CONTINUING A TRADITION OF INNOVATION
2016
Annual
Report
MARINE PRODUCTS CORPORATION
(NYSE: MPX) DESIGNS, MANUFACTURES
AND DISTRIBUTES PREMIUM-BRANDED
CHAPARRAL JET BOATS, STERNDRIVE
PLEASURE BOATS AND OUTBOARD
DECKBOATS, AS WELL AS ROBALO
OUTBOARD SPORT FISHING BOATS
THROUGH 147 DOMESTIC AND 90
INTERNATIONAL INDEPENDENT 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
Featured on Front Cover: 257 SSX SURF
Inside Front Cover 2017 Product Overview
01
2016 Financial Overview
02
Letter to Stockholders
04
The Biggest Robalo Yet
05
Innovation on a Product Platform
07
FORM 10K
Inside Back Cover
Corporate Information
246 CAYMAN BAY BOAT
R247 n DUAL CONSOLE
R302 n CENTER CONSOLE
R305 n WALKAROUND
270 n SIGNATURE
21 SPORT n H20
226 n SSI
2430 VRX n VORTEX
244 n SUNESTA
250 n SUNCOAST
337 n SSX
2017 Product Overview
H2O SPORT SERIES
The H2O series continues an innovative line that brings Chaparral
style, performance and quality to first-time and experienced boat
buyers at Real Deal pricing. The H2O sport package comes in 18,
19 and 21 foot lengths, and every style is loaded with features. All
models offer outstanding craftsmanship, value and innovation.
New for 2017, choose Outboard Power for the 21-foot H2O models.
18 SPORT n 19 SPORT n 21 SPORT n 21 OUTBOARD SPORT
18 SKI & FISH n 19 SKI & FISH n 21 SKI & FISH
21 OUTBOARD SKI & FISH
SSI WIDE TECHTM
Chaparral’s SSi sport boat bowrider and cuddy cabin models
are produced for the quality and style-conscious recreational
boater. Models for the 2017 model year range in size from 21
to 24 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
TechTM bow design into SSi models for additional space in the
bow. 246 SSi is also available with new Surf Series options.
216 n 225 n 226 n 246
VORTEX JET BOATS
Chaparral’s award-winning design team built a line of jet boats
equipped with fuel-saving Eco-Mode, Chaparral’s Extended
V-PlaneTM hull, Rotax® power and innovation. No Haggle, Real
Deal pricing includes a tsrailer targeting younger first-time
boat owners. The NMMA Innovation Award Winning Aerial Surf
Platform (ASP) is available as the next innovation in Surfing!
203 VR n 203 VRX n 223 VR n 223 VRX
243 VR n 243 VRX n 2430 VR n 2430 VRX
SUNESTA SPORT BOATS
Sunesta, with its patented Wide TechTM bow design and unique
U-Slide lounge, combines the best features of many of Chaparral’s
other products. The 2017 model line offers four boats ranging
from 22 to 28 feet, including two models also available with new
Surf Series options.
224 n 244 n 264 n 284
SUNCOAST OUTBOARD SPORT DECK
Designed for big lakes, rivers and coastal waters, the sensational
SunCoast marks the return of Chaparral to its outboard-powered
roots in sizes ranging from 21 to 25 feet. With more seating
capacity, storage space, luxury, quality and performance, SunCoast
brings a whole new look to the outboard sport deck market.
210 n 230 n 250
SSX LUXURY SPORT BOATS
For the 2017 model season, Chaparral introduced the 287 SSX
Luxury Sport boat. Various SSX Luxury Sport boat models are
offered with an enclosed head, integrated swim platform, transom
sun lounge, and most have the option of a wet bar in the cockpit.
Chaparral’s SSX series offers high-end performance with premium
components from bow to stern, with two models also available
with new Surf Series options.
227 n 257 n 277 n 287 n 307 n 337
ROBALO CAYMAN BAY BOATS
The Cayman Series ranges from 20 to 24 feet and it brings
Robalo quality, style and performance to a bay boat. Robalo
engineers have successfully mixed a shallow water draft with a
soft-riding Extended V-PlaneTM hull design. Robalo’s Cayman
models offer rock-solid stability; high-quality upholstery; high-
tech, space-efficient cockpit; and a wide array of fishing features
at Reel Deal pricing.
