confident
At the
helm
2012 ANNUAL REPORT
2801 Buford Highway NE, Suite 520, Atlanta, Georgia 30329
404.321.7910 www.marineproductscorp.com
©2013 Marine Products Corporation. All rights reserved.
The names of other companies and products mentioned herein may be the trademarks of their respective owners.
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2013 product overview
h20 Sport series
sunesta SPORTDECKS
Continuing an innovative line that brings Chaparral style, performance
and quality to first-time and experienced boat buyers at No Haggle,
Real Deal pricing. The H2O comes in 18- and 19-foot lengths in a sport,
or ski and fish package, and every style is loaded with features. Choose
an H2O and you will choose craftsmanship, value and innovation.
\\ 18 Sport \\ 18 Ski & Fish \\ 19 Sport \\ 19 Ski & Fish
The Sunesta, with its patented Wide Tech™ bow design, continues to
prove itself with broad customer appeal. With a new interior, this boat
combines the best features of many of Chaparral’s other products and
is suitable for most family uses, including cruising, wakeboarding and
sightseeing. The 2013 model line offers four boats ranging from 22
to 28 feet.
\\ 224 \\ 244 \\ 264 \\ 284
ss WIDE TECH™
Chaparral’s SSi sportboat open bow models are produced for the
quality- and style-conscious recreational boater. Models for the 2013
model year range in size from 20 to 25 feet, and they have once again
set a high standard for engineering excellence, attractive styling, and
quality materials and workmanship. Chaparral has incorporated its
patented Wide Tech™ bow design into several SSi models for additional
space in the forward part of the boat.
\\ 196 \\ 206 \\ 216 \\ 225 \\ 226 \\ 246
ssx SPORTDECKS
For the 2013 model year, Chaparral introduced the 277 SSX into
the lineup, increasing the choices to five for the SSX Sportdeck. All
SSX Sportdecks are offered with an enclosed head, a wet bar in the
cockpit, an integrated swim platform and a transom sun lounge.
Chaparral’s SSX offers the performance of a sportboat with the
roominess and utility of a pleasure boat.
\\ 257 \\ 277 (featured on the cover) \\ 285 \\ 287 \\ 327
robalo Sport
Fishing Boats
signature Cruisers
Robalo is continuing its success in 2013 with a line of multi-use sport
fishing boats that offer the offshore fisherman a dependable, seaworthy
design with all of the features that an offshore fisherman expects.
Affordable family fun is also an option with Robalo’s new 18- and 20-
foot center console models. All models have comfortable cabin layouts,
plush interiors and spacious seating arrangements.
In 2013, Chaparral continues the tradition of quality that has made
the Signature Cruiser a leader in the luxury sport cruiser market. The
Signature comes with many standard features that are options on
other cruisers in its class, and the largest Signatures offer a fiberglass
hard top, bow thrusters and such style features as underwater lighting.
The Signature line offers six models from 27 to 37 feet in length.
\\ 270 \\ 290 \\ 310 \\ 330 \\ 350 \\ 370
Center Console \\ R180 \\ R200 \\ R220 \\ R240 \\ R260 \\ R300
Walkaround \\ R225 \\ R245 \\ R265 \\ R305
Dual Console \\ R207 \\ R227 \\ R247
xtreme tow boats
In its sixth year, the Xtreme continues to be very popular with wakeboard
enthusiasts who want all the features and handling characteristics of
a traditional wakeboard boat but with more room, higher speed and
greater fuel efficiency. Features include an onboard ballast system and
automatic speed control for tournament wakeboarders. Other features
include custom graphics, a high-output sound system and an arch tower
with an aft bimini top and rotating brackets. Xtreme’s model lineup for
2013 includes four models ranging from 20 to 26 feet in length.
\\ 204 \\ 224 \\ 244 \\ 264
Cover Photo Credit: Atlanta Marine, Chaparral 277 SSX
420
Chaparral’s 420 Premiere Sport Yacht is the exciting result of several years
of development, and it represents an extension of Chaparral’s quality
brand name into a new and exciting product segment. This product
features the Wide Tech™ bow design and the revolutionary Volvo IPS
propulsion system, which makes it more maneuverable and easier to
dock than other sport yachts its size. The 420 Premiere is produced in
a 42-foot model for the 2013 model year.
01 \\ Financial Highlights
02 \\ Letter to Stockholders
04 \\ Confident at the Helm
07 \\ Form 10K
inside back cover \\ Corporate Information
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OFFICERS
R. Randall Rollins
Chairman of the Board of Directors
Richard A. Hubbell
President and Chief Executive Officer
James A. Lane, Jr.
Executive Vice President
President of Chaparral Boats, Inc.
Linda H. Graham
Vice President and Secretary
Ben M. Palmer
Vice President, Chief Financial Officer
and Treasurer
DIRECTORS
R. Randall Rollins§
Chairman of the Board, Rollins, Inc. (Consumer services)
and Chairman of the Board, RPC, Inc. (Oil and gas field services)
Henry B. Tippie*†
Chairman of the Board and Chief Executive Officer,
Tippie Services, Inc. (Management services)
Wilton Looney*
Honorary Chairman of the Board,
Genuine Parts Company (Automotive parts distributor)
At the 2013 Annual Meeting, Mr. Wilton Looney will not be standing
for reelection to the Board of Directors. Marine Products Corporation
offers our sincere thanks to Mr. Looney for his contributions and many
years of dedicated service to the Board and various committees.
James B. Williams*
Retired Chairman of the Executive Committee, SunTrust Banks, Inc.
(Bank holding company)
Gary W. Rollins§
Vice Chairman and Chief Executive Officer,
Rollins, Inc. (Consumer services)
Richard A. Hubbell§
President and Chief Executive Officer
James A. Lane, Jr.
Executive Vice President
President of Chaparral Boats, Inc.
Linda H. Graham
Vice President and Secretary
Bill J. Dismuke°
Retired President, Edwards Baking Company
Larry L. Prince
Retired Chairman of the Board and Chief Executive Officer,
Genuine Parts Company (Automotive parts distributor)
* Member of the Audit Committee, Compensation Committee,
Diversity Committee and Nominating and Governance Committee
† Chairman of the Audit Committee, Compensation Committee,
Diversity Committee and Nominating and Governance Committee
§ Member of the Executive Committee
° Member of the Audit Committee
STOCKHOLDER INFORMATION
Corporate Offices
Marine Products Corporation
2801 Buford Highway NE, Suite 520
Atlanta, Georgia 30329
Telephone: 404.321.7910
Stock Listing
New York Stock Exchange
Ticker Symbol
MPX
Investor Relations Website
www.marineproductscorp.com
Transfer Agent and Registrar
For inquiries related to stock certificates,
including changes of address, please contact:
American Stock Transfer & Trust Company, LLC
Shareholder Services Department
6201 15th Avenue
Brooklyn, NY 11219
Telephone: 800.937.5449
www.amstock.com
Annual Meeting
The annual meeting of Marine Products Corporation will be held at 12:00 p.m.,
April 23, 2013, 2170 Piedmont Road, NE, Atlanta, GA 30324.
Caution Concerning Forward-Looking Statements
The Annual Report contains statements that constitute “forward-looking
statements” under the Private Securities Litigation Reform Act of 1995,
including all statements that look forward in time or express management’s
beliefs, expectations or hopes. In particular, such statements include,
without limitation, statements regarding the Company’s belief that its
financial strength will continue to support its sales growth and allow the
Company to pursue strategic opportunities to enhance stockholder value
over the long term; the Company’s belief that a number of macroeconomic
and company-specific factors encourage the Company regarding its near-
term financial results; the Company’s belief that the recreational boating
industry is undergoing a steady recovery; the Company’s belief that its
introduction of smaller boat models is expanding the market for the
Company’s products; the Company’s belief that customers purchasing
smaller boats will enjoy owning the Company’s boats and will buy a larger
boat from the Company when they choose to purchase a larger boat;
and the Company’s belief that strong consumer demand and the Company’s
success in attracting the first-time boat buyer positions the Company
very well for the future. The actual results of the Company could differ
materially from those indicated by the forward-looking statements because
of various risks and uncertainties, including, without limitation, those
identified under the title “Risk Factors” in the Company’s Annual Report
on Form 10-K included as part of this Annual Report. All of the foregoing
risks and uncertainties are beyond the ability of the Company to control,
and in many cases the Company cannot predict the risks and uncertainties
that could cause its actual results to differ materially from those indicated
in the forward-looking statements.
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Marine Products Corporation (NYSE: MPX) designs, manufactures and
distributes premium-branded Chaparral sterndrive and inboard pleasure
boats and Robalo outboard sport fishing boats through 135 domestic and
69 international dealers. With premium brands, a solid capital structure
and a strong independent dealer network, over the years Marine Products
Corporation has generated strong financial performance and has built
long-term stockholder value. Marine Products Corporation is also
seeking to utilize its financial strength to capitalize on opportunities
that profitably increase its market share and broaden its product
offerings within the pleasure boat market. For more information, visit
our website at www.marineproductscorp.com.
NET SALES
(thousands)
$ 175,622
$ 148,950
$ 106,437
$ 101,011
$ 39,439
NET INCOME
(thousands)
AVERAGE SELLING PRICE
PER UNIT (thousands)
TOTAL NUMBER
OF BOATS SOLD
$ 47
$ 47
$ 48
$ 45
$ 41
3,590
3,404
2,145
2,100
963
$ 7,586
$ 6,979
$ 4,706
$ 3,853
$ (10,693)
08
09
10
11
12
08
09
10
11*
12
08
09
10
11
12
08
09
10
11
12
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2008
2009
2010
2011
2012
NET SALES
$ 175,622
$ 39,439
$ 101,011
$ 106,437
$ 148,950
GROSS PROFIT (LOSS)
OPERATING INCOME (LOSS)
31,945
8,799
(6,557)
(19,163)
17,713
3,720
NET INCOME (LOSS)
$ 7,586
$ (10,693)
$ 3,853
EARNINGS (LOSS) PER SHARE – DILUTED
$ 0.21
$ (0.30)
$ 0.11
GROSS PROFIT MARGIN PERCENT
OPERATING MARGIN PERCENT
18.2%
5.0%
(16.6) %
(48.6) %
17.5 %
3.7 %
19,506
5,376
$ 4,706 *
$ 0.13 *
18.3 %
5.1 %
27,204
8,761
$ 6,979
$ 0.19
18.3 %
5.9 %
* Excludes other income of $2,025 (in thousands)
mpx 2012 annual report
02
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Throughout 2012, the recreational boating industry improved due to moderately higher
consumer confidence, normalized dealer inventories, and a stable financing environment for
dealers and consumers. Although fuel prices were higher in 2012 than they were in 2011, and
economic uncertainty continued throughout the year, the overall selling environment for our
products improved. We grew at a rate that was higher than the industry’s growth rate due to
the success of our value-priced products and strong performance by our dealer network.
2012 marked the third consecutive year of increased net
sales and profitability. Net sales for 2012 were $149.0 million,
an increase of 39.9 percent compared to $106.4 million in
2011. Net sales improved due to higher unit sales of our
Our financial strength will continue
to support our sales growth and allow
us to pursue strategic opportunities to
enhance our stockholder value over
value-priced Chaparral H2O and Robalo sport fishing boats.
the long term.
03
We introduced these models for the 2012 model year, and
they were responsible for a majority of our growth. The
favorable impact of higher unit sales of these models was
partially offset by their lower average selling prices, although
average selling prices among many of our other larger
models increased slightly. International sales increased
by 32.6 percent in 2012 compared to 2011, and were
20.3 percent of net sales in 2012 compared to 21.4 percent
in the prior year. Gross profit was $27.2 million, an increase
of 39.5 percent compared to $19.5 million in 2011. Gross
margin was 18.3 percent in 2011 and 2012. Selling, general
and administrative expenses were $18.4 million in 2012,
or 12.4 percent of net sales, compared to $14.1 million,
As we begin 2013, a number of macroeconomic and
company-specific factors encourage us regarding our
near-term financial results. Residential real estate, especially
in several important recreational boating areas, has stabilized.
Consumer confidence and residential real estate continue
to improve, and the financing environment for both dealers
and consumers remains stable. Attendance and sales during
the 2013 winter boat show season were better than in 2012,
our order backlog is strong and our dealers’ inventories
are stocked with new models available to meet stronger
retail demand.
or 13.3 percent of net sales in 2011. Selling, general and
It was with mixed emotions that we received Wilton Looney’s
administrative expenses increased in 2012 due to expenses
announcement that he will not seek reelection when his
that vary with sales and profitability, such as warranty
term as Director expires at our upcoming stockholders’
expense, sales commissions and officer incentive
meeting in April. Wilton has served as a director of Marine
compensation. As a percentage of sales, these expenses
Products for 12 years, since Chaparral’s spin off from our
decreased slightly due to leverage from increased net sales.
former parent company into Marine Products Corporation.
Operating income in 2012 was $8.8 million, or 5.9 percent of
His extensive financial and management expertise has made
net sales, compared to $5.4 million, or 5.1 percent of net
him an important member of four of our Board committees,
sales, in 2011. Operating income as a percentage of net
and his experience as a chief executive officer and board
sales increased in 2012 compared to 2011 due to higher
chairman has helped us to manage our business through
net sales and gross profit, as well as positive leverage of
these years. Wilton’s wise counsel has been an invaluable
higher net sales over selling, general and administrative
contribution to our Board of Directors over the years, and
expenses in 2012.
Interest income declined by 3.7 percent, from $997 thousand
Marine Products will miss his guidance. We wish him well in
his retirement and continued involvement in the community.
in 2011 to $960 thousand in 2012. We continue to maintain
At Marine Products Corporation, we are very pleased with
a portfolio of liquid, high-quality, tax-exempt marketable
the market’s reception to our value-priced Chaparral and
securities, and we are pleased with the performance and
Robalo models, evidence of which can be seen both in our
credit quality of this portfolio. We did not record any other
financial results and in our tremendous market share gains
income in 2012, compared to other income in 2011 of
in 2012. In addition, we are beginning to see renewed
$2.0 million. Other income in 2011 was due to a non-
interest in some of our larger boats, as the results of our
taxable gain on a benefit plan financing arrangement.
past research and development efforts benefit us and our
Net income for 2012 was $7.0 million, compared to net
customers with updated designs and features for the boat
income excluding other income in 2011 of $4.7 million.
buyer who is interested in larger boats.
Diluted earnings per share were $0.19 in 2012, compared
to diluted earnings per share excluding other income in
2011 of $0.13.
As we continue to grow in what appears to be a steady
recovery in our industry, we are pleased that we are
capturing an increasingly large share of our market
During 2012, our Board of Directors reinstated our quarterly
segment. As always, we continue to appreciate the efforts
dividend and, in the fourth quarter, authorized the payment
of our employees, the dedication of our dealers and the
of a special $0.55 per share year-end dividend. In spite of
loyalty of our customers as we look ahead to 2013.
these dividends, our balance sheet at the end of the year
remained strong and liquid.
mpx 2012 annual report
RICHARD A. HUBBELL
JAMES A. LANE, JR.
President and Chief
Executive Officer
Executive Vice President and
President, Chaparral Boats, Inc.
confident at the helm
a slight course correction
produces far-reaching
positive results
Our answer was the Chaparral H2O and value-priced
Robalo sportfishing boats. Our Chaparral H2O and value-
priced Robalo models are made with the same materials
and construction techniques—and built by the same skilled
The financial crisis and economic downturn were catalysts
employees—as the rest of our boats. We are as proud to offer
for a severe downturn in the recreational boating industry,
these boats to the marketplace as we are of our other
as our customers’ concerns about their immediate financial
models. We began producing and selling these models late
needs discouraged them from making large, discretionary
in calendar year 2011, during the 2012 and 2013 model years.
purchases such as pleasure boats. This problem has been
exacerbated by the rising cost of boat ownership, due to
increases in the cost of raw materials, fuel and other operating
costs, as well as increased governmental regulation. However,
we also know that our consumers continue to go boating in
large numbers, and we have always believed in the long-
term future of our business. These factors forced us to think
about a course correction that would allow us to continue
to benefit from the accumulated value of our design and
production expertise, efficient production processes, strong
dealer network and brand-name recognition.
Our dealers and retail customers responded enthusiastically
to these new models, and this strong response was reflected
in our 2012 financial results. We generated the highest net
sales and net income in 2012 of any year since 2008.
Another indication of the success of these models is
unprecedented growth in Chaparral’s market share. For
the first time in our history, we have held double-digit
market share in the 18- to 35-foot sterndrive recreational
boat category, and we have returned to our position as the
third largest manufacturer within this segment. Furthermore,
we are approaching the market share of our larger peers,
r305 walkaround interior
Signature 310 interior
05
277 ssx
because we have accomplished most of these market
smaller model Chaparral H2O series has attracted, increasing
share gains among smaller boats, a large market segment
our overall market share. These customers will enjoy owning
in which we have traditionally been under-represented.
our boats, and when the time comes to buy a larger boat,
We also believe that this course correction is expanding the
market for our products. In addition to building a quality
boat at a good price, we have made it easy for the customer
to buy with confidence, through strong customer service and
nationally advertised pricing. During 2012, retail customers
who bought our Chaparral H2O were more than twice
as likely to be first-time boat buyers as the purchasers
of another Chaparral model. This fact demonstrates the
increase in first-time customers that our value-priced,
we believe that they will choose a Chaparral or Robalo.
More American consumers are going boating today than
at any other time in the past 15 years, and they expect a
boat to have the same technological advances as other
consumer products, which means that they are more willing
to buy a new boat with these features. This indication of
strong consumer demand and our success in attracting the
first-time boat buyer positions us very well for the future.
Our dealers and retail customers responded enthusiastically
to these new models, and … We generated the highest net sales
and net income in 2012 of any year since 2008.
This customized information, in a user-friendly format at the
fingertips of our sales representatives streamlines the sales
process and makes it much more effective. We believe this is
a cost-effective way to make a meaningful impact with sales
prospects, especially those who are new to boating and
want to evaluate detailed information in order to make an
informed purchasing decision.
06
staying on course with
the latest technology
Technological advances continue to impact the process of
marketing and selling recreational boats. These innovations
offer tremendous opportunities to highlight the positive
aspects of a product and allow the customer to make an
informed decision, and in a crowded marketplace, advanced
technology can be a major point of differentiation. In addition,
first-time boat buyers expect the same customized, high-
technology experience when considering a new boat as
with many other consumer products they experience.
During 2012, we addressed these opportunities by developing
and implementing an iPad® app for our Chaparral and Robalo
dealers which includes model specifications, photos, videos,
product comparisons, lead generation and the ability to build
and price a specific boat with all the features and options a
consumer wants. Our iPad app supported our success during
the 2013 winter boat show season. At the end of the season,
our Global iPad Dealer App won the Marine Marketers of
America’s Neptune Award for the best business-to-business
iPad application.
r247 dual console
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
✕
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012
Commission File No. 1-16263
MARINE PRODUCTS CORPORATION
Delaware
(State of Incorporation)
58-2572419
(I.R.S. Employer Identification No.)
