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

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019 AND 20162018

(In thousands)

(Unaudited)

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

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Unaudited)

The accompanying unaudited condensedconsolidated 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, 2017March 31, 2019 are not necessarily indicative of the results tothat may be expected for the year ending December 31, 2017.2019.

The consolidated balance sheet at December 31, 20162018 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 Company's annual report of Marine Products Corporation (“Marine Products,” the “Company” or “MPC”) on Form 10-K for the year ended December 31, 2016.2018.

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.

Recently Adopted Accounting Standards:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Recently AdoptedIssued Accounting Pronouncements:Standards Not Yet Adopted:

·     Accounting Standards Update (ASU) No. 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory.To be adopted in 2020 and later: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

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

·NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASU No. 2016-09,(Unaudited)

Compensation —Stock Compensation (Topic 718): ImprovementsAccounting Policy:

MPC’s contract revenues are generated principally from selling: (1) fiberglass motorized boats and accessories and (2) parts to Employee Share-Based Payment Accounting.independent dealers. Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. Satisfaction of contract terms occur with the transfer of title of our boats, accessories, and parts to our dealers. Net sale is measured as the amount of consideration we expect to receive in exchange for transferring the goods to the dealer. The amendments simplify several aspectsamount of consideration we expect to receive consists of the accountingsales price adjusted for share-based payment award transactions, requiring excess tax benefits and deficienciesdealer incentives. The expected costs associated with our base warranties continue to be recognized as a component of income tax expense rather than equity. This guidance also requires excess tax benefits and deficiencieswhen the products are sold as they are deemed to be presentedassurance-type warranties (see Note 7). Incidental promotional items that are immaterial in the context of the contract are recognized as an operating activityexpense. 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.

Nature of goods:

MPC’s performance obligations within its contracts consists of: (1) boats and accessories and (2) parts. The Company transfers control and recognizes revenue on the statementsatisfaction of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for themits performance obligations (point in time) 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.follows:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recently Issued Accounting Pronouncements Not Yet Adopted:Payment terms:

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 toRevenue 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 SUBSIDIARIESFor 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 receives the related compensation, typically 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSWhen 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.

(Unaudited)

Significant judgments:

Current Status of implementation:

The Company is currently analyzingDetermining the effect of the standardacross 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 asassess 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:transaction price

·ASU No. 2016-01,Financial Instruments – Overall (Subtopic 825-10): RecognitionThe transaction price for MPC’s boats and Measurement of Financial Assets and Financial Liabilities.The amendments make targeted improvements to existing U.S. GAAP and affects accountingaccessories is the invoice price adjusted 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.dealer incentives. The Company is currently evaluatingutilizes the impact of these provisions on its consolidated financial statements.expected value method to estimate the variable consideration related to dealer incentives. Key inputs and assumptions in determining variable consideration includes:

Other:

·ASUNo. 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 2018Our contracts 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 amendmentsdealers do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accountingprovide them with a right of return. Accordingly, we do not have any obligations recorded 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.returns or refunds.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

·ASU No. 2017-01,Business Combinations (Topic 805)Disaggregation of revenues:

The following table disaggregates our sales by major source (in thousands): Clarifying

The following table disaggregates our revenues between domestic and international (in thousands):

Amounts received from international and certain domestic dealers toward the purchase of a Business. The amendmentsboats are intended to help companiesclassified as deferred revenue and are included in Accrued expenses 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 applyingliabilities on 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.Consolidated Balance Sheets.

·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 virtuallySubstantially all of their leases (other than leases that meet the definitionamounts of a short-term lease), atdeferred revenue disclosed above as of December 31, 2017 and December 31, 2018 were recognized as sales during 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.immediately following quarters, respectively, when control transferred.

·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:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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,March 31, 2019, there were approximately 2,054,2001,730,900 shares available for grant.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock-based compensation for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 were as follows:

Restricted Stock

The following is a summary of the changes in non-vested restricted shares for the ninethree months ended September 30, 2017:March 31, 2019:

The total fair value of shares vested was approximately $4,182,680$3,701,000 during the ninethree months ended September 30, 2017March 31, 2019 and $2,560,000approximately $4,121,000 during the ninethree months ended September 30, 2016. Excess tax benefits realized from tax compensation deductions in excess of compensation expense have been reflected as follows:March 31, 2018.

Other Information

As of March 31, 2019, total unrecognized compensation cost related to non-vested restricted shares was approximately $8,972,000. This cost is expected to be recognized over a weighted-average period of 2.7 years.

For the three months ended March 31, 2019, approximately $418,000 of excess tax benefit for stock-based compensation awards has been recorded as a discrete tax adjustment and classified within operating activities in the consolidated statements of cash flows compared to approximately $545,000 as of March 31, 2018.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

During the first quarter of 2019, the Company changed its investment strategy and as of March 31, 2019, no longer held investments in marketable securities. The Company held investments in marketable securities for a short duration in the first quarter of 2019. During 2018, Marine Products’ marketable securities arewere held with a large, well-capitalized financial institution. Management determinesdetermined the appropriate classification of debt securities at the time of purchase and reevaluatesreevaluated such designations as of each balance sheet date. Debt securities arewere classified as available-for-sale because the Company doesdid not have the intent to hold the securities to maturity. Available-for-sale debt securities arewere 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 iswas 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 debt securities arehave been included in interest income.

