MARINE PRODUCTS CORP - Annual Report: 2014 (Form 10-K)

FORM 10-K

MARINE PRODUCTS CORPORATION

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

Securities registered pursuant to section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

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

Large accelerated filer ☐     Accelerated filer ☒     Non-accelerated filer ☐     Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ☐ No ☒

The aggregate market value of Marine Products Corporation common stock held by non-affiliates on June 30, 2014, the last business day of the registrant’s most recent second fiscal quarter, was $87,986,049 based on the closing price on the New York Stock Exchange on June 30, 2014 of $8.30 per share.

Marine Products Corporation had 38,328,101 shares of common stock outstanding as of February 13, 2015.

Documents Incorporated by Reference

Portions of the Proxy Statement for the 2015 Annual Meeting of Stockholders of Marine Products Corporation are incorporated by reference into Part III, Items 10 through 14 of this report.

 

 

PART I

References in this document to “we,” “our,” “us,” “Marine Products,” or “the Company” mean Marine Products Corporation (“MPC”) and its subsidiaries, Chaparral Boats, Inc. (“Chaparral”) and Robalo Acquisition Company LLC (“Robalo”), collectively or individually, except where the context indicates otherwise.

Forward-Looking Statements

Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, the Company’s belief that there are several alternative suppliers of fiberglass that could provide adequate quality and quantities of this raw material at acceptable prices; the Company’s plans to continue purchasing sterndrive engines through the ABA; the Company’s belief that the level of dealer inventories of its new boat models are appropriate; management’s belief that the Company is well positioned to take advantage of current industry conditions; the Company’s belief that its newer boat models will expand its customer base and leverage its strong dealer network and reputation for quality and styling; the Company’s plan to capture additional market share as purchasers of entry level models purchase larger models in the future; the Company’s belief that its corporate infrastructure, marketing and sales capabilities, financial strength and nationwide presence enables it to compete effectively against its competitors; the Company’s belief that it will not incur any material capital expenditures to comply with existing environmental or safety regulations; the Company’s belief that it will incur lower material costs in 2015 which will reduce the costs of the Company’s products, although the Company cannot be confident that it can maintain the prices that its dealers pay for its products and thereby improve profit margins; the Company’s belief that the ultimate outcome of any litigation will not have a material effect on its results of operations; the Company’s plan to continue to pay cash dividends subject to the earnings and financial condition of the Company and other relevant factors; the Company’s belief that recreational boating retail demand in many segments of the industry is improving; the Company’s belief that continued improvement in retail boat sales will be modest due to the lack of strong economic improvement; the Company’s belief that the recreational boating industry promotional program has incrementally benefited the industry and Marine Products; the Company’s plans to continue to emphasize the value-priced Chaparral and Robalo models as well as larger models in the Chaparral line-up including the SSX’s and new Robalo bay boat models; the Company’s belief that the Vortex jet boat and SunCoast outboard boat will expand our customer base and leverage our strong dealer network and reputation for quality and styling; the Company’s plans to continue to develop additional new products for the 2015 model year; the Company’s belief that its liquidity, capitalization and cash expected to be generated from operations will provide sufficient capital to meet the Company’s requirements for at least the next twelve months; the Company’s expectations about capital expenditures during 2015; the Company’s expectation about contributions to its pension plan in 2015; the Company’s estimate of the amount and timing of future contractual obligations; the Company’s judgments and estimates with respect to its critical accounting policies; the Company’s expectation about the impact of new accounting pronouncements on the Company’s consolidated financial statements; and the Company’s expectation regarding market risk of its investment portfolio.

The words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “project,” “estimate,” and similar expressions used in this document that do not relate to historical facts are intended to identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements.  Risk factors that could cause such future events not to occur as expected include the following: economic conditions, lack of credit availablility and possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products and competition from other boat manufacturers and dealers. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements.  See “Risk Factors” on page 12 for a discussion of factors that may cause actual results to differ from our projections.

 

Item 1. Business

Marine Products manufactures fiberglass motorized boats distributed and marketed through its independent dealer network. Marine Products’ product offerings include Chaparral sterndrive, outboard and jet pleasure boats and Robalo outboard sport fishing boats.

Organization and Overview

Marine Products is a Delaware corporation incorporated on August 31, 2000, in connection with a spin-off from RPC, Inc. (NYSE: RES) (“RPC”). Effective February 28, 2001, RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products, a newly formed wholly owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders.

Marine Products designs, manufactures and sells recreational fiberglass powerboats in the sportboat, deckboat, cruiser, sport yacht, jet boat and sport fishing markets. The Company sells its products to a network of 139 domestic and 86 international independent authorized dealers. Marine Products’ mission is to enhance its customers’ boating experience by providing them with high quality, innovative powerboats. The Company intends to remain a leading manufacturer of recreational powerboats for sale to a broad range of consumers worldwide.

The Company manufactures Chaparral sterndrive pleasure boats including H2O Sport and Fish & Ski boats, SSi and SSX Sportboats, Sunesta Sportdecks, Signature Cruisers, SunCoast Sportdeck outboards, Vortex Jet Boats and Robalo outboard sport fishing boats. The most recent available industry statistics [source: Statistical Surveys, Inc. report dated September 30, 2014] indicate that Chaparral is the largest manufacturer of sterndrive boats in lengths from 18 to 33 feet in the United States.

Chaparral was founded in 1965 in Ft. Lauderdale, Florida. Chaparral’s first boat was a 15-foot tri-hull design with a retail price of less than $1,000. Over time Chaparral grew by offering exceptional quality and consumer value. In 1976, Chaparral moved to Nashville, Georgia, where a manufacturing facility of a former boat manufacturing company was available for purchase. This provided Chaparral an opportunity to obtain additional manufacturing space and access to a trained workforce. With 50 years of boatbuilding experience, Chaparral continues to improve the design and manufacturing of its product offerings to meet the growing needs of discriminating recreational boaters.

Robalo was founded in 1969 and its first boat was a 19-foot center console salt-water fishing boat, among the first of this type of boat to have an “unsinkable” hull. The Company believes that Robalo’s share of the outboard sport fishing boat market is approximately four percent.

Products

Marine Products distinguishes itself by offering a wide range of products to the family recreational and cruiser markets through its Chaparral brand and to the sport fishing market through its Robalo brand.

The following table provides a brief description of our product lines and their particular market focus:

 

 

 Manufacturing

Marine Products’ manufacturing facilities are located in Nashville, Georgia and Valdosta, Georgia. The Company idled its plant located in Valdosta, Georgia in response to declines in production volumes in a prior year. Marine Products utilizes five different plants to, among other things, manufacture interiors, design new models, create fiberglass hulls and decks, and assemble various end products. Quality control is conducted throughout the manufacturing process. The Company’s manufacturing operations are ISO 9001: 2008 certified, which is an international designation of design, manufacturing, and customer service processes. ISO 9001: 2008 surpasses previous ISO designations. Management believes Chaparral is the largest sterndrive boat manufacturing brand to hold the ISO 9001: 2008 certification. When fully assembled and inspected, the boats are loaded onto either company-owned trailers or third-party marine transport trailers for delivery to dealers. The manufacturing process begins with the design of a product to meet dealer and customer needs. Plugs are constructed in the research and development phase from designs. Plugs are used to create a mold from which prototype boats can be built. Adjustments are made to the plug design until acceptable parameters are met. The final plug is used to create the necessary number of production molds. Molds are used to produce the fiberglass hulls and decks. Fiberglass components are made by applying the outside finish or gel coat to the mold, then numerous layers of fiberglass and resin are applied during the lamination process over the gel coat. After curing, the hull and deck are removed from the molds and are trimmed and prepared for final assembly, which includes the installation of electrical and plumbing systems, engines, upholstery, accessories and graphics.

Product Warranty

For our Chaparral products, Marine Products provides a lifetime limited structural hull warranty against defects in material and workmanship for the original purchaser, and a five-year limited structural hull warranty for one subsequent owner. Additionally, a non-transferable five-year limited structural deck warranty against defects in materials and workmanship is available to the original owner. Warranties on additional items are provided for periods of one to five years.