2801 BUFORD HIGHWAY, SUITE 520
ATLANTA, GEORGIA 30329
(404) 321-7910
Title of each class
COMMON STOCK, $0.10 PAR VALUE
Name of each exchange on which registered
NEW YORK STOCK EXCHANGE
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Smaller reporting company
✕
Act). Yes No
✕
The aggregate market value of Marine Products Corporation common stock held by non-affiliates on June 30,
2012, the last business day of the registrant’s most recent second fiscal quarter, was $62,673,648 based on the closing
price on the New York Stock Exchange on June 30, 2012 of $6.08 per share.
Marine Products Corporation had 38,104,520 shares of common stock outstanding as of February 15, 2013.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2013 Annual Meeting of Stockholders of Marine Products Corporation are
incorporated by reference into Part III, Items 10 through 14 of this report.
7
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 expected effect of recent accounting pronouncements on the Company’s
consolidated financial statements; the Company’s estimate for warranty accruals; enhance the Company’s
belief that there exists a favorable outlook for the near-term selling environment for our products;
management’s belief that net sales will increase in 2013 compared to 2012; the Company’s belief that
sales of the Company’s new models will either maintain or increase consolidated net sales, gross profit,
operating income and net income compared to 2012, by increasing unit sales and spreading our fixed
production costs over higher production volume; the Company’s belief that retail boat sales have started to
increase over the past several quarters; the Company’s belief that this increase in retail sales will be
modest; our belief that a slow recovery from the recession, continued high unemployment, depressed real
estate values and continued weak consumer confidence will tend to discourage consumers from purchasing
large discretionary goods such as pleasure boats; the lower expected returns on financial assets may have
long term effects on consumer behavior with regard to pleasure boating; the Company’s belief that the
recreational boating industry promotional program has incrementally benefited the industry and Marine
Products; our plans to enhance the value-priced Chaparral and Robalo models we initially introduced in
2012 as well as to develop new Chaparral and Robalo models which we believe will appeal to our target
markets; our belief that the value-priced models introduced last year and the new models being developed
will continue to enhance the achievement of our objectives related to improved manufacturing cost
efficiencies, meeting dealer requests for entry-level models and increasing the retail market share; 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 2013; the Company’s expectation about
contributions to its pension plan in 2013; the Company’s belief that it may repurchase additional
outstanding common shares periodically based on market conditions; our plans, intentions, and strategies
regarding pursuing acquisitions and strategic alliances; the Company’s expectation to continue to pay cash
dividends to common stockholders subject to earnings and financial condition of the Company and other
relevant factors; the Company’s expectations about the use of net operating loss carryforwards; the
expectation that boat operating licenses will not be unduly restrictive; the Company’s expectation to
continue purchasing sterndrive engines through the ABA; expectations regarding expenditures necessary to
comply with environmental or safety regulations; the Company’s belief that it will not be able to institute
sufficient price increases to compensate for increased material costs; the Company’s belief that it is likely
that these increased prices will negatively impact the Company’s operating results; the Company’s
expectation regarding market risk of its investment portfolio; and the Company’s expectations about the
effect of litigation on the Company’s financial position or results of operations.
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, unavailability of credit and possible decreases in the
level of consumer confidence impacting discretionary spending, business interruptions due to adverse
8
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,
competition from other boat manufacturers and dealers, and insurance companies that insure a number of
Marine Products’ marketable securities have been downgraded, which may cause volatility in the market
price of Marine Products’ marketable securities. 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 “Rick Factors” on page 19 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 and inboard
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 and sport fishing markets. The Company sells its products to a network of
135 domestic and 69 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 and inboard-powered pleasure boats including H2O
Sport and Fish & Ski boats, SSi and SSX Sportboats, Sunesta Sportdecks and Xtreme Tow boats,
Signature Cruisers, Premiere Sport Yachts and Robalo outboard sport fishing boats. The most recent
available industry statistics [source: Statistical Surveys, Inc. report dated September 30, 2012] indicate that
Chaparral is the third largest manufacturer of sterndrive boats in lengths from 18 to 35 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 work force. With almost 47 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 two percent.
9
Products
Marine Products distinguishes itself by offering a wide range of products to the family recreational,
cruiser and sport yacht 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:
Product Line
Chaparral – H2O
Sport Series . . . . . . . .
Number
of
Models
4
Overall
Length
18′–19′
Approximate
Retail
Price Range
$24,000 –
$39,000
Chaparral – SSi
Wide Tech™ . . . . . . .
6
20′–25′
$41,000 –
$100,000
Chaparral – SSX
Sportdeck . . . . . . . . .
Chaparral – Sunesta
and Xtreme Tow
Boat . . . . . . . . . . . . . .
Chaparral – Signature
Cruiser . . . . . . . . . . . .
Chaparral – Premiere
Sport Yacht . . . . . . . .
5
8
6
1
26′–32′
$92,000 –
$328,000
20′–28′
$60,000 –
$164,000
27′–37′
$101,000 –
$487,000
42′
$700,000 –
$896,000
Robalo – Sport
Fishing Boat . . . . . . .
13
18′–30′
$28,000 –
$301,000
10
Description
Fiberglass multipurpose runabouts.
Sport and Ski & Fish series offers an
affordable, entry-level product with a
national fixed retail price including a
standard engine and single axle trailer.
Marketed to both experienced and
value-conscious buyers.
Fiberglass closed deck runabouts.
Encompasses affordable, entry-level to
mid-range and larger sportboats.
Marketed as high value runabouts for
family groups. Wide TechTM is marketed
as an affordable, entry-level to mid-
range pleasure boat with the handling of
a runabout, the style of a sportboat and
the roominess of a cruiser.
Fiberglass bowrider crossover
sportboats that combine the ride of a
sportboat and the usefulness of a
deckboat. Marketed as high value
runabouts for family groups.
Fiberglass pleasure boats with a
high-performance hull design and
updated styling. Xtreme, with Wide
Tech™ innovation, is marketed as a
high-performance wakeboard/ski boat
with technical features and styling that
appeal to wakeboard and ski enthusiasts.
Fiberglass, accommodation-focused
cruisers. Marketed to experienced boat
owners through trade magazines and
boat show exhibitions.
High value, fiberglass sport yacht with
a Wide TechTM bow design marketed to
experienced boat owners through trade
magazines and boat show exhibitions.
Sport fishing boats for large freshwater
lakes or saltwater use. Marketed to
experienced fishermen. For the 2013
model year, two models are marketed to
first-time and value-conscious buyers
with a national fixed retail price and
standard features.
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
third 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 most of 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 Chaparral Premiere model, Marine Products provides a transferable five-year limited
structural hull and deck warranty against defects in material and workmanship for the original and one
subsequent owner. A one-year limited warranty is available on most other components to the original
owner and one subsequent owner along with warranties on some additional items ranging from 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 engine manufacturers for our Robalo and Chaparral products warrant engines included in the
boats 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 domestic 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
11
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. This engine supply
arrangement was not negotiated through the ABA. In the event of a sudden and extended interruption in
the supply of engines from 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 2011 and
2012, these prices stabilized, but at historically high levels. See “Inflation” below.
Sales and Distribution
Domestic sales are made through approximately 74 Chaparral dealers, 16 Robalo dealers and 45
dealers that sell both brands located in markets throughout the United States. Marine Products also has 69
international dealers. During 2012 the financial strength of our dealer network improved due to lower field
inventories and 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 2012, 2011 or 2010.
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 payment in full before it
will ship a boat overseas. Consequently, there is no credit risk associated with its 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 2012 compared to 2011 due to the persistent economic crisis primarily in Europe.
International sales demand is also affected by the value of the U.S. dollar relative to other currencies.
International net sales as a percentage of total net sales were 20.3 percent in 2012, 21.4 percent in 2011,
and 30.5 percent in 2010.
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 67 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
12
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 5 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 15 percent of the average net receivables financed by the
floor plan lender for our dealers during the prior 12 month period, which was $5.3 million as of December
31, 2012. The Company has contractual repurchase agreements with additional lenders with an aggregate
maximum repurchase obligation of approximately $5.4 million, with various expiration and cancellation
terms of less than one year. The aggregate repurchase obligation with all financing institutions was
approximately $10.7 million as of December 31, 2012. 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 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 2013 model year (which commenced July
1, 2012), 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 May 1, 2013. 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 our dealers’ inventories of our boat models are appropriate relative to the current level
of customer demand; 64 percent of dealers’ inventories are 2013 model year units. The sales order backlog
as of December 31, 2012 was approximately 809 boats with estimated net sales of approximately $29.4
million. This represents an approximate 11.6 week backlog based on recent production levels. As of
December 31, 2011, the sales order backlog was approximately 900 boats with estimated net sales of
$34.9 million, representing an approximate 14 week backlog. The Sales order backlog at December 31,
2011 reflected the significant number of dealer orders obtained upon the successful introduction of the
new entry level models in the fourth quarter of 2011. 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
13
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 planning 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 LiftTM 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 LiftTM design
and we plan to continue to provide this design on Robalo models.
A bow design known as the Wide TechTM was first used on the Chaparral Sunesta Wide TechTM and
Xtreme models for the 2008 model year, and is currently being used on Chaparral’s Premiere Sport Yacht,
SSi Wide TechTM Sport Boats, Sunesta Sportdecks, Xtreme Tow Boats and two Signature Cruisers. The
Wide TechTM 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 TechTM 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 $768 thousand in 2012, $789 thousand in 2011, and $489 thousand in 2010.
Industry Overview
The recreational marine market in the United States is a mature market, with 2011 (latest data
available to us) retail expenditures of approximately $32 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 83 million adults in the United States participated in recreational boating in 2011, an increase
of 11 percent compared to the prior year, although non-active boat owners cite lack of leisure time and
increased operational and fuel costs as the primary reasons for not using their boats. A higher percentage
of American consumers participated in recreational boating in 2011 than in any year since 1997. There are
currently approximately 16 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 and inboard boating category with its seven lines of Chaparral boats,
and in the outboard boating category with its Robalo sport fishing boats. Approximately 85 percent of the
Company’s unit sales are sterndrive boats.
14
Industry sales of new sterndrive boats in the United States during 2012 totaling 13,959 (source: Info-
Link Technologies, Inc.) accounted for approximately 28 percent of the total new fiberglass powerboats
sold between 18 and 35 feet in hull length. Sales of sterndrive boats had an estimated total retail value of
$708 million, or an average retail price per boat of approximately $51,000. Management believes that the
five largest states for boat sales at the present time are Florida, Texas, Michigan, New York and Louisiana.
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 35 feet, the primary market segment in which Marine Products competes,
represented $2.1 billion in retail sales during 2012. The table below reflects the estimated sales within this
segment by category for 2012 and 2011 (source: Info-Link Technologies, Inc.):
Sterndrive Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outboard Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inboard Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jet Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
______________________
2011
______________________
Boats
_________
13,959
26,209
5,694
3,558
______
49,420
______
______
Sales ($ B)
__________
$0.7
0.9
0.4
0.1
____
$2.1
____
____
Boats
_________
14,412
23,125
5,180
2,588
______
45,305
______
______
Sales ($ B)
__________
$0.7
0.7
0.3
0.1
____
$1.8
____
____
Chaparral’s products are categorized as sterndrive and inboard boats and Robalo’s products are
categorized as outboard boats. As shown in the table above, the sterndrive boats segment was the only
segment that experienced a decline in unit sales between 2011 and 2012.
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 approximately 70 sterndrive manufacturers and
over 200 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, 2012 (latest information available),
the top five sterndrive manufacturers, which includes Chaparral, have a market share of approximately 56
percent, an increase of two percentage points compared to the same time last year. Chaparral’s market
share in units during this 9 month period was 11.7 percent, which represents a significant increase of
approximately 3.4 percentage points compared to 8.3 percent during the 12 months ended December 31,
2011. The Company believes that this significant improvement in market share is due primarily to the
success of our value-priced Chaparral H2O models, which are 18 or 19 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
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;
15
•
•
•
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
sterndrive boats declined at a compounded annual rate of approximately 6 percent between 2009 and
2012. During this period, Marine Products experienced a compounded annual growth rate of
approximately 52 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 2012 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 2012, the Company’s dealer inventories were approximately
52 percent higher than they were at the end of 2011, 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 2013 retail selling season. Chaparral has grown its sterndrive market share in the 18 to
35 feet length category from 5.9 percent in fiscal 1996 to 11.7 percent during the nine months ended
September 30, 2012 (the most recent information available to us from Statistical Surveys, Inc.). Our
market share increased across the breadth of our model sizes during 2012, although market share increased
at a higher rate among our smaller boat models.
During 2011 Marine Products developed several new Chaparral and Robalo models for the 2012
model year which address the market for entry-level, value-priced boats. These models, the Chaparral
H2O Sport and Fish & Ski Boats and the Robalo R180 and R200, are affordable models with a small
number of standard features. These models also carry nationally advertised fixed pricing and include a
trailer. Marine Products developed these models in order to increase unit sales in a segment in which the
Company has an opportunity to increase market share and improve profitability. Furthermore, we hope to
capture additional market share as purchasers of these entry-level models purchase larger Chaparral or
Robalo models in the future. During 2012, sales of these models were responsible for increases in our net
sales, gross profit, operating profit, and net income. They were also responsible for our significant
increases in market share. Chaparral’s market share in the 18 to 19 foot category increased approximately
8 percentage points in 2012.
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 12
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 204 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. We have implemented a marketing program for potential new
dealers which emphasizes our financial strength and product quality as an alternative to many other
manufacturing organizations which are less financially stable. As a result of this program, we believe that
we gained a number of new, strong dealers who approached us because the manufacturer of products they
16
carried became insolvent or ceased production. 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.
Competition
The recreational boat industry is highly fragmented, resulting in intense competition for customers,
dealers and boat show exhibition space. There is significant competition both within markets we currently
serve and in new markets that we may enter. Marine Products’ brands compete with several large national
or regional manufacturers that have substantial financial, marketing and other resources. However, we
believe that our corporate infrastructure and marketing and sales capabilities, in addition to our financial
strength, and our nationwide presence, enable us to compete effectively against these companies. In each
of our markets, Marine Products competes on the basis of responsiveness to customer needs, the quality
and range of models offered, and the competitive pricing of those models. Additionally, Marine Products
faces general competition from all other recreational businesses seeking to attract consumers’ leisure time
and discretionary spending dollars.
According to Statistical Surveys, Inc., the following is a list of the top ten (largest to smallest) sterndrive
boat manufacturers in the United States based on unit sales in 2012. According to Statistical Surveys, Inc.,
the companies set forth below represent approximately 78 percent of all United States retail sterndrive boat
registrations with hull lengths of 18 to 35 feet for the nine months ended September 30, 2012.
1. Sea Ray *
2. Bayliner *
3. Chaparral
4. Tahoe
5. Cobalt
6. Crownline
7. Stingray
8. Regal
9. Glastron
10. Four Winns
The outboard engine powered market has a large breadth and depth, accounting for approximately 53
percent of traditional powerboat unit sales during 2012. Robalo’s share of the outboard sport fishing boat
market during the nine months ended September 30, 2012 was approximately two percent. Primary
competitors for Robalo during 2012 included Ranger, Sea Hunt, Sea Fox, Grady-White, Boston Whaler*,
Everglades and Parker.
* Division or subsidiary of Brunswick Corporation.
Environmental and Regulatory Matters
Certain materials used in boat manufacturing, including the resins used to make the decks and hulls,
are toxic, flammable, corrosive, or reactive and are classified by the federal and state governments as
“hazardous materials.” Control of these substances is regulated by the Environmental Protection Agency
(“EPA”) and state pollution control agencies, which require reports and inspect facilities to monitor
compliance with their regulations. The Occupational Safety and Health Administration (“OSHA”)
standards limit the amount of emissions to which an employee may be exposed without the need for
17
respiratory protection or upgraded plant ventilation. Marine Products’ manufacturing facilities are
regularly inspected by OSHA and by state and local inspection agencies and departments. Marine Products
believes that its facilities comply in all material aspects with these regulations. Although capital
expenditures related to compliance with environmental laws are expected to increase during the coming
years, we do not currently anticipate that any material expenditure will be required to continue to comply
with existing environmental or safety regulations in connection with our existing manufacturing facilities.
Recreational powerboats sold in the United States must be manufactured to meet the standards of
certification required by the United States Coast Guard. In addition, boats manufactured for sale in the
European Community must be certified to meet the European Community’s imported manufactured
products standards. These certifications specify standards for the design and construction of powerboats.
All boats sold by Marine Products meet these standards. In addition, safety of recreational boats is subject
to federal regulation under the Boat Safety Act of 1971. The Boat Safety Act requires boat manufacturers
to recall products for replacement of parts or components that have demonstrated defects affecting safety.
Marine Products has instituted recalls for defective component parts produced by other manufacturers.
None of the recalls has had a material adverse effect on Marine Products.
The EPA has adopted regulations stipulating that many marine propulsion engines meet an air
emission standard that requires fitting a catalytic converter to the engine. These regulations also require,
among other things, that the engine manufacturer provide a warranty that the engine meets EPA emission
standards. The majority of the engines used in Marine Products’ Chaparral product line and all of the
engines used in the Company’s Robalo product line are subject to these regulations. These regulations are
similar to regulations adopted by the California Air Resources Board in 2007, but apply to all U.S. states
and territories. This regulation has increased the cost to manufacture the majority of the Company’s boat
products. The additional cost of complying with these EPA regulations may reduce Marine Products’
profitability, because the Company may have to absorb the increased cost. It may also reduce Marine
Products’ net sales, because the increased cost of owning a boat may force consumers to buy a smaller or
less expensive boat or forego a boat purchase, and because increased product cost will reduce the amount
of inventory that Marine Products’ dealers can carry, thus reducing retail consumers’ choices.
Employees
As of December 31, 2012, Marine Products had approximately 590 employees (an increase from
approximately 450 at December 31, 2011), of whom 6 were management, 37 were administrative and 7
were sales. Although the number of employees has increased in 2012 compared to 2011 in order to support
increased production levels, the Company currently maintains a significantly smaller work force compared
to years prior to 2009 in an effort to align costs with sales and consumer demand for our products.
None of Marine Products’ employees are party to a collective bargaining agreement. Marine
Products’ entire workforce is currently employed in the United States and Marine Products believes that its
relations with its employees are good.