The net realized gains (losses) and the reclassification of net realized gains (losses) from other comprehensive income are as follows:

Gross unrealized gains (losses) on marketable securities are as follows:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Gross unrealized gains (losses) on marketableThere were no available-for-sale debt securities are as follows:

of March 31, 2019. The amortized cost basis, fair value and net unrealized gains on the available-for-sale debt securities as of December 31, 2018 are as follows:

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.

Warranty CostsCosts:

For our Chaparral and Robalo 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. 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 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 ninethree months ended September 30, 2017March 31, 2019 and 20162018 is as follows:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Repurchase ObligationsObligations:

The Company is a party to various agreements with thirdfirst 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 thirdfirst 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, 2017March 31, 2019 and September 30, 2016.March 31, 2018.

Management continues to monitor the risk of defaults and resulting repurchase obligations based in part on information provided by third-partyfirst-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$15.4 million as of September 30, 2017.March 31, 2019. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $5.3$4.1 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$19.5 million as of September 30, 2017.March 31, 2019.

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.

��

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Inventories consist of the following:

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 thirdfirst quarter of 20172019 reflects an effective tax rate of 32.416.3 percent, compared to an effective tax rate of 23.316.1 percent for the comparable period in the prior year. The slight increase in effective rate in the first quarter of 2019 is primarily due to investment gains as compared to investment losses in the same period in 2018. 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 ofrestricted stock dividends and liabilities related to state tax planning strategies that provided for the increased use of previously suspended net operating losses.income taxes.

The Company participates in a multiple employer pension plan. The following represents the net periodic benefit (credit) cost and related components for the plan:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company did not make a contribution to this plan during the ninethree months ended September 30, 2017.March 31, 2019.

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 marketstated at fair value and totaled $5,856,000approximately $6,119,000 as of September 30, 2017March 31, 2019 and $5,547,000$5,518,000 as of December 31, 2016.2018. 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$590,000 during the ninethree months ended September 30, 2017,March 31, 2019, compared to trading gainslosses of $105,000approximately $92,000 during the ninethree months ended September 30, 2016.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)March 31, 2018.

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.          

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.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were no available-for-sale dent securities as of March 31, 2019. 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, 2017March 31, 2019 and December 31, 2016:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES2018.

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.

Accumulated other comprehensive loss consists of the following:

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019 and recognized leases with duration greater than 12 months on the balance sheet using the modified retrospective approach. Prior year financial statements have not been restated and therefore those amounts are not presented below. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed for a carry-forward of the historical lease classification. For leases with terms greater than 12 months, the Company has recorded the related Right-Of-Use asset and liability at the present value of lease payments over the term. Renewal options have been factored into the determination of lease payments when appropriate. There are no residual value guarantees on the existing leases. The Company estimates its incremental borrowing rate, at lease commencement, to determine the present value of lease payments, since most of the Company’s leases do not provide an implicit rate of return.

The Company’s lease population consists primarily of office equipment. The Company does not have any finance leases. The Company determines at contract inception, if an arrangement is a lease or contains a lease based on whether the Company obtains the right to control the use of specifically identifiable property, plant and equipment for a period of time in exchange for consideration. The Company has elected not to separate non-lease components from lease components for its leases. Variable lease payments are recognized as expense when incurred.

As of March 31, 2019, the Company had no operating leases that had not yet commenced.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Lease position:

The table below presents the assets and liabilities related to operating leases recorded on the balance sheet:

Lease Costs:

The components of lease expense for the period are reported as follows:

Other information:

Lease Commitments:

Future minimum lease payments at March 31, 2019 were as follows:

On October 24, 2017,April 23, 2019, the Board of Directors approved a $0.07$0.12 per share cash dividend in addition to a special dividend of $0.05 per share both payable December 11, 2017June 10, 2019 to stockholders of record at the close of business NovemberMay 10, 2017.2019.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

Marine Products Corporation, through our wholly owned subsidiaries Chaparral and Robalo, is a leading manufacturer of recreational fiberglass powerboats. Our sales and profits are generated by selling the products that we manufacture to a network of independent dealers who in turn sell the products to retail customers. These dealers are located throughout the continental United States and in several international markets. Many of these dealers finance their inventory through third-partyfirst-party floorplan lenders, who pay Marine Products generally within seven to tentwelve days after delivery of the products to the dealers.

The discussion on business and financial strategies of the Company set forth under the heading “Overview” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 20162018 is incorporated herein by reference. There have been no significant changes in the strategies since year-end.