For our Robalo products, Marine Products provides a transferable ten-year limited structural hull warranty against defects in material and workmanship to the original owner, and a five-year limited hull warranty to one subsequent owner.  Additionally, Marine Products provides a transferable one-year limited warranty on other components.

The manufacturers of the engines included on our boats provide various engine warranties as well.

Suppliers

Marine Products’ two most significant components used in manufacturing its boats, based on cost, are engines and fiberglass. For each of these, there is currently an adequate supply available in the market. Marine Products has not experienced any material shortages in any of these products. Temporary shortages, when they do occur, usually involve manufacturers of these products adjusting model mixes, introducing new product lines or limiting production in response to an industry-wide reduction in boat demand. Marine Products obtains most of its fiberglass from a leading supplier. Marine Products believes that there are several alternative suppliers if this supplier fails to provide adequate quality or quantities at acceptable prices.

Marine Products does not manufacture the engines installed in its boats. Engines are generally specified by the dealers at the time of ordering, usually on the basis of anticipated customer preferences or actual customer orders. Sterndrive engines are purchased through the American Boatbuilders Association (“ABA”), which has entered into engine supply arrangements with Mercury Marine and Volvo Penta, the two currently existing suppliers of sterndrive engines. These arrangements contain incentives and discount provisions, which may reduce the cost of the engines purchased, if specified purchase volumes are met during specified periods of time. Although no minimum purchases are required, Marine Products expects to continue purchasing sterndrive engines through the ABA on a voluntary basis in order to receive volume-based purchase discounts. Marine Products does not have a long-term supply contract with the ABA. Marine Products has an outboard engine supply contract with Yamaha and a jet engine supply contract with BRP US Inc. These engine supply arrangements were not negotiated through the ABA. In the event of a sudden and extended interruption in the supply of engines from any of these suppliers, our sales and profitability could be negatively impacted. See “Risk Factors” below.

 

 

Marine Products uses other raw materials in its manufacturing processes. Among these are stainless steel, copper and resins made from hydrocarbon feedstocks. In response to global economic uncertainties, the prices of these commodities have fluctuated significantly over the past several years.  During 2014 and the first quarter of 2015 the prices of several of these materials have fallen to their lowest prices in several years. See “Inflation” below.

Sales and Distribution

Domestic sales are made through approximately 71 Chaparral dealers, 21 Robalo dealers and 47 dealers that sell both brands located in markets throughout the United States. Marine Products also has 86 international dealers.  During 2014 the financial strength of our dealer network continued to improve primarily due to improved availability of floorplan financing. Most of our dealers inventory and sell boat brands manufactured by other companies, including some that compete directly with our brands. The territories served by any dealer are not exclusive to the dealer; however, Marine Products uses discretion in establishing relationships with new dealers in an effort to protect the mutual interests of the existing dealers and the Company. Marine Products’ seven independent field sales representatives call upon existing dealers and develop new dealer relationships. The field sales representatives are directed by a National Sales Coordinator, who is responsible for developing a full dealer distribution network for the Company’s products. The marketing of boats to retail customers is primarily the responsibility of the dealer. Marine Products supports dealer marketing efforts by supplementing local advertising, sales and marketing follow up in boating magazines, and participation in selected regional, national, and international boat show exhibitions. No single dealer accounted for more than 10 percent of net sales during 2014, 2013 or 2012.

Marine Products continues to seek new dealers in many areas throughout the U.S., Europe, South America, Asia, Russia and the Middle East. In general, Marine Products requires full payment prior to shipping a boat overseas. Consequently, there is no credit risk associated with these international sales or risk related to foreign currency fluctuation.  The volume of sales to international dealers as a percentage of total net sales declined in 2014 compared to 2013 primarily due to weaknesses in the Canadian and Russian markets. The Company’s international sales are affected by trends in consumer discretionary spending and the value of the U.S. dollar on global currency markets, among other things.  International net sales as a percentage of total net sales were 15.3 percent in 2014, 17.2 percent in 2013, and 20.3 percent in 2012.

Marine Products’ sales orders are indicators of strong interest from its dealers. Historically, dealers have in most cases taken delivery of all their orders. The Company attempts to ensure that its dealers do not accept an excessive amount of inventory by monitoring their inventory levels.  Knowledge of inventory levels at the individual dealers facilitates production scheduling with shorter lead times in order to maintain flexibility in the event that adjustments need to be made to dealer shipments. In the past, Marine Products has been able to resell any boat for which an order has been cancelled.

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 major third-party financing institutions. The remaining dealers finance their boat inventory with smaller regional financial institutions in local markets or pay cash. Under these established arrangements with qualified lending institutions, a dealer establishes a line of credit with one or more of these lenders for the purchase of boat inventory for sales to retail customers in their showroom or during boat show exhibitions. In general, 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 generally within ten business days. When the dealer in turn sells the boat to a retail customer, the dealer repays the lender, thereby restoring its available credit line. Each dealer’s floor plan credit facilities are secured by the dealer’s inventory, letters of credit, and perhaps other personal and real property. Until recently, most dealers maintained financing arrangements with more than one lender, although that is less common at the present time, given that there are fewer lenders. In connection with a dealer’s floor plan financing arrangements with a qualified lending institution, Marine Products or its subsidiaries have agreed to repurchase inventory which the lender repossesses from a dealer and returns to Marine Products in a “new and unused” condition subject to normal wear and tear, as defined. The contractual agreements that Marine Products or its subsidiaries have with these qualified lenders contain the Company’s assumption of specified percentages of the debt obligation on repossessed boats, up to certain contractually determined dollar limits set by the lender.

The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase amount is limited to a maximum of 16 percent of the average net receivables financed by the floor plan lender for our dealers during the prior 12 month period, which was $8.2 million as of December 31, 2014.  The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $4.5 million, with various expiration and cancellation terms of less than one year. The aggregate repurchase obligation with all financing institutions was approximately $12.7 million as of December 31, 2014.  In the event that a dealer defaults on a credit line, the qualified lender may then invoke the manufacturers’ repurchase obligation with respect to that dealer. In that event, all repurchase agreements of all manufacturers supplying a defaulting dealer are generally invoked regardless of the boat or boats with respect to which the dealer has defaulted. Unlike Marine Products’ obligation to repurchase boats repossessed by qualified lenders, Marine Products is under no obligation to repurchase boats directly from dealers. Marine Products does not sponsor financing programs to the retail consumer; any consumer financing promotions for a prospective boat purchaser would be the responsibility of the dealer.

 

Marine Products’ dealer sales incentive programs are generally designed to promote early replenishment of the stock in dealer inventories depleted throughout the prime spring and summer selling seasons, and to promote the sales of older models in dealer inventory and particular models during specified periods. These programs help to stabilize Marine Products’ manufacturing between the peak and off-peak periods, and promote sales of certain models. For the 2015 model year (which commenced July 1, 2014), Marine Products offered its dealers several sales incentive programs based on dollar volumes and timing of dealer purchases. Program incentives offered include sales discounts, retail sales incentives and payment of floor plan financing interest charged by qualified floor plan lenders to dealers generally through April 30, 2015. After the interest payment programs end, interest costs revert to the dealer at rates set by the lender. A dealer makes periodic curtailment payments (principal payments) on outstanding obligations against its dealer inventory as set forth in the floor plan financing agreements between the dealer and its particular lender.

We believe that dealer inventories of our boat models as of December 31, 2014 are appropriate relative to the current level of retail customer demand; 55 percent of dealer inventories are 2015 model year units.  The sales order backlog as of December 31, 2014 was approximately 1,343 boats with estimated net sales of approximately $52.9 million. This represents an approximate 16.8 week backlog based on recent production levels. As of December 31, 2013, the sales order backlog was approximately 1,003 boats with estimated net sales of $39.1 million, representing an approximate 13.6 week backlog.  The Company will continue to monitor the number of boats in dealer inventory and is prepared to adjust its production levels as it deems necessary to manage dealer inventory levels. The Company typically does not manufacture a significant number of boats for its own inventory. The Company occasionally manufactures boats for its own inventory because the number of boats required for immediate shipment is not always the most efficient number of boats to produce in a given production schedule.

Research and Development

Essentially the same technologies and processes are used to produce fiberglass boats by all boat manufacturers. The most common method is open-face molding. This is usually a labor-intensive, manual process whereby employees hand spray and apply fiberglass and resin in layers on open molds to create boat hulls, decks and other smaller fiberglass components. This process can result in inconsistencies in the size and weight of parts, which may lead to higher warranty costs. A single open-face mold is typically capable of producing approximately three hulls per week.

Marine Products has been a leading innovator in the recreational boating industry. One of the Company’s most innovative designs is the full-length “Extended V-Plane” running surface on its Chaparral boat models. Typically, sterndrive boats have a several foot gap on the bottom rear of the hull where the engine enters the water. With the Extended V-Plane, the running surface extends the full length to the rear of the boat. The benefit of this innovation is more deck space, better planing performance and a more comfortable ride. Although the basic hull designs are similar, the Company has historically introduced a variety of new models each year and periodically replaces, updates or discontinues existing models.

Another hull design is the Hydro Lift^TM used on the Robalo boat models. This variable dead rise hull design provides a smooth ride in rough water conditions. It increases the maximum speed obtainable by a given engine horsepower and weight of the boat. Robalo’s current models utilize the Hydro Lift^TM design and we plan to continue to provide this design on Robalo models.

A bow design known as the Wide Tech^TM was first used on the Chaparral Sunesta Wide Tech^TM and Xtreme models for the 2008 model year, and is currently being used on Chaparral’s SSi Wide Tech^TM Sportboats, Sunesta Sportdeck, and two Signature Cruisers. The Wide Tech^TM bow design allows the models to have the Extended V-Plane hull, with the features and benefits that this hull design offers. In addition, the Wide Tech^TM bow design provides a larger seating area, as well as additional storage space, in the front of the boat. Furthermore, it allows the models to have a non-skid walkway on the bow, which makes entering and leaving the boat easier than in other boat models. This bow design may be incorporated on other Chaparral boat models in subsequent model years.

In support of its new product development efforts, Marine Products incurred research and development costs of $743 thousand in 2014, $1.1 million in 2013, and $768 thousand in 2012.

Industry Overview

The recreational marine market in the United States is a mature market, with 2013 (latest data available to us) retail expenditures of approximately $37 billion spent on new and used boats, motors and engines, trailers, accessories and other associated costs as estimated by the National Marine Manufacturers Association (“NMMA”). Pleasure boats compete for consumers’ limited free time with all other leisure activities.

The NMMA conducts various surveys of pleasure boat industry trends, and the most recent surveys indicate that 89 million adults in the United States participated in recreational boating in 2013, although non-active boat owners cite lack of leisure time and increased operational costs as the primary reasons for not using their boats.  The percentage of American consumers that participated in recreational boating during 2013 was the highest of any year in the NMMA’s survey period.  There are currently approximately 12 million boats owned in the United States, including outboard, inboard, sterndrive, sailboats, personal watercraft, and miscellaneous (canoes, kayaks, rowboats, etc.).  Marine Products competes in the sterndrive boating category with its five lines of Chaparral boats, and in the outboard boating category with its Robalo sport fishing boats, and Chaparral SunCoast outboard deckboats and in the jet boat market with its Chaparral Vortex jet boats. Approximately 64 percent of the Company’s unit sales in 2014 were sterndrive boats compared to 77 percent in 2013.

 

Industry sales of new sterndrive boats in the United States during 2014 totaling 12,508 (source: Info-Link Technologies, Inc.) accounted for approximately 22 percent of the total new fiberglass powerboats sold between 18 and 33 feet in hull length. Sales of sterndrive boats had an estimated total retail value of $807 million, or an average retail price per boat of approximately $65,000. Management believes that the five largest states for boat sales at the present time are Florida, Minnesota, Michigan, California and Wisconsin.  Marine Products has dealers in each of these states.

The U.S. domestic recreational boating industry includes sales in the segments of new and used boats, motors and engines, trailers, and other boat accessories. The new fiberglass boat market segment with hull lengths of 18 to 33 feet, the primary market segment in which Marine Products competes, represented $2.9 billion in retail sales during 2014. The table below reflects the estimated sales within this segment by category for 2014 and 2013 (source: Info-Link Technologies, Inc.):

		2014								2013
		Boats				Sales ($ B)				Boats				Sales ($ B)
Sterndrive Boats			12,508			$	0.8				13,392			$	0.8
Outboard Boats			34,456				1.3				30,123				1.1
Inboard Boats			7,472				0.6				6,478				0.5
Jet Boats			3,469				0.1				2,896				0.1
TOTAL			57,905			$	2.9				53,889			$	2.4

               Chaparral’s products are categorized as sterndrive and jet boats and Robalo’s products are categorized as outboard boats.  Although industry-wide sterndrive boat unit sales have been declining, the rate of decline in recent years has slowed.  The Company introduced its first three jet boat models in 2014 and has been pleased with their reception by dealers and customers.  Based on available market share data, Chaparral’s share of the jet boat market during the 12 months ended December 31, 2014 was approximately seven percent.

                The recreational boat manufacturing market remains highly fragmented with the exception of Brunswick Corporation, which has acquired and currently operates a number of recreational boat brands. We estimate that the boat manufacturing industry includes fewer than 100 sterndrive manufacturers and more than 150 outboard boat manufacturers, with the majority representing small, privately held companies with varying degrees of professional management and manufacturing skill. According to estimates provided by Statistical Surveys, Inc., during the nine months ended September 30, 2014 (latest information available), the top five sterndrive manufacturers, which includes Chaparral, have a combined market share of approximately 55 percent; approximately the same as one year ago.  Chaparral’s market share in units during this nine month period was approximately 14.3 percent, which represents an increase of approximately 0.5 percentage points compared to 13.8 percent during the nine months ended September 30, 2013.  The Company believes that this improvement in market share is due primarily to the success of our larger Chaparral sterndrive models, which are 24 to 30 feet in length.

                 Several factors influence sales trends in the recreational boating industry, including general economic growth, consumer confidence, household incomes, the availability and cost of financing for our dealers and customers, weather, fuel prices, tax laws, demographics and consumers’ leisure time. Also, the value of residential and vacation real estate in coastal and recreational areas influences recreational boat sales. The most recent NMMA surveys indicate that participation in recreational boating has increased, that many boaters participate in boating by using another person’s boat, and that retirements of used boats have reduced the size of the total recreational boat fleet. These factors are positive indicators for near-term boat sales.  However, these surveys also indicate that many past boating participants do not currently participate in boating because of high costs and a lack of leisure time.   The increases in the cost of certain components, operating costs, and the impact of environmental regulation have increased the cost of boats and boat ownership in recent years, and these trends may continue.  Competition from other leisure and recreational activities for available leisure time can also affect sales of recreational boats.

Management believes Marine Products is well positioned to take advantage of the following conditions, which continue to characterize the industry:

●	labor-intensive manufacturing processes that remain largely unautomated;

●	increasingly strict environmental standards derived from governmental regulations and customer sensitivities;

●	a lack of focus on coordinated customer service and support by dealers and manufacturers;

 

 

●	a lack of financial strength among retail boat dealers and many manufacturers; and

●	a high degree of fragmentation and competition among the large number of sterndrive and outboard recreational boat manufacturers.

Business Strategies

Recreational boating is a mature industry. According to Info-Link Technologies, Inc., sales of new boats of all types increased at a compounded annual rate of approximately five percent between 2010 and 2014. During this period, Marine Products experienced a compounded annual growth rate of approximately 13 percent in the number of boats sold. The Company has historically grown its boat sales and net sales primarily through increasing market share and by expanding its number of models and product lines.  During 2014 the Company’s strategy has been to support our dealers’ need to maintain a higher level of inventories than in previous years, given relatively stable retail demand and an improved dealer financing environment.  At the end of 2014, the Company’s dealer inventories were approximately 3.7 percent higher than they were at the end of 2013, and our unit order backlog remained strong. We believe that higher inventories and the current unit order backlog are appropriate relative to expected retail demand during the 2015 retail selling season.   Chaparral has grown its sterndrive market share in the 18 to 33 feet length category from 5.9 percent in fiscal 1996 to 14.3 percent during the nine months ended September 30, 2014 (the most recent information available to us from Statistical Surveys, Inc.).

During 2014, we introduced three new Jet Boat models and three new Robalo bay boat models.  Marine Products developed these models in order to increase unit sales in segments in which the Company has an opportunity to increase market share and improve profitability.  Furthermore, we believe that these boat models will expand our customer base, and leverage our strong dealer network and reputation for quality and styling. These models were partially responsible for increases in our net sales, gross profit, operating profit, and net income.  The new Robalo bay boat models have contributed to an increase in Robalo’s share of the coastal offshore fishing boat market during 2014.

These new models align with Marine Products’ overall operating strategy, which emphasizes innovative designs and manufacturing processes, and the production of a high quality product, while also seeking to lower manufacturing costs through increased efficiencies in our facilities.  In the current environment, this strategy also includes the production of lower-priced, entry level models which appeal to a value-conscious consumer who wants an updated, high quality product.  In addition, we seek opportunities to leverage our buying power through economies of scale. Management believes its membership in the ABA positions Marine Products as a significant third-party customer of major suppliers of sterndrive engines. Marine Products’ Chaparral subsidiary is a founding member of the ABA, which collectively represents 14 independent boat manufacturers that have formed a buying group to pool their purchasing power in order to achieve improved pricing on engines, fiberglass, resin and many other components. Marine Products intends to continue seeking the most advantageous purchasing arrangements from its suppliers.

Our marketing strategy seeks to increase market share by enabling Marine Products to expand its presence by building dedicated sales, marketing and distribution systems. Marine Products has a distribution network of 225 dealers located throughout the United States and several international markets. Our strategy is to increase selectively the quantity of our dealers, and to improve the quality and effectiveness of our entire dealer network.   Marine Products seeks to capitalize on its strong dealer network by educating its dealers on the sales and servicing of our products and helping them provide more comprehensive customer service, with the goal of increasing customer satisfaction, customer retention and future sales. Marine Products provides promotional and incentive programs to help its dealers increase product sales and customer satisfaction.

A component of Marine Products’ overall strategy is to consider making strategic acquisitions in order to complement existing product lines, expand its geographic presence in the marketplace and strengthen its capabilities depending upon availability, price and complementary product lines. We constantly review potential acquisition targets and intend to continue doing so in the future.

1.		Chaparral
2.		Sea Ray *
3.		Cobalt
4.		Tahoe
5.		Bayliner *
6.		Regal
7.		Four Winns
8.		Monterey
9.		Stingray
10.		Crownline

 

 

 

 

 

 

Name and Office with Registrant		Age		Date First Elected to Present Office
R. Randall Rollins (1)		83		2/28/01
Chairman of the Board
Richard A. Hubbell (2)		70		2/28/01
President and Chief Executive Officer
James A. Lane, Jr. (3)		72		2/28/01
Executive Vice President and President of Chaparral Boats, Inc.
Linda H. Graham (4)		78		2/28/01
Vice President and Secretary
Ben M. Palmer (5)		54		2/28/01
Vice President, Chief Financial Officer and Treasurer

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Marine Products’ common stock is listed for trading on the New York Stock Exchange under the symbol “MPX.” As of February 13, 2015, there were 38,328,101 shares of common stock outstanding.

 

At the close of business on February 13, 2015, there were approximately 2,848 beneficial holders of record of the Company’s common stock. The high and low prices of Marine Products’ common stock and dividends paid for each quarter in the years ended December 31, 2014 and 2013 were as follows:

 

In December 2014, in addition to the quarterly dividend of $0.03 per share, the board of directors approved a special year-end dividend of $0.04 per share.  The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings and financial condition of the Company and other relevant factors.

 

Issuer Purchases of Equity Securities

 

In accordance with actions by the Company’s Board of Directors, an aggregate of 8,250,000 shares have been authorized for repurchase in connection with a stock buyback program initially announced in 2001, and subsequent increases announced in 2005 and 2008. These programs do not have predetermined expiration dates.  There were 24,664 shares repurchased as part of this program during the fourth quarter of 2014.  As of December 31, 2014, a total of 3,091,551 shares remain available for repurchase under this program.

 

 

Performance Graph

 

The following graph shows a five-year comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer group index. The indices included in the following graph are the Russell 2000 Index (“Russell 2000”) and a peer group which includes companies that are considered peers of the Company (“Peer Group”). The companies included in the Peer Group have been weighted according to each respective issuer’s stock market capitalization at the end of each year. The companies are Brunswick Corporation and MarineMax, Inc.

 

The Russell 2000 is used because the Company is a component of the Russell 2000, and because the Russell 2000 is a stock index representing small capitalization U.S. stocks. During 2014 the components of the Russell 2000 had a weighted average market capitalization of $1.9 billion, and a median market capitalization of $729 million.

The graph below assumes the value of $100.00 invested on December 31, 2009.

 

 

Item 6. Selected Financial Data

 

The following table summarizes certain selected financial data of Marine Products. The historical information may not be indicative of Marine Products’ future results of operations. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included elsewhere in this document.

(1)	Other income for 2011 is comprised of a tax-free gain from an employee benefit plan financing arrangement.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion is based upon and should be read in conjunction with “Selected Financial Data” and “Financial Statements and Supplementary Data.” See also “Forward-Looking Statements” on page 2.

 

Overview

 

Marine Products, 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 consumers. These dealers are located throughout the continental United States and in several international markets. Dealers either remit payment upon receipt of the product or finance their inventory through third-party floor plan lenders, who pay Marine Products generally within ten days of delivery of the products to the dealers.

 

We manage our Company by focusing on the execution of the following business and financial strategies:

 

●

Manufacturing high-quality, stylish, and innovative powerboats for our dealers and retail consumers,

●

Providing our independent dealer network appropriate incentives, training, and other support to enhance their success and their customers’ satisfaction, thereby facilitating their continued relationship with us,

●

Managing our production and dealer order backlog to optimize operating results and reduce risk in the event of a downturn in sales of our products,

●

Maintaining a flexible, variable cost structure which can be reduced quickly when deemed appropriate,

●

Focusing on the competitive nature of the boating business and designing our products and strategies in order to grow and maintain profitable market share,

●

Monitoring the recreational boat market for strong complementary product lines which we may enter through new product development or acquisition,

●

Extending our brand name recognition to enhance the success of new boat models that complement our existing offerings,

●

Improving our sales and profits by increasing the utilization of our manufacturing capacity,

●

Monitoring the activities and financial condition of our dealers and of the third-party floor plan lenders who finance our dealers’ inventories,

●

Maximizing stockholder return by optimizing the balance of cash invested in the Company’s productive assets, the payment of dividends to stockholders, and the repurchase of the Company’s common stock on the open market, and

●

Aligning the interests of our management and stockholders.

 

In implementing 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’ 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.

 

During 2014, several segments of the recreational boating industry improved due to stable consumer confidence and improving residential real estate markets, as well as a strong financing environment for dealers and consumers.  Overall retail sales of outboard recreational boats improved during 2014, although sterndrive unit sales declined.  Our net sales improved in 2014 compared to 2013 due to higher unit sales of our Robalo sport fishing boats and a model mix among our Chaparral boats that yielded an increase in average selling prices. We achieved higher net sales, as well as increased gross and operating profit in 2014 compared to 2013. Also during 2014, Chaparral produced and sold its first Vortex jet boats and re-entered the outboard market, selling its first SunCoast outboard model in the fourth quarter of 2014.  Management will continue to monitor retail demand among the various segments in the recreational boat market, dealer inventory levels and the availability of dealer and consumer financing for the purchase of our products and adjust our production levels as deemed appropriate.

 

We continuously monitor our market share in the 18 to 33 foot sterndrive category as one indicator of the success of our strategies and the market’s acceptance of our products. For the nine months ended September 30, 2014 (latest data available to us), Chaparral’s market share in the 18 to 33 foot sterndrive category was 14.3 percent compared to 13.9 percent during the same period in 2013, the highest market share in this category.  Our market share increased across this broad size range, but was lower among the smallest boats in our market due to the decreased sales of our smaller entry level Chaparral models.   Chaparral’s market share in the 18 to 20 foot category decreased to 9.4 percent during 2014, compared to 10.7 percent in 2013.  Chaparral’s market share in the 21 to 33 foot category increased from 16.2 percent during the nine months ended September 30, 2013 to 17.6 percent during the same period in 2014 due to the relative strength of our larger Chaparral models along with an increase in sales of the 21 foot entry level models.  Based on available market share data, Chaparral’s share of the jet boat market during the 12 months ended December 31, 2014 was approximately seven percent.  We will continue to monitor our market share and believe it to be important, but we also believe that maximizing profitability takes precedence over growing our market share.

 

 

Outlook

 

We believe that recreational boating retail demand in many segments of the industry is improving.  Attendance and sales during the 2015 winter boat shows have been moderately higher than the 2014 winter boat show season, residential real estate markets and consumer confidence have stabilized, and fuel prices have declined significantly.  We also believe that there is improved demand from consumers who have delayed purchasing a boat over the past few years due to economic uncertainty.

 

Although industry wide retail boat sales remain lower than they were prior to the financial crisis, retail boat sales increased during 2013 and 2014.  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.  Fluctuations in fuel prices can impact our sales, and during the fourth quarter fuel prices significantly decreased compared to both the prior quarter and the prior year.  In general, the overall cost of boat ownership has increased, especially in the sterndrive recreational boat market segment, which comprises the majority of the Company’s sales.  The higher cost of boat ownership also 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 2015 model year which began on July 1, 2014.  We are continuing to emphasize the value-priced Chaparral and Robalo models, as well as larger models in the Chaparral line-up including the SSX’s, and new Robalo bay boat models.  In addition, we continue to be pleased with the reception of our new Vortex Jet Boats and SunCoast outboard boats.  We believe that these boat models will expand our customer base, and leverage our strong dealer network and reputation for quality and styling.  We will continue to develop and produce additional new products for the 2015 and subsequent model years.

 

Our financial results for 2015 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 costs of labor and certain of our raw materials and key components.

 

 

Results of Operations

 

Year Ended December 31, 2014 Compared To Year Ended December 31, 2013

 

Net Sales. Marine Products’ net sales increased by $2.8 million or 1.6 percent in 2014 compared to 2013. The increase was primarily due to a 2.7 percent increase in the average gross selling price per boat, partially offset by a 2.2 percent decrease in the number of boats sold.  Unit sales decreased due to lower sales of our Chaparral sterndrive models, partially offset by increased unit sales of our Robalo outboard sport fishing boats and sales of our Vortex jet boats.  Average selling prices increased due to higher sales of our larger models in both the Chaparral and Robalo boat lines. During 2014, sales outside of the United States accounted for 15.3 percent of net sales, a decrease compared to 17.2 percent of net sales in the prior year.  Domestic sales increased 4.0 percent and international sales decreased 9.5 percent during the period compared to the prior year.

 

Cost of Goods Sold. Cost of goods sold decreased 0.1 percent in 2014 compared to 2013.  As a percentage of net sales, cost of goods sold decreased to 80.9 percent in 2014, compared to 82.3 percent in 2013, primarily due to a favorable model mix, coupled with improved manufacturing efficiencies.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 1.8 percent in 2014 compared to 2013 primarily as a result of costs that vary with sales, such as sales commissions, coupled with an increase in advertising expense.  Selling, general and administrative expenses as a percentage of sales were 12.1 percent in 2014 and 2013.  As a percentage of net sales, warranty expense decreased to 1.2 percent in 2014, compared to 1.5 percent in 2013.  This decrease was primarily due to a model mix in recent years which included an increase in smaller boats with fewer accessories resulting in fewer warranty claims, coupled with lower boat usage in 2014 primarily due to bad weather.

 

Interest Income. Interest income was $521 thousand in 2014 compared to $524 thousand in 2013. Marine Products generates interest income primarily from investments in tax-exempt municipal obligations.  The decrease was primarily due to lower yields, partially offset by a 14.8 percent increase in the average balance of our marketable securities portfolio.

 

Income Tax Provision. The income tax provision was $3.6 million in 2014 compared to $2.5 million in 2013. The effective tax rate in 2014 was 28.8 percent compared to 24.9 percent in 2013. The lower 2013 effective tax rate is a result of both a one-time beneficial adjustment of the 2012 R&D credit totaling approximately $244,000 which was retroactively enacted into law in 2013, coupled with the benefit of the 2013 R&D credit.   The 2014 effective rate is higher primarily due to increased income, coupled with a higher federal tax bracket based on estimated taxable income, partially offset by the 2014 R&D credit.

Year Ended December 31, 2013 Compared To Year Ended December 31, 2012

 

Net Sales. Marine Products’ net sales increased by $19.3 million or 13.0 percent in 2013 compared to 2012. The increase was primarily due to a 4.8 percent increase in the number of boats sold, coupled with a 6.4 percent increase in the average gross selling price per boat.  Unit sales increased due to higher sales of our Robalo outboard sport fishing boats and larger Chaparral H2O models, partially offset by lower unit sells of our smaller H2O models.  Average selling prices increased due to higher sales of our larger models including the new Chaparral 257 and 277 SSX Sportdecks and a significant increase in sales of our larger Robalo models. During 2013, sales outside of the United States accounted for 17.2 percent of net sales, a slight decrease compared to 20.3 percent of net sales in the prior year.  Domestic sales increased 17.4 percent and international sales decreased 4.3 percent during the period compared to the prior year.

 

Cost of Goods Sold. Cost of goods sold increased 13.7 percent in 2013 compared to 2012.  As a percentage of net sales, cost of goods sold increased to 82.3 percent for 2013, compared to 81.7 percent in 2012, primarily due to increased employment costs to enhance our production workforce.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 10.1 percent in 2013 compared to 2012 primarily as a result of costs that vary with sales, such as warranty expense and sales commissions.  Selling, general and administrative expenses as a percentage of sales decreased from 12.4 percent in 2012 to 12.1 percent in 2013, primarily due to leverage of fixed costs over higher net sales.

 

Interest Income. Interest income was $524 thousand in 2013 compared to $960 thousand in 2012. Marine Products generates interest income primarily from investments in tax-exempt municipal obligations.  The decrease was primarily due to a 30.7 percent decrease in the average balance of our marketable securities portfolio.  The decrease in the average balance was primarily due to the liquidation of $19.3 million of the marketable securities portfolio to fund a special dividend of $0.55 per share paid in December 2012 totaling approximately $20.8 million.

Income Tax Provision. The income tax provision was $2.5 million in 2013 compared to $2.7 million in 2012. The effective tax rate in 2013 was 24.9 percent compared to 28.2 percent in 2012. The lower 2013 effective tax rate is a result of a one-time beneficial adjustment of the 2012 R&D credit totaling approximately $244,000 which was retroactively enacted into law in 2013, partially offset by increased pre-tax income.

 

Liquidity and Capital Resources

 

Cash and Cash Flows

 

The Company’s cash and cash equivalents were $4.1 million at December 31, 2014, $5.1 million at December 31, 2013 and $1.6 million at December 31, 2012. In addition, the aggregate of short-term and long-term marketable securities was $37.5 million at December 31, 2014, $36.6 million at December 31, 2013 and $36.9 million at December 31, 2012.

 

The following table sets forth the historical cash flows for the twelve months ended December 31:

 

 

Cash provided by operating activities decreased by $0.4 million in 2014 compared to 2013. This decrease was primarily due to an unfavorable change in working capital, partially offset by an increase in net income.

 

The major components of the net unfavorable change in working capital were as follows: an unfavorable change in accounts payable of $3.3 million due to the timing of payments; a favorable change of $0.7 million in inventories due to a decrease in inventory in the current year; $1.0 million favorable change in other non-current assets largely attributable to a decrease in the defined benefit funded status of the trusteed defined benefit plan.

Cash used for investing activities was $2.9 million in 2014 compared to $269 thousand used for investing activities in 2013.  The increase in cash used for investing activities is primarily due to the investment in a joint venture which was funded with a contribution of approximately $2.6 million coupled with increased purchases of marketable securities as a result of improved cash flows.

 

Cash used for financing activities increased $1.4 million in 2014 primarily due to an increase in open market share repurchases, coupled with an increase in the special dividend paid in the fourth quarter of 2014.  The company paid a $0.04 per share special dividend in the fourth quarter of 2014 compared to $0.03 per share paid in the fourth quarter of 2013.

 

 

Cash provided by operating activities increased by $1.7 million in 2013 compared to 2012. This increase was primarily due to an increase in net income, coupled with a net favorable change in working capital.

 

The major components of the net favorable change in working capital were as follows: a favorable change of $2.6 million in inventories due to a smaller increase in inventory in the current year; $1.7 million unfavorable change in other accrued expenses largely attributable to timing of payments related to retail incentives coupled with a decrease in deferred revenue.

 

Cash used for investing activities was $269 thousand in 2013 compared to $16.8 million provided by investing activities in 2012.  This change was due to significant sales of marketable securities in 2012 primarily used to fund a portion of the $0.55 per share special dividend paid in the fourth quarter of 2012.

 

Cash used for financing activities decreased $18.2 million in 2013 primarily due to the special dividend of $0.55 per share paid in the fourth quarter of 2012, partially offset by a 50.0 percent increase in the quarterly cash dividend in 2013 compared to the prior year coupled with a special dividend of $0.03 per share paid in the fourth quarter of 2013.

 

Cash Requirements

 

Management expects that capital expenditures during 2015 will be approximately $1.6 million.

 

 

The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). During 2014, the Company made cash contributions of $135 thousand to this plan in order to achieve the Company’s funding objective. We expect that additional contributions by the Company to the Retirement Income Plan of approximately $150 thousand will be made in 2015.

 

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.

 

The Company has agreements with two employees, which provide for a monthly payment to the employees equal to 10 percent of profits (defined as pretax income before goodwill amortization and certain allocated corporate expenses).

In January 2008, the Board of Directors authorized an additional 3,000,000 shares that the Company may repurchase for a total aggregate authorization of 8,250,000 shares. There were 124,664 shares repurchased in the open market during 2014. As of December 31, 2014, the Company has repurchased a total of 5,158,449 shares in the open market under this program and there are 3,091,551 shares that remain available for repurchase.

 

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.  There were no material repurchases of dealer inventory during 2013.  The Company incurred obligations for inventory repurchases totaling approximately $1.1 million during 2014 resulting from dealer defaults on floor plan financing.  The Company recorded costs in connection with these repurchases of approximately $75 thousand during 2014 as a reduction of net sales.  As of December 31, 2014 there were no amounts payable to lenders related to repurchased inventory. There are no repurchased boats remaining in inventory as of December 31, 2014 as all of these boats have been redistributed among existing and replacement dealers.  If dealers experience financial difficulty as a result of the current market conditions, the Company may incur repurchase obligations under current programs or programs initiated in the future. See further information regarding repurchase obligations in “NOTE 9: COMMITMENTS AND CONTINGENCIES” of the Consolidated Financial Statements.

 

The Company believes that the liquidity provided by its existing cash and cash equivalents, marketable securities, and cash expected to be generated from operations will provide sufficient capital to meet its requirements for at least the next twelve months.  The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations.

 

Contractual Obligations

 

The following table summarizes the Company’s contractual obligations as of December 31, 2014:

 

(1)	Operating leases represent agreements for warehouse space and various office equipment.

(2)	As part of the normal course of business the Company enters into purchase commitments to manage its various operating needs. However, the Company does not have any obligations that are non-cancelable or subject to a penalty if canceled.

(3)	The Company has agreements with various third-party lenders where it guarantees varying amounts of debt for qualifying dealers on boats in inventory. As of December 31, 2014, there are no payables outstanding to floor plan lenders.

 

Fair Value Measurements

 

The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan assets classified as Level 3, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available.

 

 

Off Balance Sheet Arrangements

 

To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various third-party floor plan lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company’s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender. The agreements typically provide for the return of all repossessed boats in “new and unused” condition subject to normal wear and tear, as defined, to the Company, in exchange for the Company’s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits which vary by lender. During 2014, MPC became contractually obligated to repurchase inventory of approximately $1.1 million as a result of dealer defaults, none of which remains outstanding as of December 31, 2014.  All of these repossessed boats have been redistributed among existing and replacement dealers.  The Company recorded costs in connection with these repurchases of approximately $75 thousand during 2014 as a reduction of net sales.  There were no material repurchases of dealer inventory during 2013.

 

Management continues to monitor the risk of additional defaults and resulting repurchase obligation based primarily upon information provided by the third-party floor plan lenders and to adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time. As of December 31, 2014, the Company believes the fair value of its remaining guarantee liability is immaterial. See further information regarding repurchase obligations in “NOTE 9: COMMITMENTS AND CONTINGENCIES” of the Consolidated Financial Statements.

The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase obligation is limited to a maximum of 16 percent of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period, which was $8.2 million as of December 31, 2014.  The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $4.5 million, with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all financing institutions of approximately $12.7 million as of December 31, 2014.  Although the Company has these agreements with financial institutions, in certain situations, the Company may decide for business reasons to repurchase boats in excess of these contractual amounts.

 

Related Party Transactions

 

In conjunction with its spin-off from RPC in 2001, the Company and RPC entered into various agreements that define the companies’ relationship after the spin-off.

 

The Transition Support Services Agreement provides for RPC to provide certain services, including financial reporting and income tax administration, acquisition assistance, etc., to Marine Products until the agreement is terminated by either party. Marine Products reimbursed RPC for its estimated allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling $663,000 in 2014, $670,000 in 2013, and $544,000 in 2012. The Company’s liability to RPC for these services was approximately $47,000 as of December 31, 2014, and approximately $145,000 as of December 31, 2013. The Company’s directors are also directors of RPC and all of the Company’s executive officers with the exception of one are employees of both the Company and RPC.

 

During the year ended December 31, 2014, the Company purchased 100,000 shares for total consideration of $775,000, from one of its directors who is also an executive officer.  The purchase was completed under the stock buyback program approved by the Board of Directors that is currently in effect.

 

During the year ended December 31, 2014, RPC and Marine Products entered into a joint venture creating a limited liability company called 255 RC, LLC, that is owned 50 percent each for the purchase and ownership of a corporate aircraft.  255 RC, LLC was funded with a contribution of approximately $2,554,000 each from RPC and Marine Products.  The purchase of the aircraft was completed in January 2015 and each of RPC and Marine Products have entered into an operating lease agreement with 255 RC, LLC for a period of five years.

 

The Employee Benefits Agreement provides for, among other things, the Company’s employees to continue participating subsequent to the spin-off in two RPC sponsored benefit plans, specifically, the defined contribution 401(k) plan and the defined benefit retirement income plan.

 

A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W. Rollins, who is also director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.

 

 

Critical Accounting Policies

 

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes that, of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Sales recognition - The Company sells its boats through its network of independent dealers. Sales orders used to plan production are firm indications of interest from dealers and are cancelable at any time, although historically very few orders are cancelled after they have been placed. The Company recognizes sales when all the following conditions are met: (1) a fully executed sales agreement exists, (2) the price of the boat is established, (3) the dealer takes delivery of the boat, and (4) collectability of the sales price is reasonably assured.

Sales incentives and discounts – The Company records incentives as a reduction of sales or as a cost of sales as appropriate. Using historical trends and management estimates, adjusted for current changes, the Company estimates the amount of incentives that will be paid in the future on boats sold and accrues an estimated liability. The Company offers various incentives that promote sales to dealers, and to a lesser extent, retail customers. These incentives are designed to encourage timely replenishment of dealer inventories after peak selling seasons, stabilize manufacturing volumes throughout the year, and improve production model mix. The dealer incentive programs are a combination of annual volume commitment discounts, and additional discounts at time of invoice for those dealers who do not finance their inventory through specified floor plan financing agreements. The annual dealer volume discounts are primarily based on July 1 through June 30 model year purchases. In addition, the Company offers at various times other time-specific or model-specific incentives.

 

The factors that complicate the calculation of the cost of these incentives are the ability to forecast sales of the Company and individual dealers, the volume and timing of inventory financed by specific dealers, identification of which boats have been sold subject to an incentive, and the estimated lag time between sales and payment of incentives. Settlement of the incentives generally occurs from three to twelve months after the sale. The Company regularly analyzes the historical incentive trends and makes adjustments to recorded liabilities for changes in trends and terms of incentive programs. Total cost of incentives recorded in net sales as a percentage of gross sales was 8.3 percent in 2014, 9.5 percent in 2013, and 10.4 percent in 2012. A 0.25 percentage point change in cost of incentives as a percentage of gross sales during 2014 would have increased or decreased net sales, gross margin and operating income by approximately $0.4 million.

 

Warranty costs -The Company records as part of selling, general and administrative expenses an experience based estimate of the future warranty costs to be incurred when sales are recognized. The Company evaluates its warranty obligation on a model year basis. The Company provides warranties against manufacturing defects for various components of the boats, primarily the fiberglass deck and hull, with warranty periods extending up to a lifetime. Warranty costs, if any, on other components of the boats are generally absorbed by the original component manufacturer. Warranty costs can vary depending upon the size and number of components in the boats sold, the pre-sale warranty claims, and the desired level of customer service. While we focus on high quality manufacturing programs and processes, including actively monitoring the quality of our component suppliers and managing the dealer and customer service warranty experience and reimbursements, our estimated warranty obligation is based upon the warranty terms and the Company’s enforcement of those terms over time, defects, repair costs, and the volume and mix of boat sales. The estimate of warranty costs is regularly analyzed and is adjusted based on several factors including the actual claims that occur. Warranty expense as a percentage of net sales was 1.2 percent in 2014, 1.5 percent in 2013, and 1.5 percent in 2012. A 0.10 percentage point increase in the estimated warranty expense as a percentage of net sales during 2014 would have increased selling, general and administrative expenses and reduced operating income by approximately $0.2 million.

 

Income taxes - The effective income tax rate was 28.8 percent in 2014, 24.9 percent in 2013, and 28.2 percent in 2012. The effective tax rates vary due to changes in estimates of future taxable income, fluctuations in the tax jurisdictions in which the earnings and deductions are realized, variations in the relationship of tax-exempt income or losses to income before taxes and favorable or unfavorable adjustments to estimated tax liabilities related to proposed or probable assessments. As a result, the effective tax rate may fluctuate significantly on a quarterly or annual basis.

 

The Company establishes a valuation allowance against the carrying value of deferred tax assets when it is determined that it is more likely than not that the asset will not be realized through future taxable income. Such amounts are charged to earnings in the period the determination is made. Likewise, if it is later determined that it is more likely than not that the net deferred tax assets would be realized, the applicable portion of the previously provided valuation allowance is reversed. The Company considers future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

 

 

The Company calculates the current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed tax returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are expected to reverse.

 

The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. The Company believes it has adequately provided for any reasonably foreseeable outcome related to these matters. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates.

 

Impact of Recent Accounting Pronouncements

During the year ended December 31, 2014, the Financial Accounting Standards Board (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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Marine Products holds no derivative financial instruments which could expose the Company to significant market risk. Marine Products maintains an investment portfolio, comprised primarily of municipal debt and corporate debt securities, which are subject to interest rate risk exposure. This risk is managed through conservative policies to invest in high-quality obligations. Marine Products has performed an interest rate sensitivity analysis using a duration model over the near term with a 10 percent change in interest rates. Marine Products’ portfolio is not subject to material interest rate risk exposure based on this analysis. Marine Products does not expect any material changes in market risk exposures or how those risks are managed.

 

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders of Marine Products Corporation:

The management of Marine Products Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Marine Products Corporation maintains a system of internal accounting controls designed to provide reasonable assurance, at a reasonable cost, that assets are safeguarded against loss or unauthorized use and that the financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The internal control system is augmented by written policies and procedures, an internal audit program and the selection and training of qualified personnel. This system includes policies that require adherence to ethical business standards and compliance with all applicable laws and regulations.

There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Also, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud, if any, within the Company will be detected. Further, the design of a controls system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The Company intends to continually improve and refine its internal controls.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting, as of December 31, 2014 based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management’s assessment is that Marine Products Corporation maintained effective internal control over financial reporting as of December 31, 2014.

The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements as of and for the year ended December 31, 2014, and has also issued their report on the effectiveness of the Company’s internal control over financial reporting, included in this report on page 30.

Atlanta, Georgia

February 27, 2015

 

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

 

Board of Directors and Stockholders
Marine Products Corporation

 

We have audited the internal control over financial reporting of Marine Products Corporation (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. 

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2014, and our report dated February 27, 2015 expressed an unqualified opinion on those financial statements.

 

/s/ Grant Thornton LLP

 

Atlanta, Georgia

February 27, 2015

 

 

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

 

Board of Directors and Stockholders
Marine Products Corporation

 

We have audited the accompanying consolidated balance sheets of Marine Products Corporation (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marine Products Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2015 expressed an unqualified opinion thereon.

 

/s/ Grant Thornton LLP

 

Atlanta, Georgia

February 27, 2015

 

Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS MARINE PRODUCTS CORPORATION AND SUBSIDIARIES (in thousands except share information)
December 31,		2014				2013
ASSETS
Cash and cash equivalents		$	4,072			$	5,114
Marketable securities			3,653				5,639
Accounts receivable, net			2,369				2,021
Inventories			28,819				28,859
Income taxes receivable			123				692
Deferred income taxes			2,480				1,096
Prepaid expenses and other current assets			1,706				1,839
Current assets			43,222				45,260
Property, plant and equipment, net			9,890				11,265
Goodwill			3,308				3,308
Other intangibles, net			465				465
Marketable securities			33,831				30,949
Deferred income taxes			3,214				3,177
Other assets			9,893				8,129
Total assets		$	103,823			$	102,553
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable		$	3,577			$	5,569
Accrued expenses and other liabilities			9,631				8,993
Current liabilities			13,208				14,562
Pension liabilities			7,039				6,420
Other long-term liabilities			82				88
Total liabilities			20,329				21,070
Commitments and contingencies (Note 9)
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 outstanding – 38,130,862 shares in 2014, 38,095,322 shares in 2013			3,813				3,810
Capital in excess of par value			3,895				3,583
Retained earnings			77,755				74,943
Accumulated other comprehensive loss			(1,969	)			(853	)
Total stockholders’ equity			83,494				81,483
Total liabilities and stockholders’ equity		$	103,823			$	102,553
The accompanying notes are an integral part of these statements.

 

CONSOLIDATED STATEMENTS OF OPERATIONS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands except per share data)
Years ended December 31,		2014				2013				2012
Net sales		$	171,050			$	168,293			$	148,950
Cost of goods sold			138,379				138,480				121,746
Gross profit			32,671				29,813				27,204
Selling, general and administrative expenses			20,665				20,307				18,443
Operating income			12,006				9,506				8,761
Interest income			521				524				960
Income before income taxes			12,527				10,030				9,721
Income tax provision			3,613				2,502				2,742
Net income		$	8,914			$	7,528			$	6,979
EARNINGS PER SHARE
Basic		$	0.24			$	0.20			$	0.19
Diluted			0.24				0.20				0.19
Dividends paid per share		$	0.16			$	0.15			$	0.63
The accompanying notes are an integral part of these statements.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands)
Years ended December 31,	2014				2013				2012
Net income		$	8,914			$	7,528			$	6,979
Other comprehensive income, net of taxes:
Pension adjustment			(1,034	)			781				(105	)
Unrealized loss on securities, net of reclassification adjustments			(82	)			(62	)			(9	)
Comprehensive income		$	7,798			$	8,247			$	6,865
The accompanying notes are an integral part of these statements.

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands)
																		Accumulated
										Capital in								Other
Three Years Ended		Common Stock								Excess of				Retained				Comprehensive
December 31, 2014		Shares				Amount				Par Value				Earnings				Income (Loss)				Total
Balance, December 31, 2011			37,375			$	3,738			$	1,185			$	89,953			$	(1,458	)		$	93,418
Stock issued for stock incentive plans, net			767				76				2,604				—				—				2,680
Stock purchased and retired			(321	)			(32	)			(1,751	)			—				—				(1,783	)
Net income			—				—				—				6,979				—				6,979
Pension adjustment, net of taxes			—				—				—				—				(105	)			(105	)
Unrealized loss on securities, net of taxes and reclassification adjustments			—				—				—				—				(9	)			(9	)
Excess tax benefits for share-based payments			—				—				379				—				—				379
Dividends declared			—				—				—				(23,812	)							(23,812	)
Balance, December 31, 2012			37,821				3,782				2,417				73,120				(1,572	)			77,747
Stock issued for stock incentive plans, net			364				37				1,597				—				—				1,634
Stock purchased and retired			(90	)			(9	)			(567	)			—				—				(576	)
Net income			—				—				—				7,528				—				7,528
Pension adjustment, net of taxes			—				—				—				—				781				781
Unrealized loss on securities, net of taxes and reclassification adjustments			—				—				—				—				(62	)			(62	)
Excess tax benefits for share-based payments			—				—				136				—				—				136
Dividends declared			—				—				—				(5,705	)			—				(5,705	)
Balance, December 31, 2013			38,095			$	3,810			$	3,583			$	74,943			$	(853	)		$	81,483
Stock issued for stock incentive plans, net			260				25				1,729				—				—				1,754
Stock purchased and retired			(224	)			(22	)			(1,759	)			—				—				(1,781	)
Net income			—				—				—				8,914				—				8,914
Pension adjustment, net of taxes			—				—				—				—				(1,034	)			(1,034	)
Unrealized loss on securities, net of taxes and reclassification adjustments			—				—				—				—				(82	)			(82	)
Excess tax benefits for share-based payments			—				—				342				—				—				342
Dividends declared			—				—				—				(6,102	)			—				(6,102	)
Balance, December 31, 2014			38,131			$	3,813			$	3,895			$	77,755			$	(1,969	)		$	83,494
The accompanying notes are an integral part of these statements.

 

Years ended December 31,		2014				2013				2012
OPERATING ACTIVITIES
Net income		$	8,914			$	7,528			$	6,979
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			712				726				768
Loss (gain) on sale of equipment and property			31				(15	)			—
Stock-based compensation expense			1,754				1,702				1,495
Excess tax benefits for share-based payments			(342	)			(136	)			(379	)
Deferred income tax (benefit) provision			(805	)			78				(498	)
(Increase) decrease in assets:
Accounts receivable			(348	)			(227	)			415
Inventories			40				(700	)			(3,252	)
Prepaid expenses and other current assets			133				(232	)			(147	)
Income taxes receivable			569				(298	)			(394	)
Other non-current assets			790				(184	)			456
Increase (decrease) in liabilities:
Accounts payable			(1,992	)			1,323				1,254
Income taxes payable			342				134				(14	)
Other accrued expenses			638				(5	)			1,731
Other long-term liabilities			(990	)			186				(232	)
Net cash provided by operating activities			9,446				9,880				8,182
INVESTING ACTIVITIES
Capital expenditures			(451	)			(521	)			(354	)
Proceeds from sale of assets			1,083				15				—
Investment in joint venture			(2,554	)			—				—
Sales and maturities of marketable securities			20,085				14,576				51,247
Purchases of marketable securities			(21,110	)			(14,339	)			(34,082	)
Net cash (used for) provided by investing activities			(2,947	)			(269	)			16,811
FINANCING ACTIVITIES
Payment of dividends			(6,102	)			(5,705	)			(23,812	)
Cash paid for common stock purchased and retired			(1,781	)			(576	)			(960	)
Repayment of capital lease obligation			—				—				(375	)
Excess tax benefits for share-based payments			342				136				379
Proceeds received upon exercise of stock options			—				—				467
Net cash used for financing activities			(7,541	)			(6,145	)			(24,301	)
Net (decrease) increase in cash and cash equivalents			(1,042	)			3,466				692
Cash and cash equivalents at beginning of year			5,114				1,648				956
Cash and cash equivalents at end of year		$	4,072			$	5,114			$	1,648

 

 

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

 

(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

 

 

(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

 

 

December 31,		2014				2013
(in thousands)
Trade receivables		$	1,741			$	1,668
Other			653				378
Total			2,394				2,046
Less: allowance for doubtful accounts			(25	)			(25	)
Net accounts receivable		$	2,369			$	2,021

December 31,		2014				2013
(in thousands)
Raw materials		$	16,996			$	15,901
Work in process			6,602				7,435
Finished goods			5,221				5,523
Total inventories		$	28,819			$	28,859

 

December 31,		Estimated Useful Lives				2014				2013
(in thousands)
Land			N/A			$	657			$	657
Buildings			7-40				17,237				17,113
Operating equipment and property			3-15				9,981				9,768
Furniture and fixtures			5-7				1,978				1,915
Vehicles			5-10				4,217				6,422
Gross property, plant and equipment							34,070				35,875
Less: accumulated depreciation							(24,180	)			(24,610	)
Net property, plant and equipment						$	9,890			$	11,265

December 31,		2014				2013
(in thousands)
Accrued payroll and related expenses		$	1,935			$	1,393
Accrued sales incentives and discounts			2,671				3,025
Accrued warranty costs			3,836				3,410
Deferred revenue			706				836
Other			483				329
Total accrued expenses and other liabilities		$	9,631			$	8,993

Years ended December 31,		2014				2013				2012
(in thousands)
Current provision:
Federal		$	4,275			$	2,325			$	3,146
State			143				99				94
Deferred (benefit) provision:
Federal			(762	)			57				(493	)
State			(43	)			21				(5	)
Total income tax provision		$	3,613			$	2,502			$	2,742

Years ended December 31,		2014				2013				2012
Federal statutory rate			35.0	%			34.0	%			34.0	%
State income taxes, net of federal benefit			0.7				0.7				0.5
Research and experimentation credit			(2.1	)			(4.9	)			—
Tax-exempt interest			(1.1	)			(1.4	)			(2.3	)
Tax-exempt gain on SERP assets			(0.5	)			(1.2	)			(0.6	)
Manufacturing deduction			(3.3	)			(2.7	)			(3.0	)
Change in valuation allowance			—				0.2				—
Other			0.1				0.2				(0.4	)
Effective tax rate			28.8	%			24.9	%			28.2	%

 

December 31,		2014				2013
(in thousands)
Deferred tax assets:
Warranty costs		$	1,362			$	1,211
Sales incentives and discounts			512				542
Stock-based compensation			996				938
Pension			2,499				1,919
All others			444				268
State credits and NOL’s			4,674				4,634
Valuation allowance			(4,401	)			(4,359	)
Total deferred tax assets			6,086				5,153
Deferred tax liabilities:
Depreciation and amortization expense			(392	)			(880	)
Net deferred tax assets		$	5,694			$	4,273