Proprietary Matters
Marine Products owns a number of trademarks, trade names and patents that it believes are important
to its business. Except for the Chaparral, Robalo and Wahoo! trademarks, however, Marine Products is not
dependent upon any single trademark or trade name or group of trademarks or trade names. The
Chaparral, Robalo and Wahoo! trademarks are currently registered in the United States. The current
duration for such registration ranges from seven to 15 years but each registration may be renewed an
unlimited number of times.
Several of Chaparral’s and Robalo’s designs are protected under the U.S. Copyright Office’s Vessel
Hull Design Protection Act. This law grants an owner of an original vessel hull design certain exclusive
rights. Protection is offered for hull designs that are made available to the public for purchase provided
that the application is made within two years of the hull design being made public. As of December 31,
18
2012, there were 22 Chaparral hull designs and four Robalo hull designs registered under the Vessel Hull
Design Protection Act.
During 2008 Chaparral was granted a design patent on its Wide TechTM hull design by the U.S. Patent
and Trademark Office. The patent has a term of 14 years and protects the Wide TechTM hull currently used
on the Sunesta Wide TechTM and Xtreme, 400 Premiere, SSi Wide TechTM and two of its Signature Cruisers
from being used by other pleasure boat manufacturers. Marine Products believes that this patent is
important to its business.
Seasonality
Marine Products’ quarterly operating results are affected by weather and general economic
conditions. Quarterly operating results for the second quarter have historically recorded the highest sales
volume for the year because this corresponds with the highest retail sales volume period. The results for
any quarter are not necessarily indicative of results to be expected in any future period.
Inflation
The market prices of certain material and component costs used in manufacturing the Company’s
products, especially resins that are made with hydrocarbon feedstocks, copper and stainless steel, were
very volatile as a result of the financial crisis of 2008, the ensuing global recession and the subsequent
economic recovery. The prices of many of these commodities have stabilized, but at historically high
levels. As a result, we believe that the Company will continue to incur high materials costs in 2013. We
cannot be confident that the Company will be able to institute sufficient price increases to its dealers to
compensate for these increased materials costs, or that the Company will be able to implement
manufacturing strategies that will significantly reduce usage of raw materials that will compensate for
these increased materials costs.
New boat buyers typically finance their purchases. Higher inflation typically results in higher interest
rates that could translate into an increased cost of boat ownership. Should higher inflation and increased
interest rates occur, prospective buyers may choose to forego or delay their purchases or buy a less
expensive boat in the event that interest rates rise or credit is not available to finance their boat purchases.
Availability of Filings
Marine Products makes available free of charge on its website, www.marineproductscorp.com, the
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports on the same day as they are filed with the Securities and Exchange
Commission.
Item 1A. Risk Factors
Economic Conditions, Availability of Credit and Consumer Confidence Levels Affect Marine Products’
Sales Because Marine Products’ Products are Purchased with Discretionary Income
During an economic recession or when an economic recession is perceived as a threat, Marine
Products will be adversely affected as consumers have less discretionary income or are more apt to save
their discretionary income rather than spend it. During times of global political or economic uncertainty,
Marine Products will be negatively affected to the extent consumers forego or delay large discretionary
purchases pending the resolution of those uncertainties. The 2008 financial crisis and lingering recession
may have long-term effects on consumer behavior with regard to pleasure boating as well. Financial
market volatility may force consumers to delay retirement, or to choose more modest lifestyles when they
do retire. In such a case, consumers may not purchase boats, may purchase boats later in their lives, or
may purchase smaller or less expensive boats. Tight lending and credit standards, which until recently
have been in use by lenders in the United States, can make loans for boats harder to secure, and such loans
may carry unfavorable terms, which may force consumers to forego boat purchases. These factors have
19
also resulted in the past, and may continue to result in the future, in a reduction in the quality and number
of dealers upon which Marine Products relies to sell its products.
Marine Products Relies upon Third-Party Dealer Floor Plan Lenders Which Provide Financing to its
Network of Independent Dealers
Marine Products sells its products to a network of independent dealers, most of whom rely on one or
more third-party dealer floor plan lenders to provide financing for their inventory prior to its sale to retail
customers. In general, this source of financing is vital to Marine Products’ ability to sell products to its
dealer network. The credit crisis and financial market volatility that occurred in late 2008 and extended
into 2009 caused disruptions among dealer floor plan lenders and increased retail incentive costs to Marine
Products. While dealer floor plan credit is currently available for many of our dealers during the 2013
model year, it is more costly than in prior years. This factor has increased the cost of financing for our
dealers, thus reducing the amount of inventory they can carry. This factor negatively impacts Marine
Products’ sales and profitability.
Interest Rates and Fuel Prices Affect Marine Products’ Sales
The Company’s products are often financed by our dealers and the retail boat consumers. Higher
interest rates increase the borrowing costs and, accordingly, the cost of doing business for dealers and the
cost of boat purchases for consumers. Fuel costs can represent a large portion of the costs to operate our
products. Therefore, higher interest rates and fuel costs can adversely affect consumers’ decisions relating
to recreational boating purchases.
Marine Products’ Dependence on its Network of Independent Boat Dealers may Affect its Operating
Results and Sales
Virtually all of Marine Products’ sales are derived from its network of independent boat dealers.
Marine Products has no long-term agreements with these dealers. Competition for dealers among
recreational powerboat manufacturers continues to increase based on the quality of available products, the
price and value of the products, and attention to customer service. The Company faces intense competition
from other recreational powerboat manufacturers in attracting and retaining independent boat dealers. The
number of independent boat dealers supporting the Chaparral and Robalo trade names and the quality of
their marketing and servicing efforts are essential to Marine Products’ ability to generate sales. A
deterioration in the number of Marine Products’ network of independent boat dealers which occurred during
the recent challenging selling environment, has had and could continue to have a material adverse effect on
its boat sales. Marine Products’ inability to attract new dealers and retain those dealers, or its inability to
increase sales with existing dealers, could substantially impair its ability to execute its business plans.
Although Marine Products’ management believes that the quality of its products and services in the
recreational boating market should permit it to maintain its relationship with its dealers and its market
position, there can be no assurance that Marine Products will be able to sustain its current sales levels. In
addition, independent dealers in the recreational boating industry have experienced significant consolidation
in recent years, which could result in the loss of one or more of Marine Products’ dealers in the future if the
surviving entity in any such consolidation purchases similar products from a Marine Products competitor.
Marine Products’ Financial Condition and Operating Results may be Adversely Affected by Boat Dealer
Defaults
The Company’s products are sold through dealers and the financial health of these dealers is critical
to the Company’s continued success. The Company’s results can be negatively affected if a dealer defaults
because Marine Products or its subsidiaries may be contractually required to repurchase inventory up to
certain limits, although for business reasons, the Company may decide to purchase additional boats in
excess of this contractual obligation.
20
Marine Products’ Ability to Adjust its Business Operations to Compensate for Reduced Sales of Boats may
be Restricted in the Future
In 2008 Marine Products idled certain production facilities and reduced its number of employees to
offset the impact that reduced net sales had on the Company’s operating results and cash flows. As a
result, the Company experienced lower rates of absorption of its fixed costs. The Company’s sales
improved in 2011 and 2012, thus increasing the rate of absorption of its fixed costs and improving
operating and net income. Although the Company’s unit sales have significantly improved, Marine
Products still operates at levels which are significantly lower than its potential capacity. These lower
operating levels may continue to have an adverse affect in 2013 and in future periods beyond 2013. In
addition, the Company’s ability to reduce its fixed costs in the future to respond to potential future reduced
net sales is limited.
Marine Products’ Sales are Affected by Weather Conditions
Marine Products’ business is subject to weather patterns that may adversely affect its sales. For
example, drought conditions, or merely reduced rainfall levels, or excessive rain, may close area boating
locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our
products. In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter
selling season in some locations. Hurricanes and other storms could cause disruptions of our operations or
damage to our boat inventories and manufacturing facilities.
Marine Products Encounters Intense Competition Which Affects our Sales and Profits
The recreational boat industry is highly fragmented, resulting in intense competition for customers,
dealers and boat show exhibition space. This competition affects both the markets which we currently
serve and new markets that we may enter in the future. We compete with several large national or regional
manufacturers that have substantial financial, marketing and other resources.
Marine Products has Potential Liability for Personal Injury and Property Damage Claims
The products we sell or service may expose Marine Products to potential liabilities for personal
injury or property damage claims relating to the use of those products. Historically, the resolution of
product liability claims has not materially affected Marine Products’ business. Marine Products maintains
product liability insurance that it believes to be adequate. However, there can be no assurance that Marine
Products will not experience legal claims in excess of its insurance coverage or that claims will be covered
by insurance. Furthermore, any significant claims against Marine Products could result in negative
publicity, which could cause Marine Products’ sales to decline.
Because Marine Products Relies on Third-party Suppliers, Marine Products may be Unable to Obtain
Adequate Raw Materials and Components
Marine Products is dependent on third-party suppliers to provide raw materials and components
essential to the construction of its various powerboats. Especially critical are the availability and cost of
marine engines and commodity raw materials used in the manufacture of Marine Products’ boats. While
Marine Products’ management believes that supplier relationships currently in place are sufficient to
provide the materials necessary to meet present production demands, there can be no assurance that these
relationships will continue, that these suppliers will remain in operation given the extended business
downturn in the recreational boating industry or that the quantity or quality of materials available from
these suppliers will be sufficient to meet Marine Products’ future needs. Disruptions in current supplier
relationships or the inability of Marine Products to continue to purchase construction materials in
sufficient quantities and of sufficient quality at acceptable prices to meet ongoing production schedules
could cause a decrease in sales or a sharp increase in the cost of goods sold. Additionally, because of this
dependence, the volatility in commodity raw materials or current or future price increases in construction
materials or the inability of Marine Products’ management to purchase materials required to complete its
21
growth and acquisition strategies could cause a reduction in Marine Products’ profit margins or reduce the
number of boats Marine Products may be able to produce for sale.
Marine Products may be Unable to Identify, Complete or Successfully Integrate Acquisitions
Marine Products intends to pursue acquisitions and form strategic alliances that will enable Marine
Products to acquire complementary skills and capabilities, offer new products, expand its customer base,
and obtain other competitive advantages. There can be no assurance, however, that Marine Products will
be able to successfully identify suitable acquisition candidates or strategic partners, obtain financing on
satisfactory terms, complete acquisitions or strategic alliances, integrate acquired operations into its
existing operations, or expand into new markets. Once integrated, acquired operations may not achieve
anticipated levels of sales or profitability, or otherwise perform as expected. Acquisitions also involve
special risks, including risks associated with unanticipated problems, liabilities and contingencies,
diversion of management resources, and possible adverse effects on earnings and earnings per share
resulting from increased interest costs, the issuance of additional securities, and difficulties related to the
integration of the acquired business. The failure to integrate acquisitions successfully may divert
management’s attention from Marine Products’ existing operations and may damage Marine Products’
relationships with its key customers and suppliers.
Marine Products’ Success will Depend on its key Personnel, and the Loss of any key Personnel may Affect
its Powerboat Sales
Marine Products’ success will depend to a significant extent on the continued service of key
management personnel. The loss or interruption of the services of any senior management personnel or the
inability to attract and retain other qualified management, sales, marketing and technical employees could
disrupt Marine Products’ operations and cause a decrease in its sales and profit margins.
Marine Products’ Ability to Attract and Retain Qualified Employees is Crucial to its Results of Operations
and Future Growth
Marine Products relies on the existence of an available hourly workforce to manufacture its products.
As with many businesses, we are challenged at times to find qualified employees. There are no assurances
that Marine Products will be able to attract and retain qualified employees to meet current and/or future
growth needs.
If Marine Products is Unable to Comply with Environmental and Other Regulatory Requirements, its
Business may be Exposed to Liability and Fines
Marine Products’ operations are subject to extensive regulation, supervision and licensing under
various federal, state and local statutes, ordinances and regulations. While Marine Products believes that it
maintains all requisite licenses and permits and is in compliance with all applicable federal, state and local
regulations, there can be no assurance that Marine Products will be able to continue to maintain all
requisite licenses and permits and comply with applicable laws and regulations. The failure to satisfy these
and other regulatory requirements could cause Marine Products to incur fines or penalties or could
increase the cost of operations. The adoption of additional laws, rules and regulations could also increase
Marine Products’ costs.
The U.S. Environmental Protection Agency (EPA) has adopted regulations affecting many marine
propulsion engines. This regulation has increased the cost of boats subject to the regulation, which may
either reduce the Company’s profitability or reduce sales.
As with boat construction in general, our manufacturing processes involve the use, handling, storage
and contracting for recycling or disposal of hazardous or toxic substances or wastes. Accordingly, we are
subject to regulations regarding these substances, and the misuse or mishandling of such substances could
expose Marine Products to liability or fines.
22
Additionally, certain states have required or are considering requiring a license in order to operate a
recreational boat. While such licensing requirements are not expected to be unduly restrictive, regulations
may discourage potential first-time buyers, thereby reducing future sales.
Marine Products’ Stock Price has been Volatile
Historically, the market price of common stock of companies engaged in the discretionary consumer
products industry has been highly volatile. Likewise, the market price of our common stock has varied
significantly in the past. In addition, the availability of Marine Products common stock to the investing
public is limited to the extent that shares are not sold by the executive officers, directors and their
affiliates, which could negatively impact the trading price of Marine Products’ common stock, increase
volatility and affect the ability of minority stockholders to sell their shares. Future sales by executive
officers, directors and their affiliates of all or a substantial portion of their shares could also negatively
affect the trading price of Marine Products’ common stock.
Marine Products’ Management has a Substantial Ownership Interest; Public Stockholders may have no
Effective Voice in Marine Products’ Management
The Company has elected the “Controlled Corporation” exemption under Rule 303A of the New York
Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled Corporation” because a group
that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother, Gary W. Rollins,
who is also a director of the Company, and certain companies under their control, controls in excess of
fifty percent of the Company’s voting power. As a “Controlled Corporation,” the Company need not
comply with certain NYSE rules including those requiring a majority of independent directors.
Marine Products’ executive officers, directors and their affiliates hold directly or through indirect
beneficial ownership, in the aggregate, approximately 73 percent of Marine Products’ outstanding shares
of common stock. As a result, these stockholders effectively control the operations of Marine Products,
including the election of directors and approval of significant corporate transactions such as acquisitions.
This concentration of ownership could also have the effect of delaying or preventing a third-party from
acquiring control of Marine Products at a premium.
Provisions in Marine Products’ Certificate of Incorporation and Bylaws may Inhibit a Takeover of Marine
Products
Marine Products’ certificate of incorporation, bylaws and other documents contain provisions
including advance notice requirements for stockholder proposals and staggered terms of office for the
Board of Directors. These provisions may make a tender offer, change in control or takeover attempt that
is opposed by Marine Products’ Board of Directors more difficult or expensive.
The Market Prices of Marine Products’ Marketable Securities may Become Volatile due to the
Downgrading of Insurance Companies Which Insure Some of These Marketable Securities as well as the
Overall Financial Difficulties of Some of the Issuers of These Marketable Securities
Marine Products maintains a diversified portfolio of short-duration, investment-grade municipal debt
securities held in safekeeping by a large, well-capitalized financial institution. Our investment manager
selects securities based on underlying credit quality as disclosed by various rating agencies as well as
specific analysis of specific municipal issuers. Our investment manager selects securities based on
underlying credit quality rather than relying on credit insurance, and all of our insured securities carry
underlying credit ratings which are investment grade and meet our investment criteria. Many municipal
governments are currently struggling with lower tax revenues and budgets. While our investment
manager does not believe that there is significant risk of default of any securities within our portfolio of
marketable securities, market prices of these marketable securities may be volatile during such periods of
uncertainty.
23
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Marine Products’ corporate offices are located in Atlanta, Georgia. These offices are currently shared
with RPC and are leased. The monthly rent paid is allocated between Marine Products and RPC. Under
this arrangement, Marine Products pays approximately $2,000 per month in rent. Marine Products may
cancel this arrangement at any time after giving a 30 day notice.
Chaparral owns and maintains approximately 1,012,000 square feet of space utilized for
manufacturing, research and development, warehouse, and sales office and operations in Nashville,
Georgia. In addition, the Company owns 83,000 square feet of manufacturing space at the Robalo facility
in Valdosta, Georgia. During 2008, the Robalo facility was temporarily idled and production of these boats
was moved to the Nashville facility. There are no plans or current intentions to dispose of the facilities in
Valdosta, Georgia. The Company also leases 111,000 square feet of warehouse space in Nashville,
Georgia under a long-term arrangement expiring in 2018. Marine Products’ total square footage under roof
is allocated as follows: manufacturing — 712,000, research and development — 68,500, warehousing —
294,500, office and other — 131,400.
Item 3. Legal Proceedings
Marine Products is involved in litigation from time to time in the ordinary course of its business.
Marine Products does not believe that the ultimate outcome of such litigation will have a material adverse
effect on its liquidity, financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
24
Item 4A. Executive Officers of the Registrant
Each of the executive officers of Marine Products was elected by the Board of Directors to serve until
the Board of Directors’ meeting immediately following the next annual meeting of stockholders or until
his or her earlier removal by the Board of Directors or his or her resignation. The following table lists the
executive officers of Marine Products and their ages, offices, and date first elected to office.
Name and Office with Registrant
R. Randall Rollins (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board
Richard A. Hubbell (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President and Chief Executive Officer
James A. Lane, Jr. (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President and President of Chaparral Boats, Inc.
Linda H. Graham (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President and Secretary
Ben M. Palmer (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Chief Financial Officer and Treasurer
Age
81
68
70
76
52
Date First
Elected
to Present Office
2/28/01
2/28/01
2/28/01
2/28/01
2/28/01
(1) R. Randall Rollins began working for Rollins, Inc. (consumer services) in 1949. At the time of the spin-off of RPC from
Rollins, Inc. in 1984, Mr. Rollins was elected Chairman of the Board and Chief Executive Officer of RPC. He remains
Chairman of RPC and stepped down from the position of Chief Executive Officer effective in 2003. He has served as Chairman
of the Board of Marine Products since 2001 and Chairman of the Board of Rollins, Inc. since 1991. He is also a director of
Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.
(2) Richard A. Hubbell has been the President and Chief Executive Officer of Marine Products since it was spun off in 2001. He
(3)
has also been President of RPC since 1987 and its Chief Executive Officer since 2003. Mr. Hubbell serves on the Board of
Directors for both of these companies.
James A. Lane, Jr. has held the position of President of Chaparral Boats (formerly a subsidiary of RPC) since 1976. Mr. Lane
has been Executive Vice President and Director of Marine Products since it was spun off in 2001. He is also a director of RPC
and has served in that capacity since 1987.
(4) Linda H. Graham has been Vice President and Secretary of Marine Products since it was spun off in 2001, and Vice President
and Secretary of RPC since 1987. Ms. Graham serves on the Board of Directors for both of these companies.