In implementingexecuting these strategies and attempting to optimize our financial returns, management closely monitors dealer orders and inventories, the production mix of various models, and indications of near term demand such as consumer confidence, interest rates, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions. We also consider trends related to certain key financial and other data, including our historical and forecasted financial results, market share, unit sales of our products, average selling price per boat, and gross profit margins, among others, as indicators of the success of our strategies. Marine Products’Our financial results are affected by consumer confidence — because pleasure boating is a discretionary expenditure, interest rates — because many retail customers finance the purchase of their boats, and other socioeconomic and environmental factors such as availability of leisure time, consumer preferences, demographics and the weather.

Our net sales were higher during the thirdfirst quarter of 20172019 compared to the thirdfirst quarter of 20162018 primarily due to a 5.7 percent increase in the average selling price per boat as well as an increase in accessoriesaverage selling prices coupled with an increase in parts and accessory sales, partially offset by a decrease in unit sales.

Operating income increased 22.1decreased 1.8 percent during the thirdfirst quarter of 20172019 compared to the same period in the prior year primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses.expenses, partially offset by higher gross profit. Selling, general and administrative expenses increased primarily due to costsexpenses that varyincrease with higher sales as well as higher research and profitability, such as incentive compensation.development expenses which support new product development. Dealer inventory in units as of September 30, 2017March 31, 2019 was lowerhigher than at the end of the secondfourth quarter of 2017 but2018 and slightly higher than at the end of the thirdfirst quarter of 2016 consistent with generally higher sales volume trends.2018.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

OUTLOOK

The discussion of the outlook for 20172019 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016.2018.

We believe that recreational boating retail demand in many segments of the industry is improving. Attendancewill remain stable during 2019. Positive factors influencing recreational boat demand include strong consumer confidence and sales during the 2017 wintera robust U.S. employment market, as well as a favorable financing environment for boat shows were moderately higher than the 2016 winter boat show season,dealers and consumers. These positive factors are offset by potential weakness in residential real estate markets, the negative impact of recent stock market fluctuations, and slightly higher interest rates. These weaknesses may have improved, and consumer confidence and fuel prices are stable. We also believe that there is improved demand from consumers who have delayed purchasing aimpacted attendance at the 2019 retail boat over the past few years due to economic uncertainty.shows, which was slightly lower in 2019 than in 2018.

Although industry wide retail boat sales remain lower than they were prior to the 2008 financial crisis, retail boat sales have increased each year since 2011. We believe that continued improvements in retail boat sales will be modest due to the lack of strong economic improvement, which tends to discourage consumers from purchasing large discretionary goods such as pleasure boats.2012. Fluctuations in fuel prices can impact our sales,industry, although they were relatively stable in 2018 and during 2016 and 2017 fuel prices decreased, andwe do not believe that they have declined to some of the lowest inflation-adjusted levels recorded during the past 10 years.recently impacted sales. In general, however, the overall cost of boat ownership has increased, especially in the sterndrive recreational boat market segment, which comprises approximately 4537 percent of the Company’s unit sales. The higher cost of boat ownership discourages consumers from purchasing recreational boats. For a number of years, Marine Products as well as other boat manufacturers have been improving their customer service capabilities, marketing strategies and sales promotions in order to attract more consumers to recreational boating as well as improve consumers’ boating experiences. The Company provides financial incentives to its dealers for receiving favorable customer satisfaction surveys. In addition, the recreational boating industry conducts a promotional program which involves advertising and consumer targeting efforts, as well as other activities designed to increase the potential consumer market for pleasure boats. Many manufacturers, including Marine Products, participate in this program. Management believes that these efforts have incrementally benefited the industry and Marine Products. As in past years, Marine Products enhanced its selection of models for the 20182019 model year which began on July 1, 2017.2018. We continue to emphasize the value-priced Chaparral and Robalo models, as well as the Surf Series a new line of Chaparral models, first introduced for the 2017 model year.our larger Chaparral SSX models, and our larger Robalo models. In addition, we are experiencing a favorable consumer reception togenerated our new for 2017 Chaparral H2O outboard boats.first sales of Chaparral’s 300 OSX Bowriders. We believe that these boat models will expand our customer base, and leverage our strong dealer network and reputation for quality and styling. During 2017 we expanded our nationally advertised fixed retail pricing to include more of our models. We plan to continue to develop and produce additional new products for subsequent model years. Marine Products expects to benefit from the Tax Cuts and Jobs Act (“Tax Reform”) enacted during the fourth quarter of 2017. Marine Products estimates that its annual effective tax rate for 2019 will be in the low 20 percent range. Since Marine Products believes that it will generate continued positive financial results, the Company believes that it will benefit from this lower tax rate through increased earnings in 2019.

Our financial results for the full year of 20172019 will depend on a number of factors, including interest rates, consumer confidence, the availability of credit to our dealers and consumers, fuel costs, the continued acceptance of our new products in the recreational boating market, our ability to compete in the competitive pleasure boating industry, and the costsavailability of labor and certain costs of our raw materials and key components.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

Key operating and financial statistics for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows: