, there were approximately 777,199 shares available for grant.

In the first quarter of 2023, the Company issued time-lapse restricted shares to certain employees that will vest ratably over a period of four years. In addition, the Company granted performance share unit awards to its executive officers that vest based on the achievement of pre-established performance targets. The awards will be issued at different levels based on the performance achieved with a cliff vesting at the end of calendar year 2025. The Company evaluated the portions of the awards that are probable to vest and accordingly has accrued estimated compensation expense equal to 100 percent of the target awards.

Stock-based compensation was as follows:

Three months ended September 30, 

Nine months ended September 30, 

(in thousands)

    

2023

    

2022

    

2023

    

2022

Pre – tax cost

$

834

$

678

$

2,844

$

2,108

After tax cost

650

529

2,218

1,644

The following is a summary of the changes in non-vested restricted shares for the nine months ended September 30, 2023:

Weighted

Average

Grant-Date

    

Shares

    

Fair Value

Non-vested shares at December 31, 2022

 

764,170

$

14.15

Granted

 

318,348

 

13.25

Vested

 

(243,468)

 

14.16

Non-vested shares at September 30, 2023

 

839,050

$

13.81

The total fair value of shares vested was approximately $3,220,000 during the nine months ended September 30, 2023 and approximately $2,241,000 during the nine months ended September 30, 2022. The above table does not include any of the activity related to performance share unit awards since they are not currently issued or vested.

For the nine months ended September 30, 2023, approximately $30,000 of excess tax benefit for stock-based compensation awards was recorded as a discrete tax adjustment and classified within Net cash provided by operating activities in the accompanying Consolidated Statements of Cash Flows compared to approximately $44,000 for the nine months ended September 30, 2022.

6.    WARRANTY COSTS

Warranty Costs:

For its Chaparral and Robalo products, Marine Products provides a lifetime limited structural hull warranty and a transferable one-year limited warranty to the original owner. Chaparral also includes a five-year limited structural deck warranty. Warranties for additional items are provided for periods of one to five years and are not transferrable. Additionally, as it relates to the second subsequent owner, a five-year transferrable hull warranty and the remainder of the original one-year limited warranty on certain

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2023 and 2022 is as follows:

(in thousands)

    

2023

    

2022

Balance at January 1

$

5,699

$

4,641

Less: Payments made during the period

 

(3,316)

 

(3,600)

Add: Warranty provision for the period

 

4,704

 

3,950

Changes to warranty provision for prior periods

 

156

 

145

Balance at September 30

$

7,243

$

5,136

The warranty accruals are reflected in Accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

7.    BUSINESS SEGMENT INFORMATION

The Company has 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.

8.    INVENTORIES

Inventories consist of the following:

    

September 30, 

    

December 31, 

 

2023

2022

(in thousands)

Raw materials and supplies

$

44,983

$

37,210

Work in process

 

11,168

 

14,190

Finished goods

 

13,633

 

21,615

Total inventories

$

69,784

$

73,015

9.  INCOME TAXES

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 adjusted, if necessary, as of the end of each successive interim period during the fiscal year to the Company’s current annual estimated tax rate.

Income tax provision for the third quarter of 2023 reflects an effective tax rate of 21.6 percent compared to 22.3 percent for the comparable period in the prior year. For the nine months ended September 30, 2023 the income tax provision reflects an effective tax rate of 20.2 percent compared to 23.0 percent for the comparable period in the prior year. The decrease in the effective tax rate is primarily due to favorable permanent adjustments coupled with beneficial discrete tax items.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.  PENSION AND RETIREMENT PLANS

The Company participates in a multiple employer Retirement Income Plan, a trusteed defined benefit pension plan, sponsored by RPC, Inc. (“RPC”). The following represents the net periodic cost and related components for the plan for the three and nine months ended September 30, 2023 and 2022.

Three months ended

Nine months ended

(in thousands)

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Interest cost

$

$

34

$

4

$

100

Expected return on plan assets

 

 

 

 

Amortization of net losses

 

 

28

 

22

 

84

Settlement loss (1)

 

2,277

Net periodic cost

$

$

62

$

2,303

$

184

(1) Reported as part of Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

The Company did not contribute to this Plan during the nine months ended September 30, 2023 and 2022. The Company does not expect to make any additional cash contributions.

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 primarily in mutual funds and company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligation of the SERP that have been classified as trading and are stated at fair value totaling approximately $14,405,000 as of September 30, 2023 and $9,881,000 as of December 31, 2022. During the third quarter of 2023, the Company contributed $4.0 million to the SERP assets. Trading losses related to the SERP assets totaled approximately $238,000 during the three months ended September 30, 2023, compared to trading losses of approximately $499,000 during the three months ended September 30, 2022. Trading gains related to the SERP assets totaled approximately $524,000 during the nine months ended September 30, 2023, compared to trading losses of approximately $2,802,000 during the nine months ended September 30, 2022. The SERP assets are reported in Other assets in the accompanying Consolidated Balance Sheets and changes to the fair value of the assets are reported in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

The SERP liabilities include participant deferrals net of distributions and are stated at fair value of approximately $16,714,000 as of September 30, 2023 and $14,440,000 as of December 31, 2022. The SERP liabilities are reported in the accompanying Consolidated Balance Sheets in Retirement plan liabilities and any change in the fair value is recorded as compensation cost within Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. Changes in the fair value of the SERP liabilities represented unrealized losses of approximately $166,000 during the three months ended September 30, 2023, compared to unrealized losses of approximately $475,000 during the three months ended September 30, 2022. Changes in the fair value of the SERP liabilities represented unrealized gains of approximately $651,000 during the nine months ended September 30, 2023, compared to unrealized losses of approximately $2,799,000 during the nine months ended September 30, 2022.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

Trading securities are comprised of SERP assets, as described in Note 10, and are recorded primarily at their net cash surrender values calculated using their net asset values, which approximate fair value, as provided by the issuing insurance company or investment company. Significant observable inputs, in addition to quoted market prices, are used to value the trading securities. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

The carrying amount of other financial instruments reported in the accompanying Consolidated Balance Sheets for current assets and current liabilities approximate their fair values because of the short-term maturity 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 pension adjustments as follows:

Nine months ended

September 30, 

(in thousands)

2023

2022

Balance at beginning of the period

$

(1,995)

$

(2,576)

Change during the period:

 

 

Before-tax amount

 

244

 

Tax provision

 

(54)

 

Pension settlement loss, net of taxes (1)

 

1,776

 

Reclassification adjustment, net of taxes

 

 

Amortization of net loss (1)

 

17

 

67

Total activity for the period

 

1,983

 

67

Balance at end of the period

$

(12)

$

(2,509)

(1)Reported as part of Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

13. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

    

 

September 30, 

    

December 31, 

(in thousands)

2023

    

2022

Accrued payroll and related expenses

$

3,657

$

3,753

Accrued sales incentives and discounts

 

1,599

 

2,485

Accrued warranty costs