(5) Ben M. Palmer has been Vice President, Chief Financial Officer and Treasurer of Marine Products since it was spun off in 2001
and has served the same roles at RPC since 1996.
25
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 15, 2013, there were 38,104,520 shares of common stock outstanding.
At the close of business on February 15, 2013, there were approximately 1,990 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, 2012 and 2011 were as follows:
Quarter
First . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . .
2012
________________________________
Dividends
High
$0.02
$6.75
0.02
6.30
0.02
6.18
0.57
6.25
Low
$4.95
4.96
5.01
5.10
2011
________________________________
Dividends
Low
High
$0.00
$6.41
$7.95
0.00
5.11
8.04
0.00
3.42
6.82
0.00
3.22
6.09
In December 2012, in addition to the quarterly dividend of $0.02 per share, the board of directors
approved a special year-end dividend of $0.55 per share. On January 23, 2013, the Board of Directors
voted to increase the quarterly cash dividend to $0.03 per share to common stockholders. 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 announced in 2001, and
subsequent increases to this program announced in 2005 and 2008. These programs do not have
predetermined expiration dates. There were 102,628 shares repurchased in the open market during 2012. As
of December 31, 2012, a total of 3,222,215 shares remain available for repurchase under these programs.
26
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 2012 the components
of the Russell 2000 had a weighted average market capitalization in 2012 of $1.3 billion, and a median
market capitalization of $510 million.
The graph below assumes the value of $100.00 invested on December 31, 2007.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
160
140
120
100
80
60
40
20
-
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Marine Products Corporation Common Stock
Peer Group
Russell 2000 Index
*Assumes Reinvestment of Dividends
27
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.
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . .
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . .
Interest income . . . . . . . . . . . . . . . .
Other income (1) . . . . . . . . . . . . . . .
Income (loss) before income taxes . .
Income tax provision (benefit) . . . .
Net income (loss) . . . . . . . . . . . . . .
Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per share . . . . . . .
Other Financial and Operating Data:
Gross profit (loss) margin percent . .
Operating margin percent . . . . . . . .
Net cash provided by (used for)
Years Ended December 31,
(In thousands, except share, per share and employee data)
2012
2011
2010
2009
2008
$ 148,950
121,746
_________
27,204
$ 106,437
86,931
_________
19,506
$ 101,011
83,298
_________
17,713
$ 39,439
45,996
________
(6,557)
$ 175,622
143,677
_________
31,945
18,443
_________
8,761
960
—
_________
9,721
2,742
_________
6,979
$
_________
_________
$
0.19
_________
_________
$
0.19
_________
_________
$
0.63
_________
_________
14,130
_________
5,376
997
2,025
_________
8,398
1,667
_________
6,731
$
_________
_________
$
0.19
_________
_________
$
0.18
_________
_________
$
0.00
_________
_________
13,993
_________
3,720
1,172
—
_________
4,892
1,039
_________
3,853
$
_________
_________
$
0.11
_________
_________
$
0.11
_________
_________
$
0.00
_________
_________
12,606
________
(19,163)
1,663
—
________
(17,500)
(6,807)
________
$ (10,693) $
________
________
23,146
_________
8,799
2,420
—
_________
11,219
3,633
_________
7,586
_________
_________
(0.30) $
(0.30) $
$
________
________
$
________
________
$
0.01
________
________
0.21
_________
_________
0.21
_________
_________
$
0.26
_________
_________
18.3%
5.9%
18.3%
5.1%
17.5%
3.7%
(16.6)%
(48.6)%
18.2%
5.0%
operating activities . . . . . . . . . . . .
$
8,182
$
3,296
$ 10,879
$ (9,036) $ 14,045
Net cash provided by (used for)
investing activities . . . . . . . . . . . .
16,811
(11,559)
(3,718)
7,416
(2,255)
Net cash used for financing
activities . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . .
Employees at end of year . . . . . . . .
Factory and administrative space at
end of year (square ft.) . . . . . . . .
Balance Sheet Data at end of year:
Cash and cash equivalents . . . . . . . .
Marketable securities — current . . .
Marketable securities — non-current . .
Inventories . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . .
Property, plant and equipment, net . .
Total assets . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . .
(24,301)
354
587
1,205
1,648
1,150
35,773
28,159
22,789
11,470
97,315
77,747
$
$
$
(316)
357
450
1,205
956
12,402
41,699
24,907
32,301
11,884
110,837
93,418
$
$
$
$
$
$
(199)
191
358
$
(429)
85
307
$
(10,401)
329
441
1,205
1,205
1,205
9,535
12,826
30,007
21,882
37,773
12,416
102,809
86,305
$
$
2,573
23,328
16,117
19,487
46,065
13,310
98,249
4,622
8,799
37,953
22,453
32,992
14,579
110,293
$ 81,512 $ 90,789
(1) Other income for 2011 is comprised of a tax-free gain from an employee benefit plan financing arrangement.
28
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 8.
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. Most of these dealers finance their inventory through third-party floor plan lenders, who pay
Marine Products upon 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 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 2012, overall industry retail sales increases have been modest due to a slow economic
recovery, persistent high unemployment, depressed real estate values and continued weak consumer
confidence. In spite of these conditions our sales increased significantly in 2012, due primarily to the
introduction of new entry level models in both the Chaparral and Robalo product lines. The increased
production of these smaller value-priced units resulted in improved production efficiencies which were
29
partially offset by generally lower margins on these models. We achieved higher net sales, as well as
increased gross and operating profit in 2012 compared to 2011. Management will continue to monitor
retail demand, 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 35 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, 2012 (latest data available to us), Chaparral’s market share in the 18 to 35 foot sterndrive
category was 11.7 percent, an increase from our market share in the same category for the nine months
ended September 30, 2011 of 8.3 percent. Our market share increased across a broad size range, but was
higher among the smaller boats in our market due to the new entry level Chaparral models which were
first introduced in the fourth quarter of 2011. Chaparral’s market share in the 18 to 19 foot category has
increased to 11.6 percent during 2012, compared to 4.0 percent in 2011, due to the successful launch of
these smaller models. The emphasis on these models resulted in a significant increase in unit sales,
partially offset by a decrease in average selling price per boat. 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
Management believes that net sales will be higher in 2013 compared to 2012 and that our operating
results will improve. This belief is based on indications that recreational boating retail demand has
stabilized and may be improving, the fact that our dealer inventories are at reasonable levels, and that our
order backlog remains strong. Indications from early winter boat shows are that attendance and sales are
moderately higher than at this same time last year.
Although industry wide retail boat sales remain lower than they were in 2008, volumes did expand
in 2012 and we expect this to continue in 2013. We believe improvements in retail boat sales will be
modest due to the continued economic weakness which tends to discourage consumers from purchasing
large discretionary goods such as pleasure boats. Fluctuations in fuel prices can impact our sales. Rising
fuel prices in the first quarter of 2013 could negatively impact 2013 spring retail sales, thus impacting
our production levels, net sales and margins. Over the long term, the lower expected returns on financial
assets may have long-term effects on consumer behavior with regard to pleasure boating. However, if
sustained, recent improvements in the housing market could have positive effects on sales. For a number
of years, Marine Products as well as other 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. 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
is enhancing its selection of models for the 2013 model year which began on July 1, 2012. We are
continuing to expand the value-priced Chaparral and Robalo models that were initially introduced for
model year 2012, as well as updating selected larger models in the SSX line. We believe that the value-
priced models we are producing will continue to enhance the achievement of our objectives related to
improved manufacturing cost efficiencies, meeting dealer requests for entry-level models and increasing
retail market share.
Our financial results in 2013 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 certain of our raw materials and key components.
30
Results of Operations
($’s in thousands)
Total number of boats sold to dealers . . . . . . . . . . . . . . . . . . . . . . .
Average gross selling price per boat . . . . . . . . . . . . . . . . . . . . . . . .
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of gross profit margin to net sales . . . . . . . . . . . . . . . . .
Percentage of selling, general and administrative expense to
Years ended December 31,
2011
2,100
48.4
$
$106,437
2010
2,145
44.7
$
$101,011
2012
3,404
41.1
$
$148,950
18.3%
18.3%
17.5%
net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.4%
8,761
2,245
$
$
13.3%
5,376
1,032
$
$
13.9%
3,720
2,033
$
$
Year Ended December 31, 2012 Compared To Year Ended December 31, 2011
Net Sales. Marine Products’ net sales increased by $42.5 million or 39.9 percent in 2012 compared to
2011. The increase was primarily due to a 62.1 percent increase in the number of boats sold, partially offset
by a 15.1 percent decrease in the average gross selling price per boat. Unit sales increased dramatically due
to sales of our recently introduced Chaparral H2O Sport and Fish & Ski Boats, as well as our Robalo 180
and 200 outboard sport fishing boat. The increased sales of these smaller models also resulted in the
decrease in overall average selling prices during 2012 compared to 2011. During 2012, sales outside of the
United States accounted for 20.3 percent of net sales, a slight decrease compared to 21.4 percent of net
sales in the prior year. Domestic sales increased 42.0 percent and international sales increased 32.6 percent
during the period compared to the prior year. The majority of the increase in international sales was due to
higher sales volumes in Canada due to an expanded dealer network coupled with improvement in the
Canadian economy while most other international economies continue to struggle.
Cost of Goods Sold. Cost of goods sold increased 40.0 percent in 2012 compared to 2011. As a
percentage of net sales, cost of goods sold was 81.7 percent for 2012, unchanged compared to 2011
despite increased sales of smaller models, which carry lower margins. The impact of decreased margins
was offset by increased production efficiencies due to higher production levels.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
30.5 percent in 2012 compared to 2011 primarily as a result of costs that vary with the level of Company
sales, such as warranty expense, marketing, research and development expenses and sales commissions.
Selling, general and administrative expenses as a percentage of sales decreased from 13.3 percent in 2011
to 12.4 percent in 2012, primarily due to leverage of fixed costs over higher net sales. Warranty expense
was 1.5 percent of net sales in 2012 compared to 1.0 percent of net sales in 2011. Warranty expense as a
percentage of net sales was lower in 2011, due primarily to favorable claims experience and the resulting
change in management’s estimate of warranties issued in prior years.
Interest Income. Interest income was $960 thousand in 2012 compared to $997 thousand in 2011.
Marine Products generates interest income primarily from investments in tax-exempt municipal
obligations. The slight decrease in interest income is primarily due to lower market returns on the
Company’s debt investments compared to the prior year offset by an increase in the average investment
balance compared to the prior year. Interest income includes $290 thousand in gains realized on sales of
marketable securities sold to fund a portion of our special year-end dividend.
Other Income. Other income of $2.0 million recorded in the fourth quarter of 2011 represents a tax-free
gain from an employee benefit plan financing arrangement. There was no other income reported in 2012.
Income Tax Provision. The income tax provision was $2.7 million in 2012 compared to $1.7 million
in 2011. The effective tax rate in 2012 was 28.2 percent compared to 19.9 percent in 2011. The change in
the effective rate was due primarily to a $2.0 million tax free gain recorded in 2011, coupled with a
disproportionate increase in our annual pretax income in relation to permanent differences between book
and taxable income including tax-exempt income earned on municipal debt securities, and insurance
contracts, and the US manufacturer’s deduction.
31
Year Ended December 31, 2011 Compared To Year Ended December 31, 2010
Net Sales. Marine Products’ net sales increased by $5.4 million or 5.4 percent in 2011 compared to
2010. The increase was primarily due to a 8.3 percent increase in the average gross selling price per boat,
partially offset by a 2.1 percent decrease in the number of boats sold. Average gross selling price per boat
increased compared to the prior year, with the exception of Robalo, due to higher unit sales of several of
the larger boats within the SSi and SSX Sportboats model lineup offset slightly by the sales of our new
lower priced Chaparral H2O. Unit sales among all models, except Robalo and H2O, decreased slightly
compared to the prior year.
Cost of Goods Sold. Cost of goods sold increased 4.4 percent in 2011 compared to 2010, less than the
increase in net sales. As a percentage of net sales, cost of goods sold decreased in 2011 compared to 2010,
primarily due to lower retail incentive costs as a percentage of net sales and cost efficiencies resulting
from higher production volumes.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
1.0 percent in 2011 compared to 2010 primarily as a result of costs, including sales commissions and
incentive compensation, that vary with the level of Company sales and profitability. Warranty expense was
1.0 percent of net sales in 2011 compared to 2.0 percent of net sales in 2010. This decrease was due
primarily to an adjustment of warranties issued in prior years due to positive trends including a decline in
the number of warranty claims during 2011 compared to 2010. Warranty claims declined because of less
boat usage and lower field inventories.
Interest Income. Interest income was $1.0 million in 2011 compared to $1.2 million in 2010. Marine
Products generates interest income primarily from investments in tax-exempt municipal obligations. The
decrease in interest income is primarily due to lower market returns on the Company’s debt investments
compared to the prior year.
Other Income. Other income was $2.0 million in 2011 compared to $0 in 2010. The $2.0 million
recorded in the fourth quarter of 2011 represents a tax-free gain from an employee benefit plan financing
arrangement.
Income Tax Provision. The income tax provision was $1.7 million in 2011 compared to $1.0 million
in 2010. The effective tax rate in 2011 was 19.8 percent compared to 21.2 percent in 2010. The change in
the effective rate was due primarily to the relationship of our annual pretax income to permanent
differences between book and taxable income including tax-exempt interest earned on municipal debt
securities, coupled with the impact of discrete tax adjustments, including state NOLs expected to be used
in the future.
Liquidity and Capital Resources
Cash and Cash Flows
The Company’s cash and cash equivalents were $1.6 million at December 31, 2012, $1.0 million at
December 31, 2011 and $9.5 million at December 31, 2010. In addition, the aggregate of short-term and
long-term marketable securities was $36.9 million at December 31, 2012, $54.1 million at December 31,
2011 and $42.8 million at December 31, 2010.
The following table sets forth the historical cash flows for the twelve months ended December 31:
(in thousands)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) investing activities . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . .
$
2012
8,182
16,811
(24,301)
$
2011
3,296
(11,559)
(316)
2010
$ 10,879
(3,718)
(199)
2012
Cash provided by operating activities increased by $4.9 million in 2012 compared to 2011. This
increase was primarily due to a significant increase in net income during 2012 compared to 2011,
32
excluding the gain on a benefit plan financing arrangement in 2011, partially offset by higher working
capital requirements during 2012 consistent with increased production volumes and the timing of adding
critical manufacturing components into inventory.
Cash provided by investing activities was $16.8 million in 2012 compared to $11.6 million used for
investing activities in 2011. This change was due to increased sales of marketable securities, 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 increased $24.0 million in 2012 primarily due to the reinstatement
of a $0.02 per share regular quarterly dividend beginning in the first quarter of 2012 coupled with a
special dividend of $0.55 per share paid in the fourth quarter of 2012. There were no dividend payments
in 2011.
2011
Cash provided by operating activities decreased by $7.6 million in 2011 compared to 2010. This
decrease is primarily the result of an income tax refund of $6.2 million received in 2010 (relating to 2009
losses) offset slightly by an increase in earnings in 2011, excluding the gain on a benefit plan financing
arrangement, compared to 2010.
Cash used for investing activities increased approximately $7.8 million in 2011 compared to 2010
due to increased purchases of marketable securities in 2011 as a result of improved cash flows from
operations.
Cash used for financing activities increased only $0.1 million in 2011 compared to 2010.
Cash Requirements
Management expects that capital expenditures during 2013 will be approximately $1.4 million.
The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc.
(“RPC”). During 2012, the Company made contributions of $714 thousand to this plan in order to achieve
the Company’s funding objective. We expect that additional contributions to the Retirement Income Plan
of approximately $50 thousand will be required in 2013.
On January 23, 2013, the Board of Directors approved a quarterly dividend of $0.03 per common
share to stockholders payable March 8, 2013 to stockholders of record at the close of business on February
8, 2013.
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. As of December 31, 2012, the
Company has purchased a total of 5,027,785 shares in the open market under this program and there are
3,222,215 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 2012. At
December 31, 2012 there were no amounts payable to lenders related to repurchased inventory or
repurchased boats remaining in inventory. 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
33
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, 2012:
Contractual Obligations (in 000’s)
Long-term debt . . . . . . . . . . . . . . . . . . . . .
Capital lease obligation . . . . . . . . . . . . . . .
Operating leases (1) . . . . . . . . . . . . . . . . .
Purchase obligations (2) . . . . . . . . . . . . . .
Due to floor plan lenders (3) . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
$
— $
—
915,878
—
—
—
$915,878
— $
—
156,517
—
—
—
$156,517
— $
—
320,341
—
—
—
$320,341
— $
—
304,820
—
—
—
$304,820
More than
5 years
—
—
134,200
—
—
—
$134,200
(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, 2012, there are no payables outstanding to floor plan lenders.
Additionally, our liability for unrecognized tax benefits and related interest and penalties was $14,000
as of December 31, 2012. Management is unable to make a reasonable estimate as to when cash
settlement with the tax authorities might occur due to the uncertainties related to these tax matters.
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 2011, the Company became obligated
to repurchase inventory at a cost of approximately $0.8 million. There were no material repurchases of
dealer inventory during 2012.
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
34
time. As of December 31, 2012, 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 limit is limited to a maximum of 15 percent of the average net receivables financed by the floor
plan lender for dealers during the prior 12 month period, which was $5.3 million as of December 31,
2012. The Company has contractual repurchase agreements with additional lenders with an aggregate
maximum repurchase obligation of approximately $5.4 million, with various expiration and cancellation
terms of less than one year, for an aggregate repurchase obligation with all financing institutions of
approximately $10.7 million as of December 31, 2012. 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 $544,000 in
2012, $639,000 in 2011, and $689,000 in 2010. The Company’s liability to RPC for these services was
approximately $94,000 as of December 31, 2012, and approximately $3,000 as of December 31, 2011.
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.
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) collectibility of the sales price is
reasonably assured.
Sales incentives and discounts – The Company records incentives as a reduction of sales. 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
35
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 incentives
recorded in net sales as a percentage of gross sales were 10.4 percent in 2012, 12.5 percent in 2011, and
12.0 percent in 2010. A 0.25 percentage point change in incentives as a percentage of gross sales during
2012 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 expense 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 10 years. 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 1.5
percent in 2012, 1.0 percent in 2011, and 2.0 percent in 2010. Warranty expense as a percentage of net
sales was lower in 2011, due primarily to favorable claims experience and the resulting change in
management’s estimate of warranties issued in prior years. A 0.10 percentage point increase in the
estimated warranty expense as a percentage of net sales during 2012 would have increased selling, general
and administrative expenses and reduced operating income by approximately $0.1 million.
Income taxes – The effective income tax rate was 28.2 percent in 2012, 19.8 percent in 2011, and 21.2
percent in 2010. 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 large tax rate increase in 2012, compared to 2011,
is due primarily to a $2.0 million tax free gain recorded in 2011 that did not reoccur in 2012.
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.
36
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 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, 2012, the Financial Accounting Standards Board (FASB) issued
the following Accounting Standards Updates (ASU):
Recently Adopted Accounting Pronouncements:
•
•
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The
amendments to the Codification in this ASU allow an entity the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In both choices, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a
total for other comprehensive income, and a total amount for comprehensive income. This ASU
eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not
change the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendments are to be applied
retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company
has adopted these provisions in the first quarter of 2012 and has presented a separate statement of
comprehensive income consecutively after the statement showing net income in the accompanying
financial statements. Adoption of these provisions did not have a material impact on the Company’s
consolidated financial statements.
ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment. The amendments in this codification permits an entity to first assess
qualitative factors to determine whether it is “more likely than not” that the indefinite-lived
intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity
concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then
the entity is not required to take further action. However, if an entity concludes otherwise, then it is
required to perform the quantitative impairment test by comparing the fair value with the carrying
amount in accordance with Codification Subtopic 350-30. An entity has the option to bypass the
qualitative assessment for any indefinite-lived intangible asset in any period, proceeding directly to
performing the quantitative impairment test and resume performing the qualitative assessment in any
subsequent period. The amendments in this ASU are effective for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012 with early adoption being
permitted, including for annual and interim impairment tests performed as of a date before July 27,
2012, if an entity’s financial statements for the most recent annual or interim period have not been
issued. The Company adopted these provisions in the fourth quarter of 2012 for annual and interim
impairment tests performed starting this year. Adoption of these provisions did not have a material
impact on the Company’s consolidated financial statements.
37
Recently Issued Accounting Pronouncements Not Yet Adopted:
•
•
Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this
ASU do not change the current requirements for reporting net income or other comprehensive
income in financial statements. All of the information that this ASU requires already is required to be
disclosed elsewhere in the financial statements under U.S. GAAP. The amendments are effective for
all reporting periods beginning after December 15, 2012, with early adoption permitted. The
Company plans to adopt these provisions in the first quarter of 2013. Adoption of these provisions is
not expected to have a material impact on the Company’s consolidated financial statements and the
Company will comply with the additional disclosures as required.
Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort
to bring congruence between U.S. GAAP and International Financial Reporting Standards. The
amendments in this ASU require an entity to disclose information about derivatives that are subject
to a legally enforceable netting arrangement with the same party where rights of set-off are only
available in the event of default or bankruptcy and can be presented as a single net amount in the
statement of financial position. The amendments in this ASU are effective for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those annual periods, with
the required disclosures being provided retrospectively for all comparative periods presented. The
Company is currently evaluating the impact of adoption of these provisions in the first quarter of
2013.
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.
38
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, 2012 based on
criteria established in 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, 2012.
The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated
financial statements as of and for the year ended December 31, 2012, and has also issued their report on the
effectiveness of the Company’s internal control over financial reporting, included in this report on page 40.
Richard A. Hubbell
President and Chief Executive Officer
Ben M. Palmer
Chief Financial Officer and Treasurer
Atlanta, Georgia
March 1, 2013
39
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, 2012, based on criteria
established in 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, 2012, based on criteria established in 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, 2012, and our report dated March 1, 2013 expressed an unqualified opinion on those
financial statements.
Atlanta, Georgia
March 1, 2013
40
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, 2012 and 2011, 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, 2012. 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, 2012
and 2011, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2012 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, present 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, 2012,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2013
expressed an unqualified opinion thereon.
Atlanta, Georgia
March 1, 2013
41
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands except share information)
December 31,
2012
2011
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,648
1,150
1,794
28,159
394
1,283
1,607
36,035
11,470
3,308
465
35,773
3,531
6,733
$ 97,315
$
4,246
9,000
13,246
6,232
90
19,568
—
$
956
12,402
2,209
24,907
—
1,021
1,460
42,955
11,884
3,308
465
41,699
3,337
7,189
$ 110,837
$
2,992
7,662
10,654
6,315
450
17,419
—
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 - 37,820,521 shares in 2012, 37,375,469 shares
in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these statements.
3,782
2,417
73,120
(1,572)
77,747
$ 97,315
3,738
1,185
89,953
(1,458)
93,418
$ 110,837
42
CONSOLIDATED STATEMENTS OF OPERATIONS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands except per share data)
Years ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EARNINGS PER SHARE
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
$148,950
121,746
27,204
18,443
8,761
960
—
9,721
2,742
6,979
$
$
$
0.19
0.19
0.63
2011
$106,437
86,931
19,506
14,130
5,376
997
2,025
8,398
1,667
6,731
$
$
$
0.19
0.18
—
2010
$101,011
83,298
17,713
13,993
3,720
1,172
—
4,892
1,039
3,853
$
$
$
0.11
0.11
—
The accompanying notes are an integral part of these statements.
43
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands)
Years ended December 31,
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) gain, net of taxes
Pension adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) gain on securities, net of reclassification
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
2010
$
6,979
$
6,731
$
3,853
(105)
(504)
(14)
(9)
6,865
$
42
6,269
$
(116)
3,723
$
The accompanying notes are an integral part of these statements.
44
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
Three Years Ended
December 31, 2012
Balance, December 31, 2009 . . . . . . . . . . . . . . .
Stock issued for stock incentive plans, net . . . .
Stock purchased and retired . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension adjustment, net of taxes . . . . . . . . . . . .
Unrealized loss on securities, net of taxes and
(in thousands)
Common Stock
Shares
Amount
36,883
235
(43)
—
—
$ 3,688
24
(4)
—
—
reclassification adjustments . . . . . . . . . . . . . .
—
Balance, December 31, 2010 . . . . . . . . . . . . . . .
Stock issued for stock incentive plans, net . . . .
Stock purchased and retired . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension adjustment, net of taxes . . . . . . . . . . . .
Unrealized gain on securities, net of taxes and
reclassification adjustments . . . . . . . . . . . . . .
Excess tax benefits for share based payments . .
Balance, December 31, 2011 . . . . . . . . . . . . . . .
Stock issued for stock incentive plans, net . . . .
Stock purchased and retired . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension adjustment, net of taxes . . . . . . . . . . . .
Unrealized loss on securities, net of taxes and
reclassification adjustments . . . . . . . . . . . . . .
Excess tax benefits for share-based payments . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2012 . . . . . . . . . . . . . . .
37,075
378
(78)
—
—
—
—
37,375
767
(321)
—
—
—
—
—
37,821
Capital in
Excess of
Par Value
$ —
611
(240)
—
—
—
371
1,302
(565)
—
—
—
77
1,185
2,604
(1,751)
—
—
Accumulated
Other
Comprehensive
Income (Loss)
$
(866)
—
—
—
(14)
(116)
(996)
—
—
—
(504)
42
—
(1,458)
—
—
—
(105)
Total
$ 81,512
1,314
(244)
3,853
(14)
(116)
86,305
1,340
(573)
6,731
(504)
42
77
93,418
2,680
(1,783)
6,979
(105)
Retained
Earnings
$ 78,690
679
—
3,853
—
—
83,222
—
—
6,731
—
—
—
89,953
—
—
6,979
—
—
3,708
38
(8)
—
—
—
—
3,738
76
(32)
—
—
—
—
—
$ 3,782
—
379
—
$ 2,417
—
—
(23,812)
$ 73,120
(9)
—
—
$ (1,572)
(9)
379
(23,812)
$ 77,747
The accompanying notes are an integral part of these statements.
45
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands)
Years ended December 31,
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equipment and property . . . . . . . . . . .
Gain on benefit plan financing arrangement . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . .
Excess tax benefits for share-based payments . . . . . . .
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from benefit plan financing arrangement . . . . . . .
Re-investment in benefit plan financing arrangement . . . . .
Sales and maturities of marketable securities . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) investing activities . . . . . .
FINANCING ACTIVITIES
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for common stock purchased and retired . . . . . .
Repayment of capital lease obligation . . . . . . . . . . . . . . . . .
Excess tax benefits for share-based payments . . . . . . . . . . .
Proceeds received upon exercise of stock options . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . .
2012
2011
2010
$
6,979
$
6,731
$ 3,853
768
—
—
1,495
(379)
(498)
415
(3,252)
(147)
(394)
456
1,254
(14)
1,731
(232)
8,182
(354)
—
—
—
51,247
(34,082)
16,811
(23,812)
(960)
(375)
379
467
(24,301)
692
956
1,648
$
889
—
(2,025)
1,296
(77)
(76)
(1,031)
(3,025)
(10)
558
(67)
1,108
327
(1,281)
(21)
3,296
(357)
—
3,671
(3,671)
24,904
(36,106)
(11,559)
—
(447)
—
77
54
(316)
(8,579)
9,535
956
$
1,081
(37)
—
1,542
—
(132)
87
(2,395)
1,332
5,823
(20)
(88)
68
(163)
(72)
10,879
(191)
41
—
—
25,579
(29,147)
(3,718)
—
(244)
—
—
45
(199)
6,962
2,573
$ 9,535
The accompanying notes are an integral part of these statements.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Presentation — The consolidated financial statements include the
accounts of Marine Products Corporation (a Delaware corporation) and its wholly owned subsidiaries
(“Marine Products” or the “Company”). Marine Products, through Chaparral Boats, Inc. (“Chaparral”) and
Robalo Acquisition Company LLC (“Robalo”), operates as a manufacturer of fiberglass powerboats and
related products and services to a broad range of consumers worldwide.
The consolidated financial statements included herein may not necessarily be indicative of the future
results of operations, financial position and cash flows of Marine Products.
The Company has only one reportable segment — its Powerboat Manufacturing business. The
Company’s results of operations and its financial condition are not significantly reliant upon any single
customer or product model. No single dealer accounted for more than 10 percent of net sales during 2012,
2011 or 2010. Net sales from the Company’s international dealers were approximately $30 million in
2012, $23 million in 2011, and $31 million in 2010.
Nature of Operations — Marine Products is principally engaged in manufacturing powerboats and
providing related products and services. Marine Products distributes fiberglass recreational boats through a
network of domestic and international independent dealers.
Common Stock — Marine Products is authorized to issue 74,000,000 shares of common stock, $0.10
par value. Holders of common stock are entitled to receive dividends when, as, and if declared by our
Board of Directors out of legally available funds. Each share of common stock is entitled to one vote on
all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting
rights. In the event of any liquidation, dissolution or winding up of the Company, holders of common
stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders.
Preferred Stock — Marine Products is authorized to issue up to 1,000,000 shares of preferred stock,
$0.10 par value. As of December 31, 2012, there were no shares of preferred stock issued. The Board of
Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of
preferred stock as a class without series or, if so determined from time to time, in one or more series, and
by filing a certificate pursuant to the applicable laws of the state of Delaware and to fix the designations,
powers, preferences and rights, exchangeability for shares of any other class or classes of stock. Any
preferred stock to be issued could rank prior to the common stock with respect to dividend rights and
rights on liquidation.
Share Repurchases — The Company records the cost of share repurchases in stockholders’ equity as
a reduction to common stock to the extent of par value of the shares acquired and the remainder is
allocated to capital in excess of par value or retained earnings if capital in excess of par value has been
depleted.
Dividend — On January 23, 2013, the Board of Directors approved a quarterly dividend of $0.03 per
common share to stockholders payable March 8, 2013 to stockholders of record at the close of business on
February 8, 2013.
Use of Estimates in the Preparation of Financial Statements — The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of sales and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates are used in the determination of sales incentives and discounts, warranty
costs, and income taxes.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
Sales Recognition — Marine Products recognizes sales when a fully executed agreement exists,
prices are established, products are delivered to the dealer in the case of domestic dealers and
collectability is reasonably assured. See “Deferred Revenue” below for recognition of sales to international
dealers.
Deferred Revenue — Marine Products requires payment from international dealers, other than
Canada, prior to shipment of products to these dealers. Amounts received from international dealers
toward the purchase of boats are categorized as deferred revenue and recognized as sales when the
products are shipped.
Shipping and Handling Charges — The shipping and handling of the Company’s products to dealers
is handled through a combination of third-party marine transporters and a company owned fleet of
delivery trucks. Fees charged to customers for shipping and handling are included in net sales in the
accompanying consolidated statements of operations; the related costs incurred by the Company are
included in cost of goods sold.
Advertising — Advertising expenses are charged to expense during the period in which they are
incurred. Expenses associated with product brochures and other inventoriable marketing materials are
deferred and amortized over the related model year which approximates the consumption of these
materials. As of December 31, 2012 and 2011, the Company had approximately $264,000 and $155,000 in
prepaid expenses related to unamortized product brochure costs. Advertising expenses totaled
approximately $2,000,000 in 2012, $1,353,000 in 2011 and $1,030,000 in 2010.
Sales Incentives and Discounts — Sales incentives including dealer discounts and retail sales
promotions are provided for and recorded as a reduction in sales. The Company records the estimated cost
of these incentives at the later of the recognition of the related sales or the announcement of a promotional
program.
Cash and Cash Equivalents — Highly liquid investments with original maturities of three months or
less when acquired are considered to be cash equivalents. The Company maintains its cash in bank
accounts, which at times, may exceed federally insured limits.
Marketable Securities — Marine Products maintains investments at a large, well-capitalized financial
institution. Marine Products’ investment policy does not allow investment in any securities rated less than
“investment grade” by national rating services.
Management determines the appropriate classification of debt securities at the time of purchase and
re-evaluates such designations as of each balance sheet date. Debt securities are classified as available-for-
sale because the Company does not have the intent to hold the securities to maturity. Available-for-sale
securities are stated at their fair values, with the unrealized gains and losses, net of taxes, reported as a
separate component of stockholders’ equity. The cost of securities sold is based on the specific
identification method. Realized gains and losses, declines in value judged to be other than temporary,
interest and dividends on available-for-sale securities are included in interest income. Net realized gains on
marketable securities totaled $290,000 in 2012, $64,000 in 2011, and $28,000 in 2010. Of the total gains
realized, reclassification from other comprehensive income totaled approximately $290,000 in 2012,
$64,000 in 2011, and $28,000 in 2010. Gross unrealized gains on marketable securities totaled $332,000 at
December 31, 2012 and $354,000 at December 31, 2011. Gross unrealized losses on marketable securities
totaled $20,000 at December 31, 2012 and $29,000 at December 31, 2011. The amortized cost basis, fair
value and net unrealized gains of the available-for-sale securities are as follows:
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
December 31,
Type of Securities
(in thousands)
Municipal Obligations . .
Corporate Obligations . .
Total . . . . . . . . . . . . . . . .
Amortized
Cost Basis
$ 35,342
1,270
$ 36,612
2012
Fair Value
$ 35,606
1,317
$ 36,923
2011
Net
Unrealized
Gain
Amortized
Cost Basis
Fair Value
Net
Unrealized
Gain
$
$
264
48
312
$ 49,553
4,223
$ 53,776
$ 49,832
4,269
$ 54,101
$
$
279
46
325
Municipal debt obligations consist primarily of municipal notes rated A3 or higher ranging in
maturity from less than one year to over 10 years. Corporate obligations consist primarily of debentures
and notes issued by other companies ranging in maturity from one to three years. These securities are
rated A3 or higher. Investments with remaining maturities of less than 12 months are considered to be
current marketable securities. Investments with remaining maturities greater than 12 months are
considered to be non-current marketable securities. The Company’s non-current marketable securities are
scheduled to mature between 2014 and 2041.
Corporate backed obligations consist primarily of debentures and notes issued by other companies
ranging in maturity from one to three years. These securities are rated A3 or higher.
Accounts Receivable — The majority of the Company’s accounts receivable are due from dealers
located in markets throughout the United States. Approximately 67 percent of Marine Products’ domestic
shipments are made pursuant to “floor plan financing” programs in which Marine Products’ subsidiaries
participate on behalf of their dealers with various major third-party financing institutions. Under these
arrangements, a dealer establishes lines of credit with one or more of these third-party lenders for the
purchase of boat inventory for sales to retail customers in their show room or during boat show
exhibitions. When a dealer purchases and takes delivery of a boat pursuant to a floor plan financing
arrangement, it draws against its line of credit and the lender pays the invoice cost of the boat directly to
Marine Products within approximately five business days. The Company determines its allowance for
doubtful accounts by considering a number of factors, including the length of time trade accounts
receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its
obligation to the Company, and the condition of the general economy and the industry as a whole. The
Company writes-off accounts receivable when they become uncollectible, and payments subsequently
received on such receivables are credited to the allowance.
Inventories — Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or
market value. Market value is determined based on replacement cost for raw materials and net realizable
value for work in process and finished goods.
Property, Plant and Equipment — Property, plant and equipment is carried at cost. Depreciation is
provided principally on a straight-line basis over the estimated useful lives of the assets. The cost of assets
retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts
in the year of disposal with the resulting gain or loss credited or charged to income. Expenditures for
additions, major renewals, and betterments are capitalized while expenditures for routine maintenance and
repairs are expensed as incurred. Depreciation expense on operating equipment used in production is
included in cost of goods sold in the accompanying consolidated statements of operations. All other
depreciation is included in selling, general and administrative expenses in the accompanying consolidated
statements of operations. Property, plant and equipment are reviewed for impairment when indicators of
impairment exist.
Goodwill and Other Intangibles — Intangibles consist primarily of goodwill and trade names related
to businesses acquired. Goodwill represents the excess of the purchase price over the fair value of net
assets of businesses acquired. The carrying amount of goodwill was $3,308,000 as of December 31, 2012
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
and 2011. The company evaluates whether goodwill is impaired by comparing its market capitalization
based on its closing stock price (Level 1 input) to the book value of its equity on the annual evaluation
date. Based on this evaluation, the company concluded that no impairment of its goodwill has occurred for
the years ended December 31, 2012, 2011 and 2010.
Investments — The Company maintains certain securities in the non-qualified Supplemental
Executive Retirement Plan that have been classified as trading. See Note 10 for further information
regarding these securities.
Warranty Costs — The Company warrants the entire boat, excluding the engine, against defects in
materials and workmanship for a period of one year. The Company also warrants the entire deck and hull,
including its bulkhead and supporting stringer system, against defects in materials and workmanship for
periods extending up to 10 years. The Company accrues for estimated future warranty costs at the time of
the sale based on its historical claims experience. An analysis of the warranty accruals for the years ended
December 31, 2012 and 2011 is as follows:
(in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Payments made during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Warranty provision for the current year . . . . . . . . . . . . . . . . . . . . . . . .
Changes to warranty provision for prior years . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
$ 1,973
(1,696)
2,205
40
$ 2,522
2011
$ 2,550
(1,608)
2,061
(1,030)
$ 1,973
Insurance Accruals — The Company fully insures its risks related to general liability, product
liability, workers’ compensation, and vehicle liability, whereas the health insurance plan is self-funded up
to a maximum annual claim amount for each covered employee and related dependents. The estimated
cost of claims under the self-insurance program is accrued as the claims are incurred and may
subsequently be revised based on developments relating to such claims.
Research and Development Costs — The Company expenses research and development costs for new
products and components as incurred. Research and development costs are included in selling, general and
administrative expenses and totaled $768,000 in 2012, $789,000 in 2011, and $489,000 in 2010.
Repurchase Obligations — The Company has entered into agreements with third-party floor plan
lenders where it has agreed, in the event of default by the dealer, to repurchase MPC boats repossessed
from the dealer. These arrangements are subject to maximum repurchase amounts and the associated risk
is mitigated by the value of the boats repurchased. The Company accrues estimated losses when a loss,
due primarily to the default of one of our dealers, is determined to be probable and the amount of the loss
is reasonably estimable.
Income Taxes — Deferred tax liabilities and assets are determined based on the difference between
the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company establishes a valuation allowance against the
carrying value of deferred tax assets if the Company concludes that it is more likely than not that the asset
will not be realized through future taxable income.
Stock-Based Compensation — Stock-based compensation expense is recognized for all share-based
payment awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares
expected to vest on a straight-line basis over the requisite service period of the award. See Note 10 for
additional information.
Earnings per Share — FASB ASC Topic 260-10 “Earnings Per Share-Overall,” requires a basic
earnings per share and diluted earnings per share presentation. During 2009, the Company adopted certain
amendments to ASC 260-10 which requires that all outstanding unvested share-based payment awards that
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, be considered
participating securities and included in the calculation of its basic earnings per share. See Note 10 for
further information on restricted stock granted to employees.
The basic and diluted calculations differ as a result of the dilutive effect of stock options and time
lapse restricted shares and performance restricted shares included in diluted earnings per share, but
excluded from basic earnings per share. Basic and diluted earnings per share are computed by dividing net
income by the weighted average number of shares outstanding during the respective periods.
A reconciliation of weighted average shares outstanding along with the earnings per share attributable
to restricted shares of common stock (participating securities) is as follows:
(In thousands except per share data)
Net income available for stockholders: . . . . . . . . . . . . . . . .
Less: Dividends paid
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares of common stock . . . . . . . . . . . . . . . . .
Undistributed (loss) earnings . . . . . . . . . . . . . . . . . . . . . . . .
2012
$
6,979
(23,135)
(677)
$ (16,833)
Allocation of undistributed (loss) earnings:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares of common stock . . . . . . . . . . . . . . . . .
$ (16,329)
(504)
$
Basic shares outstanding:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares of common stock . . . . . . . . . . . . . . . . .
Diluted shares outstanding:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of options . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares of common stock . . . . . . . . . . . . . . . . .
Basic earnings per share:
Common Stock:
Distributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed (loss) earnings . . . . . . . . . . . . . . . . . . . .
Restricted shares of common stock:
Distributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed (loss) earnings . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share:
Common Stock:
Distributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed (loss) earnings . . . . . . . . . . . . . . . . . . . .
35,530
1,126
36,656
35,530
148
35,678
1,126
36,804
0.65
(0.46)
0.19
0.60
(0.45)
0.15
0.65
(0.46)
0.19
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2011
6,731
2010
$
3,853
—
—
6,731
6,551
180
35,385
987
36,372
35,385
363
35,748
987
36,735
—
0.19
0.19
—
0.18
0.18
—
0.18
0.18
—
—
3,853
3,762
91
$
$
$
35,286
893
36,179
35,286
489
35,775
893
36,668
$
$
$
$
$
$
—
0.11
0.11
—
0.10
0.10
—
0.11
0.11
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
Fair Value of Financial Instruments — The Company’s financial instruments consist primarily of
cash and cash equivalents, accounts receivable, accounts payable and marketable securities. The carrying
value of cash, accounts receivable and accounts payable approximate their fair values because of the
short-term nature of such instruments. The Company’s marketable securities are classified as available-for-
sale securities with the exception of investments held in the non-qualified Supplemental Executive
Retirement Plan (“SERP”) which are classified as trading securities. All of these securities are carried at
fair value in the accompanying consolidated balance sheets. See Note 8 for further information regarding
the fair value measurement of assets and liabilities.
Concentration of Suppliers — The Company purchases a significant number of its sterndrive engines
from only two available suppliers. This concentration of suppliers could impact our sales and profitability
in the event of a sudden interruption in the delivery of these engines.
New Accounting Standards —
During the year ended December 31, 2012, the Financial Accounting Standards Board (FASB) issued
the following Accounting Standards Updates (ASU):
Recently Adopted Accounting Pronouncements:
•
•
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The
amendments to the Codification in this ASU allow an entity the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In both choices, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a
total for other comprehensive income, and a total amount for comprehensive income. This ASU
eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not
change the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendments are to be applied
retrospectively and are effective for fiscal years beginning after December 15, 2011. The Company
has adopted these provisions in the first quarter of 2012 and has presented a separate statement of
comprehensive income consecutively after the statement of operations showing net income in the
accompanying financial statements. Adoption of these provisions did not have a material impact on
the Company’s consolidated financial statements.
ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment. The amendments in this codification permits an entity to first assess
qualitative factors to determine whether it is “more likely than not” that the indefinite-lived
intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity
concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then
the entity is not required to take further action. However, if an entity concludes otherwise, then it is
required to perform the quantitative impairment test by comparing the fair value with the carrying
amount in accordance with Codification Subtopic 350-30. An entity has the option to bypass the
qualitative assessment for any indefinite-lived intangible asset in any period, proceeding directly to
performing the quantitative impairment test and resume performing the qualitative assessment in any
subsequent period. The amendments in this ASU are effective for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012 with early adoption being
permitted, including for annual and interim impairment tests performed as of a date before July 27,
2012, if an entity’s financial statements for the most recent annual or interim period have not been
issued. The Company adopted these provisions in the fourth quarter of 2012 for annual and interim
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
impairment tests performed starting this year. Adoption of these provisions did not have a material
impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted:
•
•
Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this
ASU do not change the current requirements for reporting net income or other comprehensive
income in financial statements. All of the information that this ASU requires already is required to be
disclosed elsewhere in the financial statements under U.S. GAAP. The amendments are effective for
all reporting periods beginning after December 15, 2012, with early adoption permitted. The
Company plans to adopt these provisions in the first quarter of 2013. Adoption of these provisions is
not expected to have a material impact on the Company’s consolidated financial statements and the
Company will comply with the additional disclosures as required.
Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities. The amendments to the Codification in this ASU are part of an ongoing effort to
bring congruence between U.S. GAAP and International Financial Reporting Standards. The
amendments in this ASU require an entity to disclose information about derivatives that are subject to a
legally enforceable netting arrangement with the same party where rights of set-off are only available in
the event of default or bankruptcy and can be presented as a single net amount in the statement of
financial position. The amendments in this ASU are effective for annual reporting periods beginning on
or after January 1, 2013, and interim periods within those annual periods, with the required disclosures
being provided retrospectively for all comparative periods presented. The Company is currently
evaluating the impact of adoption of these provisions in the first quarter of 2013.
NOTE 2: ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
(in thousands)
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$ 1,607
209
1,816
(22)
$ 1,794
$ 2,093
143
2,236
(27)
$ 2,209
Trade receivables consist primarily of balances related to the sales of boats which are shipped
pursuant to “floor-plan financing” programs with qualified lenders. Other receivables consist primarily of
rebate receivables from various suppliers. Changes in the Company’s allowance for doubtful accounts are
disclosed in Schedule II on page 74 of this report.
NOTE 3: INVENTORIES
Inventories consist of the following:
December 31,
(in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$17,205
6,597
4,357
$28,159
$15,892
5,691
3,324
$24,907
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are presented at cost, net of accumulated depreciation, and consist of
the following:
December 31,
(in thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating equipment and property . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross property, plant and equipment . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . .
Estimated
Useful Lives
2012
2011
N/A
7-40
3-15
5-7
5-10
$
657
17,096
9,913
1,842
6,207
35,715
(24,245)
$ 11,470
$
657
17,012
9,684
1,801
6,207
35,361
(23,477)
$ 11,884
Depreciation expense was $768,000 in 2012, $889,000 in 2011 and $1,081,000 in 2010.
NOTE 5: ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
December 31,
(in thousands)
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued sales incentives and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$1,122
3,326
2,522
1,389
641
$9,000
$1,134
2,661
1,973
899
995
$7,662
NOTE 6: INCOME TAXES
The following table lists the components of the provision for income taxes:
Years ended December 31,
(in thousands)
Current provision (benefit):
2012
2011
2010
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,146
94
Deferred provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . .
(493)
(5)
$ 2,742
$ 1,757
(14)
(90)
14
$ 1,667
$
989
182
165
(297)
$ 1,039
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
A reconciliation between the federal statutory rate and Marine Products’ effective tax rate is as
follows:
Years ended December 31,
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . . . . . . . . . . . . .
Tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt (gain) loss on SERP assets . . . . . . . . . . . . . . . .
Tax-exempt gain – benefit plan financing . . . . . . . . . . . . . .
Manufacturing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in state credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
34.0%
0.5
(2.3)
(0.6)
—
(3.0)
—
—
(0.4)
28.2%
2011
34.0%
0.8
(3.0)
0.2
(8.4)
(2.0)
—
—
(1.7)
19.9%
2010
34.0%
1.4
(6.6)
—
—
(3.2)
(10.5)
4.5
1.6
21.2%
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
(in thousands)
Deferred tax assets:
2012
2011
Warranty costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales incentives and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State credits and NOL's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
$
895
942
838
2,212
331
4,450
(4,155)
5,513
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(699)
$ 4,814
$
701
750
755
2,242
267
4,099
(3,783)
5,031
(673)
$ 4,358
Total net income tax payments (refunds) were $3,655,000 in 2012, $880,000 in 2011 and
$(4,743,000) in 2010. As of December 31, 2012 the company has net operating loss carry forwards related
to state income taxes and credits of approximately $18.3 million that will expire between 2013 and 2030.
As of December 31, 2012 the company has a valuation allowance of approximately $4.2 milllion,
representing the tax affected amount of state tax credits and loss carry forwards that the company does not
expect to utilize, against the corresponding deferred tax asset.
The Company’s policy is to record interest and penalties related to income tax matters as income tax
expense. Accrued interest and penalties were immaterial as of December 31, 2012 and 2011.
In accordance with the accounting guidance relating to the accounting for uncertainty in income tax
reporting, which provides criteria for the recognition, measurement, presentation and disclosure of
uncertain tax positions, the Company did not recognize a material adjustment in the liability for
unrecognized income tax benefits.
As of December 31, 2012 and 2011, our liability for unrecognized tax benefits was $14,000 and
$23,000, respectively, all of which would affect our effective rate if recognized.
The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple
jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and
subject to examination by the relevant taxing authorities. The Company’s 2009 through 2012 tax years
remain open to examination.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
It is reasonably possible that the amount of the unrecognized benefits with respect to our
unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the
result of, among other things, state tax settlements under voluntary disclosure agreements. However,
quantification of an estimated range cannot be made at this time.
The American Taxpayer Relief Act of 2012 (“Act”) was signed into law on January 2, 2013 and
includes an extension for one year of the 50% bonus depreciation allowance. The provision specifically
applies to qualifying property placed in service before January 1, 2014. The acceleration of deductions on
2012 qualifying capital expenditures resulting from the bonus depreciation provision had no impact on our
2012 effective tax rate. Additionally, the Act retroactively reinstates the provisions of the research and
experimentation credits (“R&E credits”) for 2012 and 2013. As a result of the retroactive extension, our
effective rate for the first quarter of 2013 may include a tax benefit from the R&E credits attributable to
2012 and the first quarter of 2013.
NOTE 7: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income consists of the following:
(in thousands)
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
Change during 2011:
Before-tax amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (provision) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment, net of taxes . . . . . . . . . . . . .
Total activity in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . .
Change during 2012:
Before-tax amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (provision) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment, net of taxes . . . . . . . . . . . . .
Total activity in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . .
NOTE 8: FAIR VALUE MEASUREMENTS
Pension
Adjustment
$ (1,162)
(782)
278
—
(504)
(1,666)
(163)
58
—
(105)
$ (1,771)
Unrealized
Gain on
Securities
$ 166
129
(46)
(41)
42
208
277
(99)
(187)
(9)
$ 199
Total
$
(996)
(653)
232
(41)
(462)
(1,458)
114
(41)
(187)
(114)
$ (1,572)
The various inputs used to measure assets at fair value establish a hierarchy that distinguishes
between assumptions based on market data (observable inputs) and the Company’s assumptions
(unobservable inputs). The hierarchy consists of three broad levels as follows:
1. Level 1 – Quoted market prices in active markets for identical assets or liabilities.
2. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
3. Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which
reflect those that market participants would use.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
The following table summarizes the valuation of financial instruments measured at fair value on a
recurring basis on the balance sheet as of December 31, 2012 and 2011:
(in thousands)
Assets:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Assets:
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
Municipal Obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value Measurements at
December 31, 2012 with:
Quoted
prices in
active
markets for
identical
assets
(Level 1)
$ —
$ —
—
$ —
Significant
other
observable
inputs
(Level 2)
$ 6,026
$ 35,606
1,317
$ 36,923
Significant
unobservable
inputs
(Level 3)
$ —
$ —
—
$ —
Fair Value Measurements at
December 31, 2011 with:
Quoted
prices in
active
markets for
identical
assets
(Level 1)
$ —
$ —
—
$ —
Significant
other
observable
inputs
(Level 2)
$ 6,510
$ 49,832
4,269
$ 54,101
Significant
unobservable
inputs
(Level 3)
$ —
$ —
—
$ —
The Company determines the fair value of the marketable securities that are available-for-sale
through quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active. The trading securities are comprised of the SERP assets, as
described in Note 10, and are recorded primarily at their net cash surrender values, which approximates
fair value, as provided by the issuing insurance company. Significant observable inputs, in addition to
quoted market prices, were used to value the trading securities. As a result, the Company classified these
investments as using level 2 inputs. The Company’s policy is to recognize transfers between levels at the
beginning of quarterly reporting periods. For the year ended December 31, 2012 there were no significant
transfers in or out of levels 1, 2 or 3.
The carrying amount of other financial instruments reported in the balance sheet for current assets
and current liabilities approximate their fair values because of the short-term maturity of these
instruments. The Company currently does not use the fair value option to measure any of its existing
financial instruments and has not determined whether or not it will elect this option for financial
instruments it may acquire in the future.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
NOTE 9: COMMITMENTS AND CONTINGENCIES
Lawsuits — The Company is a defendant in certain lawsuits which allege that plaintiffs have been
damaged as a result of the use of the Company’s products. The Company is vigorously contesting these
actions. Management, after consultation with legal counsel, is of the opinion that the outcome of these
lawsuits will not have a material adverse effect on the financial position, results of operations or liquidity
of Marine Products.
Dealer Floor Plan Financing — To assist dealers in obtaining financing for the purchase of its boats
for inventory, the Company has entered into agreements with various dealers and selected third-party floor
plan lenders to guarantee varying amounts of qualifying dealers’ debt obligations. The Company’s
obligation under these guarantees becomes effective in the case of a default under the financing
arrangement between the dealer and the third party lender. The agreements provide for the return of
repossessed boats to the Company in new and unused condition subject to normal wear and tear as
defined, in exchange for the Company’s assumption of specified percentages of the debt obligation on
those boats, up to certain contractually determined dollar limits by lender.
There were no material repurchases of inventory under contractual agreements during 2012. The
Company became contractually obligated to repurchase inventory for approximately $0.8 million during
2011 and recorded costs of approximately $86,000 as a reduction of net sales in connection with these
repurchases, including the write down of repurchased inventory to net realizable value.
Management continues to monitor the risk of additional defaults and resulting repurchase obligations
based in part on information provided by the third-party floor plan lenders and will adjust the guarantee
liability at the end of each reporting period based on information reasonably available at that time.
The Company currently has an agreement with one of the floor plan lenders whereby the contractual
repurchase limit is to not exceed 15 percent of the amount of the average net receivables financed by the
floor plan lender for dealers during the prior 12 month period. The Company has contractual repurchase
agreements with additional lenders with an aggregate maximum repurchase obligation of approximately
$5.4 million, with various expiration and cancellation terms of less than one year, for an aggregate
repurchase obligation with all financing institutions of approximately $10.7 million as of December 31,
2012. This repurchase obligation risk is mitigated by the value of the boat repurchased.
Lease Obligations — In June 2001, the Company entered into a lease transaction for existing boat
manufacturing space located in Valdosta, Georgia. This lease was accounted for as a capital lease and was
paid in full in December, 2012, which is reflected in the financing section of the cash flow statement.
Minimum annual operating lease obligations with terms in excess of one year, in effect at December
31, 2012, are summarized in the following table:
(in thousands)
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rental commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 157
162
158
161
144
134
$ 916
Total rent expense charged to operations was approximately $106,000 in 2012, $121,000 in 2011 and
$113,000 in 2010.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
Income Taxes — 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. Other long-term liabilities
included the Company’s estimated liabilities for these probable assessments and totaled approximately
$48,000 as of December 31, 2012 and $57,000 as of December 31, 2011.
Employment Agreements — The Company has agreements with two employees, which provide for a
monthly payment to each of the employees equal to 10 percent of profits (defined as pretax income before
goodwill adjustments and certain allocated corporate expenses) in addition to a base salary. The expense
under these agreements totaled approximately $3,294,000 in 2012, $2,331,000 in 2011 and $1,937,000 in
2010 and is included in selling, general and administrative expenses in the accompanying consolidated
statements of operations.
NOTE 10: EMPLOYEE BENEFIT PLANS
Supplemental Executive Retirement Plan (SERP)
The Company permits selected highly compensated employees to defer a portion of their
compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance
(“COLI”) policies as a funding source to satisfy the obligation of the SERP. The assets are subject to
claims by creditors, and the Company can designate them to another purpose at any time. Investments in
COLI policies consist of variable life insurance policies of $7.7 million as of December 31, 2012 and $7.2
million as of December 31, 2011. In the COLI policies, the Company is able to allocate assets across a set
of choices provided by the insurance company, including fixed income securities and equity funds. The
COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided
by the issuing insurance company, whose Standard & Poor’s credit rating was A+. During 2011, as a result
of COLI policy claims, the Company received $3.7 million in proceeds and recorded a tax-free gain of
$2.0 million, reflected in Other Income.
The Company classifies the SERP assets as trading securities as described in Note 1. The fair value
of these assets totaled $6,026,000 as of December 31, 2012 and $6,510,000 as of December 31, 2011. The
SERP assets are reported in other assets on the consolidated balance sheets and changes related to the fair
value of the assets are included in selling, general and administrative expenses in the consolidated
statements of operations. Trading gains (losses) related to the SERP assets totaled $181,000 in 2012,
$(38,000) in 2011 and $(5,000) in 2010. The SERP liabilities are recorded on the balance sheet in pension
liabilities with any change in the fair value of the SERP liabilities recorded as selling, general and
administrative expenses in the consolidated statements of operations.
Retirement Income Plan — Marine Products participates in the tax-qualified, defined benefit,
noncontributory, trusteed retirement income plan sponsored by RPC, Inc. (“RPC”) that covers
substantially all employees with at least one year of service prior to 2002.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
The Company’s projected benefit obligation exceeded the fair value of the plan assets for its
Retirement Income Plan by $413,000 and thus the plan was under-funded as of December 31, 2012. The
following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in
Marine Products’ consolidated balance sheets:
December 31,
(in thousands)
ACCUMULATED BENEFIT OBLIGATION, END OF YEAR . . . . . . . . .
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
(in thousands)
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE
SHEETS CONSIST OF:
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$ 5,695
$ 5,292
$ 5,292
—
253
379
(229)
$ 5,695
$ 4,313
484
714
(229)
$ 5,282
$ (413)
$ 4,986
—
267
266
(228)
$ 5,291
$ 4,672
(231)
100
(228)
$ 4,313
$ (978)
2012
2011
$ —
—
(413)
$ (413)
$ —
—
(978)
$ (978)
The funded status of the Retirement Income Plan was recorded in the consolidated balance sheets in
long-term pension liabilities as of December 31, 2012 and 2011.
December 31,
(in thousands)
AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS) CONSIST OF:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$ 2,748
—
—
$ 2,748
$ 2,585
—
—
$ 2,585
The accumulated benefit obligation for the Retirement Income Plan at December 31, 2012 and 2011
has been disclosed above. The Company uses a December 31 measurement date for this qualified plan.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
Amounts recorded in the consolidated balance sheet as pension liabilities consist of:
December 31,
(in thousands)
SERP liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities
2012
2011
$ (5,819)
(413)
$ (6,232)
$ (5,337)
(978)
$ (6,315)
Marine Products’ funding policy is to contribute to the Retirement Income Plan the amount required,
if any, under the Employee Retirement Income Security Act of 1974. Contributions to the plan totaled
$714,000 during 2012 and $100,000 during 2011.
The components of net periodic benefit cost are summarized as follows:
Years ended December 31,
(in thousands)
Service cost for benefits earned during the period . . . . . . . . . . . . . . .
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
2010
$ —
253
(328)
61
$ (14)
$ —
267
(324)
38
$ (19)
$ —
266
(302)
34
(2)
$
The Company recognized pre-tax decreases to the funded status in accumulated other comprehensive
income of $163,000 in 2012, $782,000 in 2011 and $22,000 in 2010. There were no previously
unrecognized prior service costs during 2012, 2011 and 2010. The pre-tax amounts recognized in other
comprehensive income for the years ended December 31, 2012, 2011 and 2010 are summarized as
follows:
(in thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount recognized in accumulated other comprehensive income
2012
$ 224
(61)
—
$ 163
2011
$ 820
(38)
—
$ 782
2010
$ 56
(34)
—
$ 22
The amounts in accumulated other comprehensive income expected to be recognized as components
of net periodic benefit cost in 2013 are as follows:
(in thousands)
Amortization of net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated net periodic cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
73
—
—
73
$
$
The weighted average assumptions as of December 31 used to determine the projected benefit
obligation and net benefit cost were as follows:
December 31,
PROJECTED BENEFIT OBLIGATION:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET BENEFIT COST:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
2010
4.34%
N/A
5.09%
7.00%
N/A
5.09%
N/A
5.58%
7.00%
N/A
5.58%
N/A
6.05%
7.00%
N/A
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
The Company’s expected return on assets assumption is derived from a detailed periodic assessment
by its management and investment advisor. It includes a review of anticipated future long-term
performance of individual asset classes and consideration of the appropriate asset allocation strategy given
the anticipated requirements of the plan to determine the average rate of earnings expected on the funds
invested to provide for the pension plan benefits. While the assessment gives appropriate consideration to
recent fund performance and historical returns, the rate of return assumption is derived primarily from a
long-term, prospective view. Based on its recent assessment, the Company has concluded that its expected
long-term return assumption of seven percent is reasonable.
The plan’s weighted average asset allocation at December 31, 2012 and 2011 by asset category along
with the target allocation for 2013 are as follows:
Asset Category
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . .
Debt Securities – Core Fixed Income . . . . . . . . . . . .
Tactical — Fund of Equity and Debt Securities . . . .
Domestic Equity Securities . . . . . . . . . . . . . . . . . . . .
Global Equity Securities . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities . . . . . . . . . . . . . . . . . .
Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target
Allocation
for 2013
0% – 5%
15% – 50%
10% – 20%
30% – 50%
10% – 20%
10% – 20%
0% – 10%
0% – 10%
0% – 5%
100.0%
Percentage of
Plan Assets as of
December 31,
2012
0.2%
20.2
15.1
15.2
15.1
16.0
9.2
9.0
0.0
100.0%
Percentage of
Plan Assets as of
December 31,
2011
0.7%
23.2
16.3
15.2
14.8
14.6
5.6
9.6
0.0
100.0%
The Company’s overall investment strategy is to achieve a mix of approximately 70 percent of
investments for long-term growth and 30 percent for near-term benefit payments, with a wide
diversification of asset types, fund strategies and fund managers. Equity securities primarily include
investments in large-cap and mid-cap companies. Fixed-income securities include corporate bonds of
companies in diversified securities, mortgage-backed securities, and U.S. Treasuries. Other types of
investments include hedge funds and private equity funds that follow several different investment
strategies. For each of the asset categories in the pension plan, the investment strategy is identical –
maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize
the cost of providing pension benefits. The investment policy establishes a target allocation for each asset
class which is rebalanced as required. The plans utilize a number of investment approaches, including
individual market securities, equity and fixed income funds in which the underlying securities are
marketable, and debt funds to achieve this target allocation. The Company and management are
considering making a contribution to the pension plan of approximately $50,000 during fiscal year 2013.
Some of our assets, primarily our private equity, real estate and hedge funds, do not have readily
determinable market values given the specific investment structures involved and the nature of the
underlying investments. For plan asset reporting as of December 31, 2012, publicly traded asset pricing
was used where possible. For assets without readily determinable values, estimates were derived from
investment manager discussions focusing on underlying fundamentals and significant events.
Included among the asset categories for the Plans’ investments are real estate and other investments
comprised of investments in real estate and hedge funds. These investments are categorized as level 3
investments and are valued using significant non-observable inputs which do not have a readily
determinable fair value. In accordance with ASU No. 2010-12 “Investments In Certain Entities That
Calculate Net Asset Value per Share (Or Its Equivalent),” these investments are valued based on the net
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
asset value per share calculated by the funds in which the plan has invested. These valuations are subject
to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect
valuation of these investments. The Company seeks to mitigate these risks by evaluating the
appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the
funds’ financial statements for reasonableness.
The following tables present our plan assets using the fair value hierarchy as of December 31, 2012
and 2011. The fair value hierarchy has three levels based on the reliability of the inputs used to determine
fair value. See Note 8 for a brief description of the three levels under the fair value hierarchy.
Fair Value Hierarchy as of December 31, 2012:
Investments (in thousands)
Cash and Cash Equivalents (1) . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities (2) . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Equity Securities . . . . . . . . . . . . . . . . . . . . . . . .
Global Equity Securities (3) . . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities (3) . . . . . . . . . . . . . . . . . . .
Real Estate (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Return (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tactical Composite (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value Hierarchy as of December 31, 2011:
Investments (in thousands)
Cash and Cash Equivalents (1) . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities (2) . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Equity Securities . . . . . . . . . . . . . . . . . . . . . . . .
Global Equity Securities (3) . . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities (3) . . . . . . . . . . . . . . . . . . .
Real Estate (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Return (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tactical Composite (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
11
1,065
801
796
848
489
475
797
$5,282
Total
$
32
1,000
659
636
631
238
415
702
$4,313
Level 1
11
$
—
801
796
395
—
—
—
$2,003
Level 1
32
$
—
656
636
298
—
—
—
$1,622
Level 2
$ —
1,065
—
—
453
—
475
797
$2,790
Level 2
$ —
1,000
—
—
333
—
415
702
$2,450
Level 3
$ —
—
—
—
—
489
—
—
$489
Level 3
$ —
—
—
—
—
238
—
—
$238
(1) Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money
market funds.
(2) Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields,
base spreads and reported trades.
(3) Global equity securities and certain international securities are valued using a market approach based on the quoted market
prices of similar instruments in their respective markets.
(4) Real estate fund values are primarily reported by the fund manager and are based on valuation of the underlying investments,
which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data.
(5) Real return funds invest in global equities, commodities and inflation protected core bonds that are valued primarily using a
market approach based on the quoted market prices of identical instruments in their respective markets.
(6) Tactical composite funds invest in stocks, bonds and cash, both domestic and international. These assets are valued primarily
using a market approach based on the quoted market prices of identical instruments in their respective markets.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
The following table presents a reconciliation of Level 3 assets held during the year ended December 31,
2012:
Investments
(in thousands)
Real Estate . . . . . . . . . . . . . . .
Balance at
December 31,
2011
Net Realized and Net Purchases,
Issuances and
Settlements
Unrealized
Gains/(Losses)
Net Transfers
In to (Out of)
Level 3
Balance at
December 31,
2012
$238
$238
$65
$65
$186
$186
$—
$—
$489
$489
The following table presents a reconciliation of Level 3 assets held during the year ended
December 31, 2011:
Investments
(in thousands)
Real Estate . . . . . . . . . . . . . . .
Alternative Investments . . . . .
Balance at
December 31,
2010
Net Realized and Net Purchases,
Issuances and
Settlements
Unrealized
Gains/(Losses)
Net Transfers
In to (Out of)
Level 3
Balance at
December 31,
2011
$213
49
$262
$25
—
$25
$ —
(49)
$(49)
$—
—
$—
$238
—
$238
The Company expects to contribute approximately $50,000 to the Retirement Income Plan in 2013.
The Company estimates that the future benefits payable for the Retirement Income Plan over the next
ten years are as follows:
(in thousands)
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 253
257
270
280
259
1,323
401(k) Plan — Marine Products participates in a defined contribution 401(k) plan sponsored by RPC
that is available to substantially all full-time employees with more than 90 days of service. This plan
allows employees to make tax-deferred contributions of up to 25 percent of their annual compensation, not
exceeding the permissible deduction imposed by the Internal Revenue Code. The Company matches 50
percent of each employee’s contributions that do not exceed six percent of the employee’s compensation,
as defined by the 401(k) plan. Employees vest in the Company’s contributions after three years of service.
The charges to expense for Marine Products’ contributions to the 401(k) plan were approximately
$164,000 in 2012, $130,000 in 2011 and $114,000 in 2010.
Stock Incentive Plan — The Company reserved 2,250,000 shares of common stock under a Stock
Incentive Plan with a term of ten years. This plan provides for the issuance of various forms of stock
incentives, including, among others, incentive and non-qualified stock options and restricted stock. As of
December 31, 2012, there were approximately 617,000 shares available for grants.
The Company recognizes compensation expense for the unvested portion of awards outstanding over
the remainder of the service period. The compensation cost recorded for these awards will be based on
their fair value at grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods to reflect actual forfeitures. Cash flows related to
share-based awards to employees that result in tax benefits in excess of recognized cumulative
compensation cost (excess tax benefits) are classified as financing cash flows.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
Pre-tax stock-based employee compensation expense was approximately $1,495,000 ($964,000 after
tax) for 2012, $1,296,000 ($836,000 after tax) for 2011 and $1,542,000 ($995,000 after tax) for 2010.
Stock Options — Stock options are granted at an exercise price equal to the fair market value of the
Company’s common stock at the date of grant except for grants of incentive stock options to owners of
greater than 10 percent of the Company’s voting securities which must be made at 110 percent of the fair
market value of the Company’s common stock. Options generally vest ratably over a period of five years
and expire in 10 years, except to owners of greater than 10 percent of the Company’s voting securities,
which expire in five years.
The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes
option pricing model. The Company has not granted stock options to employees since 2004. Transactions
involving the Marine Products stock options for the year ended December 31, 2012 were as follows:
Shares
Outstanding at January 1, 2012 . . . . . . . . . . . . . 564,735
—
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . (410,293)
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(9,827)
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding and exercisable at
Weighted
Average
Exercise
Price
$ 4.08
—
3.14
—
2.67
Weighted
Average
Remaining
Contractual
Life
0.6 years
N/A
N/A
N/A
N/A
Aggregate
Intrinsic
Value
December 31, 2012 . . . . . . . . . . . . . . . . . . . . 144,615
$ 6.82
0.44 years
$ N/A
The total intrinsic value of share options exercised was approximately $941,000 in 2012, $602,000 in
2011 and $32,000 in 2010. There were no tax benefits associated with the exercise of stock options during
2012, because all of the options exercised were incentive stock options which do not generate tax
deductions for the Company. There were no tax benefits associated with the exercise of non-qualified
stock options during 2012 or 2011.
Restricted Stock — Marine Products grants employees time lapse restricted stock. Time lapse
restricted shares vest after a certain stipulated number of years from the grant date, depending on the terms
of the issue. Prior to 2004, the Company issued time lapse restricted shares that vest over ten years.
Beginning in 2004, the Company issued time lapse restricted shares that vest in 20 percent increments
starting with the second anniversary of the grant, over the six year period beginning on the date of grant.
During these years, grantees receive all dividends declared and retain voting rights for the shares.
The agreements under which the restricted stock is issued provide that shares awarded may not be
sold or otherwise transferred until restrictions established under the stock plans have lapsed. Upon
termination of employment from the Company (other than due to death, disability or retirement on or after
age 65), shares with restrictions are forfeited in accordance with the plan.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2012, 2011 and 2010
The following is a summary of the changes in non-vested restricted shares for the year ended
December 31, 2012:
Non-vested shares at January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Grant-Date
Fair Value
$ 6.16
5.59
6.49
6.56
$ 5.92
Shares
971,000
362,000
(194,300)
(6,200)
1,132,500
The fair value of restricted stock awards is based on the market price of the Company’s stock on the
date of grant and is amortized to compensation expense on a straight line basis over the requisite service
period. The weighted average grant date fair value of these restricted stock awards was $5.59 in 2012,
$7.33 in 2011 and $5.16 in 2010. The total fair value of shares vested was approximately $1,169,000 in
2012, $1,312,000 in 2011 and $814,000 during 2010. Tax benefits for compensation tax deductions in
excess of compensation expense related to restricted shares credited to capital in excess of par value was
approximately $379,000 in 2012, $77,000 in 2011 and $0 in 2010. The excess tax deductions are classified
as financing cash flows in the accompanying consolidated statements of cash flows.
Other Information — As of December 31, 2012 total unrecognized compensation cost related to non-
vested restricted shares was approximately $5,563,000 which is expected to be recognized over a
weighted-average period of 3.6 years.
The Company received cash from options exercised of $467,000 in 2012, $54,000 in 2011 and
$45,000 in 2010. These cash receipts are classified as financing cash flows in the accompanying
consolidated statements of cash flows. The fair value of shares tendered to exercise employee stock
options totaled approximately $823,000 in 2012 and $125,000 in 2011 and have been excluded from the
consolidated statements of cash flows. There were no shares tendered to exercise employee stock options
in 2010.
NOTE 11: 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 $544,000 in
2012, $639,000 in 2011 and $689,000 in 2010. The Company’s liability to RPC for these services as was
approximately $94,000 as of December 31, 2012 and $3,000 as of December 31, 2011. 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.
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.
66
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures — The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed in its Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the
Commission’s rules and forms, and that such information is accumulated and communicated to its
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
As of the end of the period covered by this report, December 31, 2012 (the “Evaluation Date”), the
Company carried out an evaluation, under the supervision and with the participation of its management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective at a reasonable assurance level as of the Evaluation Date.
Management’s report on internal control over financial reporting — Management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Management’s report on internal control over financial
reporting is included on page 39 of this report. Grant Thornton LLP, the Company’s independent
registered public accounting firm, has audited the effectiveness of internal control as of December 31,
2012 and issued a report thereon which is included on page 40 of this report.
Changes in internal control over financial reporting — Management’s evaluation of changes in
internal control did not identify any changes in the Company’s internal control over financial reporting
that occurred during the Company’s most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
67
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning directors and executive officers will be included in the Marine Products
Proxy Statement for its 2013 Annual Meeting of Stockholders, in the section titled “Election of Directors.”
This information is incorporated herein by reference. Information about executive officers is contained on
page 25 of this document.
Audit Committee and Audit Committee Financial Expert
Information concerning the Audit Committee of the Company and the Audit Committee Financial
Expert(s) will be included in the Marine Products Proxy Statement for its 2013 Annual Meeting of
Stockholders, in the section titled “Corporate Governance and Board of Directors, Committees and
Meetings – Audit Committee.” This information is incorporated herein by reference.
Code of Ethics
Marine Products has a Code of Business Conduct that applies to all employees. In addition, the
Company has a Code of Business Conduct and Ethics for Directors and Executive Officers and Related
Party Transaction Policy. Both of these documents are available on the Company’s website at
www.marineproductscorp.com. Copies are also available at no extra charge by writing to Attn.: Human
Resources, Marine Products Corporation, 2801 Buford Highway, Suite 520, Atlanta, Georgia 30329.
Marine Products intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an
amendment to, or waiver from, a provision of its code of ethics that relates to any elements of the code of
ethics definition enumerated in SEC rules by posting such information on its internet website, the address
of which is provided above.
Section 16(a) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) of the Exchange Act will be included under
“Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its
2013 Annual Meeting of Stockholders, which is incorporated herein by reference.
Item 11. Executive Compensation
Information concerning director and executive compensation will be included in the Marine Products
Proxy Statement for its 2013 Annual Meeting of Stockholders, in the sections titled “Compensation
Committee Interlocks and Insider Participation,” “Director Compensation,” “Compensation Discussion and
Analysis” and “Executive Compensation.” This information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information concerning security ownership will be included in the Marine Products Proxy Statement
for its 2013 Annual Meeting of Stockholders, in the sections titled, “Capital Stock” and “Election of
Directors.” This information is incorporated herein by reference.
68
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding equity compensation plans as of
December 31, 2012.
(A)
(B)
Number of Securities Weighted Average
To Be Issued Upon
Exercise of
Exercise Price
of Outstanding
Outstanding Options, Options, Warrants
Warrants and Rights
and Rights
(C)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
Plan Category
Equity compensation plans approved by
securityholders . . . . . . . . . . . . . . . . . . . . .
144,615
Equity compensation plans not approved
by securityholders . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
144,615
$
6.82
—
6.82
$
1,277,115(1)
—
1,277,115
(1) All of the securities can be issued in the form of restricted stock or other stock awards.
See “NOTE 10: EMPLOYEE BENEFIT PLANS” to the Consolidated Financial Statements for
information regarding the material terms of the equity compensation plans.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information concerning certain relationships and related party transactions will be included in the
Marine Products Proxy Statement for its 2013 Annual Meeting of Stockholders, in the section titled
“Certain Relationships and Related Party Transactions.” Information regarding director independence will
be included in the Marine Products Proxy Statement for its 2013 Annual Meeting of Stockholders in the
section titled “Director Independence and NYSE Requirements.” This information is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services
Information regarding principal accountant fees and services will be included in the section titled,
“Independent Registered Public Accountants” in the Marine Products Proxy Statement for its 2013 Annual
Meeting of Stockholders. This information is incorporated herein by reference.
69
Item 15. Exhibits and Financial Statement Schedules
PART IV
Consolidated Financial Statements, Financial Statement Schedule and Exhibits
1. Consolidated financial statements listed in the accompanying Index to Consolidated Financial
Statements and Schedule are filed as part of this report.
2.
3.
The financial statement schedule listed in the accompanying Index to Consolidated Financial
Statements and Schedule is filed as part of this report.
Exhibits listed in the accompanying Index to Exhibits are filed as part of this report. The following
such exhibits are management contracts or compensatory plans or arrangements:
10.1 Marine Products Corporation 2001 Employee Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Form 10 filed on February 13, 2001).
10.6 Marine Products Corporation 2004 Stock Incentive Plan (incorporated herein by reference to
Appendix B to the Definitive Proxy Statement filed on March 24, 2004).
10.7
10.8
10.9
Form of stock option grant agreement under the 2001 Employee Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the Form 10-K filed on March 21, 2003).
Form of time lapse restricted stock grant agreement under the 2001 Employee Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Form 10-K filed on
March 21, 2003).
Form of performance restricted stock grant agreement under the 2001 Employee Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the Form 10-K filed on
March 21, 2003).
10.10 Form of stock option grant agreement under the 2004 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the Form 10-Q filed on November 1, 2004).
10.11 Form of time lapse restricted stock grant agreement under the 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.8 to the Form 10-Q filed on November 1, 2004).
10.12 Form of performance restricted stock grant agreement under the 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.9 to the Form 10-Q filed on November 1, 2004).
10.13 Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.16 to the Form
10-K filed on March 15, 2005).
10.14 First Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive Plan
(incorporated by reference to Exhibit 10.19 to the Form 10-K filed on March 2, 2007).
10.15 Summary of Compensation Arrangements with Non-Employee Directors as of February 28,
2008 (incorporated herein by reference to Exhibit 10.21 to the Form 8-K filed on March 4,
2008).
10.16 Performance Based Compensation Agreement between James A. Lane, Jr. and Chaparral Boats,
Inc. (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on
April 25, 2008).
10.17 Summary of ‘At-Will’ compensation arrangements with the Executive Officers as of February
28, 2009 (incorporated herein by reference to Exhibit 10.20 to the Form 10-K filed on March
5, 2009).
10.18 Form of time lapse restricted stock agreement under the 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to the form 10-Q filed on May 2, 2012).
10.19 Summary of compensation arrangements with non-employee directors.
70
Exhibits (inclusive of item 3 above):
Exhibit
Number
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
0.10
10.11
10.12
Description
(A) Articles of Incorporation of Marine Products Corporation (incorporated herein by reference
to Exhibit 3.1 to the Form 10 filed on February 13, 2001). (B) Certificate of Amendment of
Certificate of Incorporation of Marine Products Corporation executed on June 8, 2005
(incorporated herein by reference to Exhibit 99.1 to the current report on Form 8-K filed on June
9, 2005).
Bylaws of Marine Products Corporation (incorporated herein by reference to Exhibit 3.1 to the
Form 8-K filed on October 25, 2008).
Form of Common Stock Certificate of Marine Products Corporation (incorporated herein by
reference to Exhibit 4.1 to the Form 10 filed on February 13, 2001).
Marine Products Corporation 2001 Employee Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Form 10 filed on February 13, 2001).
Agreement Regarding Distribution and Plan of Reorganization, dated February 12, 2001, by and
between RPC, Inc. and Marine Products Corporation (incorporated herein by reference to
Exhibit 10.2 to the Form 10 filed on February 13, 2001).
Employee Benefits Agreement, dated February 12, 2001, by and between RPC, Inc., Chaparral
Boats, Inc. and Marine Products Corporation (incorporated herein by reference to Exhibit 10.3
to the Form 10 filed on February 13, 2002).
Transition Support Services Agreement, dated February 12, 2001, by and between RPC, Inc. and
Marine Products Corporation (incorporated herein by reference to Exhibit 10.4 to the Form 10
filed on February 13, 2001).
Tax Sharing Agreement, dated February 12, 2001, by and between RPC, Inc. and Marine
Products Corporation (incorporated herein by reference to Exhibit 10.5 to the Form 10 filed on
February 13, 2001).
Marine Products Corporation 2004 Stock Incentive Plan (incorporated herein by reference to
Appendix B to the Definitive Proxy Statement filed on March 24, 2004).
Form of stock option grant agreement under the 2001 Employee Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.7 to the Form 10-K filed on March 21, 2003).
Form of time lapse restricted stock grant agreement under the 2001 Employee Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.8 to the Form 10-K filed on March 21,
2003).
Form of performance restricted stock grant agreement under the 2001 Employee Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.9 to the Form 10-K filed on March 21,
2003).
Form of stock option grant agreement under the 2004 Stock Incentive Plan (incorporated herein
by reference to Exhibit 10.1 to the Form 10-Q filed on November 1, 2004).
Form of time lapse restricted stock grant agreement under the 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.2 to the Form 10-Q filed on November 1, 2004).
Form of performance restricted stock grant agreement under the 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.3 to the Form 10-Q filed on November 1, 2004).
71
Exhibit
Number
10.13
10.14
10.15
10.16
10.17
Description
Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.16 to the Form
10-K filed on March 15, 2005).
First Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.19 to the Form 10-K filed on March 2, 2007).
Summary of Compensation Arrangements with Non-Employee Directors as of February 28,
2008 (incorporated herein by reference to Exhibit 10.21 to the Form 10-K filed on March 4,
2008).
Performance Based Compensation Agreement between James A. Lane, Jr. and Chaparral Boats,
Inc. (incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed on April 25, 2008).
Summary of ‘At-Will’ compensation arrangements with the Executive Officers as of February
28, 2009 (incorporated herein by reference to Exhibit 10.20 to the Form 10-K filed on March 5,
2009).
10.18
Form of time lapse restricted stock agreement under the 2004 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the form 10-Q filed on May 2, 2012).
10.19
Summary of compensation arrangements with non-employee directors.
21
23
24
31.1
31.2
32.1
Subsidiaries of Marine Products Corporation (incorporated herein by reference to Exhibit 21 to
the Form 10-K filed on March 4, 2008).
Consent of Grant Thornton LLP
Powers of Attorney for Directors
Section 302 certification for Chief Executive Officer
Section 302 certification for Chief Financial Officer
Section 906 certification for Chief Executive Officer and Chief Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Any schedules not shown above have been omitted because they are not applicable.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Marine Products Corporation
Richard A. Hubbell
President and Chief Executive Officer
March 1, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name
Title
Date
Richard A. Hubbell
President and Chief Executive Officer March 1, 2013
(Principal Executive Officer)
Ben M. Palmer
Chief Financial Officer
(Principal Financial and Accounting
Officer)
March 1, 2013
The Directors of Marine Products Corporation (listed below) executed a power of attorney,
appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign this report on their behalf.
R. Randall Rollins, Director
Wilton Looney, Director
Gary W. Rollins, Director
Henry B. Tippie, Director
James B. Williams, Director
James A. Lane, Jr., Director
Linda H. Graham, Director
Bill J. Dismuke, Director
Larry L. Prince, Director
Richard A. Hubbell
Director and as Attorney-in-fact
March 1, 2013
73
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE
The following documents are filed as part of this report.
FINANCIAL STATEMENTS AND REPORTS
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
PAGE
39
Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements . . . .
Consolidated Balance Sheets as of December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for each of the three years ended December 31, 2012 . . . . . . .
Consolidated Statements of Comprehensive Income for each of the three years ended December 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31,
40
41
42
43
44
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2012 . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47-66
45
46
SCHEDULE
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74
Schedules not listed above have been omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes thereto.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES (in thousands of dollars)
Discription
Year ended December 31, 2012
For the years ended December 31, 2012, 2011 and 2010
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Net
(Write-Offs)/
Recoveries
Balance
at End of
Period
Allowance for doubtful accounts . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . .
$
27
$3,783
Year ended December 31, 2011
Allowance for doubtful accounts . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . .
31
$
$3,677
Year ended December 31, 2010
Allowance for doubtful accounts . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . .
$
36
$3,459
$ —
$372
$ —
$106
$ —
$218
$ (5)
$—
$ (4)
$—
$ (5)
$—
$
22
$4,155
27
$
$3,783
$
31
$3,677
74
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic (a) . . . . . . . . . . . . . . . .
Earnings per share — diluted (a) . . . . . . . . . . . . . . .
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic (a)(b) . . . . . . . . . . . . . .
Earnings per share — diluted (a)(b) . . . . . . . . . . . . .
First
Second
Third
Fourth
(in thousands except per share data)
$37,849
6,996
1,632
0.04
0.04
$
$27,148
4,460
666
0.02
0.02
$
$38,454
7,295
2,173
0.06
0.06
$
$29,098
4,907
1,229
0.03
0.03
$
$38,494
7,374
2,110
0.06
0.06
$
$22,254
4,634
1,200
0.03
0.03
$
$34,153
5,539
1,064
0.03
0.03
$
$27,937
5,505
3,636
0.10
0.10
$
(a)
The sum of the earnings per share for the four quarters may differ from annual amounts due to the required method of
computing the weighted average shares for the respective periods.
(b)
The fourth quarter of 2011 included a $0.06 per share tax-free gain from an employee benefit plan financing arrangement.
75
[THIS PAGE INTENTIONALLY LEFT BLANK]
2013 product overview
h20 Sport series
sunesta SPORTDECKS
Continuing an innovative line that brings Chaparral style, performance
and quality to first-time and experienced boat buyers at No Haggle,
Real Deal pricing. The H2O comes in 18- and 19-foot lengths in a sport,
or ski and fish package, and every style is loaded with features. Choose
an H2O and you will choose craftsmanship, value and innovation.
\\ 18 Sport \\ 18 Ski & Fish \\ 19 Sport \\ 19 Ski & Fish
The Sunesta, with its patented Wide Tech™ bow design, continues to
prove itself with broad customer appeal. With a new interior, this boat
combines the best features of many of Chaparral’s other products and
is suitable for most family uses, including cruising, wakeboarding and
sightseeing. The 2013 model line offers four boats ranging from 22
to 28 feet.
\\ 224 \\ 244 \\ 264 \\ 284
ss WIDE TECH™
Chaparral’s SSi sportboat open bow models are produced for the
quality- and style-conscious recreational boater. Models for the 2013
model year range in size from 20 to 25 feet, and they have once again
set a high standard for engineering excellence, attractive styling, and
quality materials and workmanship. Chaparral has incorporated its
patented Wide Tech™ bow design into several SSi models for additional
space in the forward part of the boat.
\\ 196 \\ 206 \\ 216 \\ 225 \\ 226 \\ 246
ssx SPORTDECKS
For the 2013 model year, Chaparral introduced the 277 SSX into
the lineup, increasing the choices to five for the SSX Sportdeck. All
SSX Sportdecks are offered with an enclosed head, a wet bar in the
cockpit, an integrated swim platform and a transom sun lounge.
Chaparral’s SSX offers the performance of a sportboat with the
roominess and utility of a pleasure boat.
\\ 257 \\ 277 (featured on the cover) \\ 285 \\ 287 \\ 327
robalo Sport
Fishing Boats
signature Cruisers
Robalo is continuing its success in 2013 with a line of multi-use sport
fishing boats that offer the offshore fisherman a dependable, seaworthy
design with all of the features that an offshore fisherman expects.
Affordable family fun is also an option with Robalo’s new 18- and 20-
foot center console models. All models have comfortable cabin layouts,
plush interiors and spacious seating arrangements.
In 2013, Chaparral continues the tradition of quality that has made
the Signature Cruiser a leader in the luxury sport cruiser market. The
Signature comes with many standard features that are options on
other cruisers in its class, and the largest Signatures offer a fiberglass
hard top, bow thrusters and such style features as underwater lighting.
The Signature line offers six models from 27 to 37 feet in length.
\\ 270 \\ 290 \\ 310 \\ 330 \\ 350 \\ 370
Center Console \\ R180 \\ R200 \\ R220 \\ R240 \\ R260 \\ R300
Walkaround \\ R225 \\ R245 \\ R265 \\ R305
Dual Console \\ R207 \\ R227 \\ R247
xtreme tow boats
In its sixth year, the Xtreme continues to be very popular with wakeboard
enthusiasts who want all the features and handling characteristics of
a traditional wakeboard boat but with more room, higher speed and
greater fuel efficiency. Features include an onboard ballast system and
automatic speed control for tournament wakeboarders. Other features
include custom graphics, a high-output sound system and an arch tower
with an aft bimini top and rotating brackets. Xtreme’s model lineup for
2013 includes four models ranging from 20 to 26 feet in length.
\\ 204 \\ 224 \\ 244 \\ 264
Cover Photo Credit: Atlanta Marine, Chaparral 277 SSX
420
Chaparral’s 420 Premiere Sport Yacht is the exciting result of several years
of development, and it represents an extension of Chaparral’s quality
brand name into a new and exciting product segment. This product
features the Wide Tech™ bow design and the revolutionary Volvo IPS
propulsion system, which makes it more maneuverable and easier to
dock than other sport yachts its size. The 420 Premiere is produced in
a 42-foot model for the 2013 model year.
01 \\ Financial Highlights
02 \\ Letter to Stockholders
04 \\ Confident at the Helm
07 \\ Form 10K
inside back cover \\ Corporate Information
i o n
t
i n f o r m a
e
t
a
p o r
c o r
OFFICERS
R. Randall Rollins
Chairman of the Board of Directors
Richard A. Hubbell
President and Chief Executive Officer
James A. Lane, Jr.
Executive Vice President
President of Chaparral Boats, Inc.
Linda H. Graham
Vice President and Secretary
Ben M. Palmer
Vice President, Chief Financial Officer
and Treasurer
DIRECTORS
R. Randall Rollins§
Chairman of the Board, Rollins, Inc. (Consumer services)
and Chairman of the Board, RPC, Inc. (Oil and gas field services)
Henry B. Tippie*†
Chairman of the Board and Chief Executive Officer,
Tippie Services, Inc. (Management services)
Wilton Looney*
Honorary Chairman of the Board,
Genuine Parts Company (Automotive parts distributor)
At the 2013 Annual Meeting, Mr. Wilton Looney will not be standing
for reelection to the Board of Directors. Marine Products Corporation
offers our sincere thanks to Mr. Looney for his contributions and many
years of dedicated service to the Board and various committees.
James B. Williams*
Retired Chairman of the Executive Committee, SunTrust Banks, Inc.
(Bank holding company)
Gary W. Rollins§
Vice Chairman and Chief Executive Officer,
Rollins, Inc. (Consumer services)
Richard A. Hubbell§
President and Chief Executive Officer
James A. Lane, Jr.
Executive Vice President
President of Chaparral Boats, Inc.
Linda H. Graham
Vice President and Secretary
Bill J. Dismuke°
Retired President, Edwards Baking Company
Larry L. Prince
Retired Chairman of the Board and Chief Executive Officer,
Genuine Parts Company (Automotive parts distributor)
* Member of the Audit Committee, Compensation Committee,
Diversity Committee and Nominating and Governance Committee
† Chairman of the Audit Committee, Compensation Committee,
Diversity Committee and Nominating and Governance Committee
§ Member of the Executive Committee
° Member of the Audit Committee
STOCKHOLDER INFORMATION
Corporate Offices
Marine Products Corporation
2801 Buford Highway NE, Suite 520
Atlanta, Georgia 30329
Telephone: 404.321.7910
Stock Listing
New York Stock Exchange
Ticker Symbol
MPX
Investor Relations Website
www.marineproductscorp.com
Transfer Agent and Registrar
For inquiries related to stock certificates,
including changes of address, please contact:
American Stock Transfer & Trust Company, LLC
Shareholder Services Department
6201 15th Avenue
Brooklyn, NY 11219
Telephone: 800.937.5449
www.amstock.com
Annual Meeting
The annual meeting of Marine Products Corporation will be held at 12:00 p.m.,
April 23, 2013, 2170 Piedmont Road, NE, Atlanta, GA 30324.
Caution Concerning Forward-Looking Statements
The Annual Report contains statements that constitute “forward-looking
statements” under the Private Securities Litigation Reform Act of 1995,
including all statements that look forward in time or express management’s
beliefs, expectations or hopes. In particular, such statements include,
without limitation, statements regarding the Company’s belief that its
financial strength will continue to support its sales growth and allow the
Company to pursue strategic opportunities to enhance stockholder value
over the long term; the Company’s belief that a number of macroeconomic
and company-specific factors encourage the Company regarding its near-
term financial results; the Company’s belief that the recreational boating
industry is undergoing a steady recovery; the Company’s belief that its
introduction of smaller boat models is expanding the market for the
Company’s products; the Company’s belief that customers purchasing
smaller boats will enjoy owning the Company’s boats and will buy a larger
boat from the Company when they choose to purchase a larger boat;
and the Company’s belief that strong consumer demand and the Company’s
success in attracting the first-time boat buyer positions the Company
very well for the future. The actual results of the Company could differ
materially from those indicated by the forward-looking statements because
of various risks and uncertainties, including, without limitation, those
identified under the title “Risk Factors” in the Company’s Annual Report
on Form 10-K included as part of this Annual Report. All of the foregoing
risks and uncertainties are beyond the ability of the Company to control,
and in many cases the Company cannot predict the risks and uncertainties
that could cause its actual results to differ materially from those indicated
in the forward-looking statements.
confident
At the
helm
2012 ANNUAL REPORT
2801 Buford Highway NE, Suite 520, Atlanta, Georgia 30329
404.321.7910 www.marineproductscorp.com
©2013 Marine Products Corporation. All rights reserved.
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