206 n 226 n 246
ROBALO DUAL CONSOLES
Multi-purpose outboard fishing boats like the Robalo Dual Console
are enjoying increased popularity in today’s market! Today’s
fishermen want a boat that does more than just fish, and the
dual console does just that. Serious anglers will appreciate the
secure rod storage, raw water wash down, self-bailing cockpit and
standard livewell. Fish in the morning, tow the kids all afternoon
and then cruise as the sun sets.
R207 n R227 n R247 n R317
ROBALO CENTER CONSOLES
Robalo’s No Haggle, Reel Deal pricing is available for 16 to 30 foot
models. The Kevlar® reinforcement and a seaworthy hull design on
the Robalo Center Console series provides the serious boater with
peace of mind. Whether you’re trolling with hooks in the water
or motoring through the tough stuff in search of a trophy catch,
a powerful engine and Robalo’s Hydro LiftTM bottom design can
speed you to the hottest fishing spots.
R160 n R180 n R200 n R200ES n R222
R222ES n R242 n R260 n R302
ROBALO WALKAROUNDS
Robalo is offering two walkaround models in 2017, ranging in size
from 26 to 30 feet. The R265 features a new-look cabin design
with impressive amenities, and the R305 Walkaround has
a spacious cabin with finishing touches, such as teak steps,
directional lighting and a hanging locker, all of which make it
suitable for comfortable family cruising and serious fishing.
R265 n R305
SIGNATURE CRUISERS
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 style features such as
underwater lighting. The 2017 Signature line offers three models
from 27 to 33 feet in length.
270 n 310 n 330
2016 Financial Overview
NET SALES (thousands)
3
9
2
,
8
6
1
$
0
5
0
,
1
7
1
$
0
5
9
,
8
4
1
$
0
3
3
,
1
4
2
$
,
1
6
0
7
0
2
$
AVERAGE SELLING PRICE
PER UNIT (thousands)
4
4
$
5
4
$
4
4
$
2
4
$
1
4
$
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
NET INCOME (thousands)
TOTAL NUMBER OF BOATS SOLD
5
4
7
6
1
,
$
6
0
3
,
4
1
$
9
4
0
,
5
5
8
2
,
4
4
0
4
,
3
9
6
5
,
3
0
9
4
,
3
4
1
9
,
8
$
8
2
5
7
,
$
9
7
9
,
6
$
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
NET SALES
GROSS PROFIT
OPERATING INCOME
NET INCOME
EARNINGS PER SHARE - DILUTED
GROSS PROFIT MARGIN PERCENT
OPERATING MARGIN PERCENT
2012
$
148,950 $
2013
168,293
2014
171,050
$
2015
$ 207,061
2016
$ 241,330
$
$
$
$
27,204 $
29,813
$
32,671
$ 43,800
$
50,467
8,761 $
9,506
6,979 $
7,528
0.19 $
0.20
$
$
$
12,006
$
20,551
$
23,052
8,914
$
14,306
$
16,745
0.24
$
0.39
$
0.44
18.3 %
5.9 %
17.7 %
5.6 %
19.1 %
7.0 %
21.2 % $
20.9
%
9.9 % $
9.6
%
01
Letter to Stockholders
The recreational boating industry continued to grow during
2016 as consumer confidence and the general U.S. economy
continued to improve. The wider range of models we have
developed over the past few years performed strongly in this
market, led by continued sales growth in our Robalo offshore
sport fishing boats as well as increases in our value-priced
products, our Chaparral SunCoast outboards, and selected
Chaparral sterndrive models.
THE YEAR 2016 MARKED OUR SEVENTH
CONSECUTIVE YEAR OF INCREASED NET SALES
AND PROFITABILITY. NET SALES FOR 2016 WERE
$241.3 MILLION, AN INCREASE OF 16.6 PERCENT
COMPARED WITH $207.1 MILLION IN 2015.
During the third quarter Marine Products Corporation
announced a partial tender offer for our common stock. We
completed this offer in November and purchased 3.5 million
shares at a price of $9.64 per share. Our Board of Directors
approved this offer because they believed that a partial tender
offer of this type provided an efficient method of returning
capital to stockholders, while enhancing value for the remaining
stockholders through higher earnings per share and the
increased ability to pay dividends. The offer was well received,
as indicated by the fact that stockholders tendered a total of
7.8 million shares.
287 SSX
The year 2016 marked our seventh consecutive year of increased
net sales and profitability. Net sales for 2016 were $241.3 million,
an increase of 16.6 percent compared with $207.1 million in 2015.
Net sales improved due to higher unit sales of our Robalo sport
fishing boats, especially two models in the 20-foot size range,
as well as the larger Robalo 246. Also contributing to the sales
increases were improvements in sales of our Chaparral H2O
sterndrive and SunCoast outboard models during 2016. Among
these models, the 21-foot Chaparral H2O was very popular
with value-conscious boaters who want a larger boat with many
standard features. International sales decreased by 5.0 percent
in 2016 compared with 2015. Our international sales have
decreased for several years due to the strength of the U.S. dollar
and relative economic weakness in a number of international
markets. Gross profit was $50.5 million, an increase of 15.2
percent compared with $43.8 million in 2015. Gross margin
declined slightly to 20.9 percent of net sales, compared with 21.2
percent of net sales in 2015. Selling, general and administrative
expenses increased to $27.4 million in 2016 from $23.2 million in
2015, primarily due to costs that vary with sales and profitability.
Operating income in 2016 was $23.1 million, or 9.6 percent of
net sales, compared with $20.6 million, or 9.9 percent of net
sales, in 2015.
Interest income was $355 thousand in 2016, a decline compared
with $420 thousand in 2015, due to a reduction in the average
balance of our investment portfolio. We continue to be satisfied
with our investment portfolio as a means to maximize the
after-tax yield and ensure the safety of principal on a significant
portion of the Company’s assets. Net income for 2016 was $16.7
million, compared with net income of $14.3 million in 2015.
Diluted earnings per share were $0.44 in 2016, a 12.8 percent in-
crease compared with diluted earnings per share of $0.39 in 2015.
02
Our Board of Directors continued the regular quarterly dividend
of $0.06 per share during 2016, which represented an increase
of $0.02, or 50 percent, compared with the regular quarterly
dividend of $0.04 in 2015. The dividend payments in 2016
represented our third consecutive year of dividend increases.
At its meeting early in 2017, the Board voted to increase the
regular quarterly dividend by $0.01 per share, or 16.7 percent,
to $0.07 per share.
During 2016, Marine Products Corporation generated $15.8
million in net cash provided by operating activities, a slight
decrease compared with $16.0 million in 2015. In addition,
we paid $9.2 million in dividends, an increase of $1.6 million
compared with $7.6 million in 2015. We also used $34.7 million
in cash to purchase and retire our common stock, both for
open market repurchases in the first and second quarters and
to support the partial tender offer later in the year. Because
of these large share repurchases, we finished 2016 with $11.9
million in cash and marketable securities, a $31.0 million
decrease compared with $42.9 million in cash and marketable
securities at the end of 2015. We believe that this cash and
marketable securities balance provides plenty of liquidity to
support both our current operations as well as future growth
R160 CENTER CONSOLE
S S i 2 4 6
opportunities, and we also believe
that our operations will generate
strong cash flow in 2017. We did not
complete any acquisitions in 2016, but
are still receptive to considering acquisition candidates which
manufacture products which complement our own offerings.
In March we reported the death of Jim Lane following an
extended illness. Jim had served as the President of Chaparral
Boats since 1976, and as Executive Vice President and a
Director of Marine Products Corporation from its inception
in 2001. Jim’s passing was a loss to our company and the
pleasure boating community. While we miss Jim, our existing
management team has smoothly assumed the additional
responsibilities, and we are confident that the traditions that
have brought Marine Products Corporation to its current strong
position will continue. Jim not only had business acumen and
a strong work ethic, but he also had the ability to develop
strong teams. We will continue these traditions at Marine
Products Corporation.
As we begin 2017, we are encouraged by indications of a strong
upcoming retail selling season and the position of our products
to meet our customers’ preferences. Although industry-wide
sterndrive sales remained relatively flat in 2016, the sales of our
sterndrive products increased slightly, and we continue to hold
the highest market share in our segment. Our Robalo outboard
sport fishing boats continue to gain market share, and along
with our Chaparral outboard models, account for a growing
percentage of our sales. Our Vortex jet boats have proven to
be a strong addition to our product portfolio and hold a high
market share in its segment. As always, we appreciate the hard
work of our employees, the support of our dealers, and the
continued loyalty of our customers as we continue to participate
in an expanding market.
RICHARD A. HUBBELL
President and Chief Executive Officer
03
The Biggest Robalo Yet
For the 2017 model year we introduced the
At the helm station, the glass dash highlights
Dual Console Robalo R317. At 31 feet in length,
the latest in functionality and appearance, and
this is the largest Robalo we have ever built
the Optimus 360 joystick docking system makes
during more than 15 years of building this
maneuvering such a large boat easy, even in
brand. The R317’s standard features meet the
tight docking situations. The R317’s standard
requirements of serious saltwater anglers,
power is twin outboard engines producing
with plenty of fishing rod storage, a 50-gallon
fish box and a 25-gallon livewell. For family
cruising, the boat has a comfortable head, a
600 horsepower, and this power configuration
combined with Robalo’s Hydro-LiftTM hull
maximizes speed and efficiency.
sleeping area, electrically operated sun lounges,
and a retractable sunshade. A side-entry door
We introduced this boat in February 2017 at the
and integrated swim platform make the boat
Miami Boat Show. We look forward to rolling
suitable for a wide variety of uses in addition
it out to many of our Robalo dealers during the
to fishing.
2017 retail selling season.
R317 DUAL CONSOLE
04
244 SUNESTA
Innovation on a Product Platform
At Marine Products Corporation
For the 2017 model year we enhanced our product platform
we have developed a wide variety
by creating the Surf Series. We have taken five of our
of models for different uses and tastes and with various
Chaparral SSX, SSI and Sunesta models and customized
power options. The number of models and choices has
them to perform as competition-quality wakesurfing boats
grown over the years, and we are pleased with the market
while maintaining the original functionality that has made
share and performance of each of our categories.
them so popular. The key to this innovation is the Malibu
Surf GateTM, a hydraulically actuated extension on the
FOR OPTIMUM FIT AND FINISH, WE
BLEND OLD-WORLD CRAFTSMANSHIP
WITH HIGH-TECH COMPUTERIZED
MANUFACTURING TECHNIQUES. WHILE
MUCH OF THE BOAT BUILDING PROCESS
IS STILL CRAFTED BY HAND, WE ALSO
INCORPORATE HIGH ROBOTIC ROUTERS
IN THE FABRICATION OF FIBERGLASS
HARD TOPS, STORAGE COMPARTMENT
LIDS, DASH CONSOLES AND DOORS.
05
2430 VORTEX VRX
boat’s hull that transforms it into a wakesurfing boat. The
exhaust away from the wake surfer, and
wake can be transferred from one side of the boat to the
gives the boat more power because it uses larger
other without the annoyance of changing the distribution
in a ballast tank. Surf GateTM allows the user to customize
the boat’s wake to many configurations.
propeller blades. The power trim allows the helmsman or
wake surfer to vector the propeller thrust in a way that
controls the wake while requiring less ballast. When a
Surf Series model is not being used for wake surfing, the
The wake can be controlled from the helm’s instrument
Volvo Penta Forward Drive permits better adjustment
panel or a wristband worn by the wake surfer. On the
of the boat’s running attitude, better acceleration and
instrument panel, the Surf Series models utilize the
fuel efficiency, and better handling, because the counter-
Medallion II Viper Touchscreen Control, which provides
rotating propellers do not produce the torque that is
critical information to the helmsman and also allows for
associated with traditional inboards used for water sports.
easy setup by the wakesurfer. When the ballast tank is
The Volvo Penta Forward Drive delivers unmatched
filled, the wakesurfer simply sets a desired speed and
versatility to our Chaparral Surf Series models.
wake configuration, and the controls do the rest.
Ranging in length from 23 to 26 feet, all of these models
The Chaparral Surf Series is powered by Volvo Penta’s
come with the standard and optional features of their
new Forward Drive, featuring dual counter-rotating
forerunners. The largest model in the Surf Series, the
propellers that operate in undisturbed water under
264 Sunesta, includes features such as an optional wet
the boat’s hull, forward of the drive mechanism. This
bar, enclosed head and a folding arch tower with sound
configuration creates a great wakeboard wake, keeps
system speakers.
06
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(cid:134) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
Commission File No. 1-16263
MARINE PRODUCTS CORPORATION
58-2572419
Delaware
(I.R.S. Employer Identification No.)
(State of Incorporation)
2801 BUFORD HIGHWAY NE, 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. (cid:134) Yes (cid:95) 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. (cid:134) Yes (cid:95) 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. (cid:95) Yes (cid:134) 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). (cid:95) Yes (cid:134) 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. (cid:95)
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 (cid:134) Accelerated filer (cid:95) Non-accelerated filer (cid:134) Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
The aggregate market value of Marine Products Corporation common stock held by non-affiliates on June 30, 2016, the last business day
of the registrant’s most recent second fiscal quarter, was $93,651,340 based on the closing price on the New York Stock Exchange on June
30, 2016 of $8.46 per share.
Marine Products Corporation had 34,957,356 shares of common stock outstanding as of February 17, 2017.
Portions of the Proxy Statement for the 2017 Annual Meeting of Stockholders of Marine Products Corporation are incorporated by
reference into Part III, Items 10 through 14 of this report.
Documents Incorporated by Reference
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 Company’s belief that there are several alternative suppliers of fiberglass that could provide adequate quality and
quantities of this raw material at acceptable prices; the Company’s plans to continue purchasing sterndrive engines
through the ABA; the Company’s belief that the level of dealer inventories of its new boat models are appropriate;
the Company’s belief that its newer boat models will expand its customer base and leverage its strong dealer
network and reputation for quality and styling; the Company’s belief that its corporate infrastructure, marketing and
sales capabilities, financial strength and nationwide presence enables it to compete effectively against its
competitors; the Company’s belief that it will not incur any material capital expenditures to comply with existing
environmental or safety regulations; the Company’s expectation that higher costs of materials could negatively
affect its profit margins; the Company’s belief that the ultimate outcome of any litigation will not have a material
effect on its results of operations; the Company’s plan to continue to pay cash dividends subject to the earnings and
financial condition of the Company and other relevant factors; the Company’s belief that recreational boating retail
demand in many segments of the industry is improving; our belief that there is improved demand from consumers
who have delayed purchasing boats over the past few years due to economic uncertainty; the Company’s belief that
continued improvement in retail boat sales will be modest due to the lack of strong economic improvement; the
Company’s belief that the recreational boating industry promotional program has incrementally benefited the
industry and Marine Products; the Company’s plans to continue to emphasize the value-priced Chaparral and Robalo
models as well as the Surf Series; the Company’s belief that the Vortex jet boat and SunCoast outboard boats will
expand our customer base and leverage our strong dealer network and reputation for quality and styling; the
Company’s plans to continue to develop and additional new products for subsequent model years; 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 2017; the Company’s expectation about contributions to its pension plan in 2017; the
Company’s estimate of the amount and timing of future contractual obligations; the Company’s judgments and
estimates with respect to its critical accounting policies; the Company’s expectation about the impact of new
accounting pronouncements on the Company’s consolidated financial statements; and the Company’s expectation
regarding market risk of its investment portfolio.
The words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “seek,” “project,”
“estimate,” and similar expressions used in this document that do not relate to historical facts are intended to identify
forward-looking statements. Such statements are based on certain assumptions and analyses made by our
management in light of its experience and its perception of historical trends, current conditions, expected future
developments and other factors it believes to be appropriate. We caution you that such statements are only
predictions and not guarantees of future performance and that actual results, developments and business decisions
may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future
events not to occur as expected include the following: economic conditions, lack of credit availability and possible
decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to
adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences,
deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of
their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising
gasoline prices and a weak housing market on consumer demand for our products and competition from other boat
manufacturers and dealers. We caution you that such statements are only predictions and not guarantees of future
performance and that actual results, developments and business decisions may differ from those envisioned by the
forward-looking statements. See “Risk Factors” on page 19 for a discussion of factors that may cause actual results
to differ from our projections.
8
Item 1. Business
Marine Products manufactures fiberglass motorized boats distributed and marketed through its independent
dealer network. Marine Products’ product offerings include Chaparral sterndrive, outboard and jet pleasure boats
and Robalo outboard sport fishing boats.
Organization and Overview
Marine Products is a Delaware corporation incorporated on August 31, 2000, in connection with a spin-off from
RPC, Inc. (NYSE: RES) (“RPC”). Effective February 28, 2001, RPC accomplished the spin-off by contributing 100
percent of the issued and outstanding stock of Chaparral to Marine Products, a newly formed wholly owned
subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders.
Marine Products designs, manufactures and sells recreational fiberglass powerboats in the sportboat, deckboat,
cruiser, jet boat and sport fishing markets. The Company sells its products to a network of 147 domestic and 90
international independent authorized dealers. Marine Products’ mission is to enhance its customers’ boating
experience by providing them with high quality, innovative powerboats. The Company intends to remain a leading
manufacturer of recreational powerboats for sale to a broad range of consumers worldwide.
The Company manufactures Chaparral sterndrive pleasure boats including H2O Sport and Fish & Ski boats, SSi
and SSX Sportboats, Sunesta sport deck, and Signature Cruisers, as well as SunCoast sport deck outboards, Vortex
jet boats and the Surf Series, a new line of Chaparral models first introduced for the 2017 model year. The most
recent available industry statistics [source: Statistical Surveys, Inc. report dated September 30, 2016] indicate that
Chaparral is the largest manufacturer of sterndrive boats in lengths from 18 to 33 feet in the United States.
Chaparral was founded in 1965 in Ft. Lauderdale, Florida. Chaparral’s first boat was a 15-foot tri-hull design
with a retail price of less than $1,000. Over time Chaparral grew by offering exceptional quality and consumer
value. In 1976, Chaparral moved to Nashville, Georgia, where a manufacturing facility of a former boat
manufacturing company was available for purchase. This provided Chaparral an opportunity to obtain additional
manufacturing space and access to a trained workforce. With 52 years of boatbuilding experience, Chaparral
continues to expand the range of its offerings through insightful product design and quality manufacturing processes
in order to reach an increasingly discerning recreational boating market.
The Company also manufactures Robalo outboard fishing boats. 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 is the fifth largest manufacturer of outboard boats in lengths from 16 to 30
feet in the United States.
9
Products
Marine Products distinguishes itself by offering a wide range of products to the family recreational and cruiser
markets through its Chaparral brand and to the sport fishing market through its Robalo brand.
The following table provides a brief description of our product lines and their particular market focus:
Product Line
Number
of
Models
Overall
Length
Approximate
Retail
Price Range
Description
Chaparral – Vortex Jet
Boat
8
(cid:21)(cid:19)(cid:397)-(cid:21)(cid:23)(cid:397)
$35,000 - $81,000 Fiberglass sterndrive pleasure boats marketed as
jet-powered boats with traditional bowrider
styling. Features include enhanced
maneuverability at low speeds and high seating
capacity. National fixed retail price including a
trailer. Also marketed as a high-performance
wakeboard boat with optional surf package.
Marketed to younger families and wakeboard
enthusiasts.
Chaparral – H2O
Sport Series
8
(cid:20)(cid:27)(cid:397)-(cid:21)(cid:20)(cid:397)
$22,000 - $55,000 Fiberglass multipurpose sterndrive and outboard
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.
Chaparral – SunCoast
Outboard Deck Boat
Chaparral - SSi
Wide Tech™
3
(cid:21)(cid:20)(cid:397)-(cid:21)(cid:24)(cid:397)
$41,000 - $94,000 Fiberglass multipurpose bowrider with outboard
power and an open bow providing high seating
capacity. Large deckboat-style boat, suitable for
large inland bodies of water or coastal saltwater
use. Marketed with a national fixed retail price to
saltwater boaters carrying large numbers of
passengers.
4
(cid:21)(cid:20)(cid:397)-(cid:21)(cid:23)(cid:397)
$52,000 - $119,000 Fiberglass sterndrive runabouts. Products
encompass affordable, entry-level to mid-range
and larger sportboats. Marketed as high value
runabouts for family groups. Wide Tech™ is
marketed as an affordable, entry-level to mid-
range pleasure boat with the handling of a
runabout, the style of a sportboat and limited
model Surf Series options.
Chaparral - SSX
Sport Boat
Chaparral – Sunesta
Sport Deck
6
(cid:21)(cid:21)(cid:397)-(cid:22)(cid:22)(cid:397)
$62,000 - $362,000 Fiberglass sterndrive bowrider sportboats that
combine features of sportboats and deckboats and
various model Surf Series options. Marketed as
high value runabouts for family groups.
4
(cid:21)(cid:21)(cid:397)-(cid:21)(cid:27)(cid:397)
$66,000 - $178,000 Fiberglass sterndrive multipurpose deckboat-style
bowriders with high-performance hull designs
and flexible seating configurations. Options
include updated graphics, swimming and galley
features and various model Surf Series options.
10
Product Line
Number
of
Models
Overall
Length
Approximate
Retail
Price Range
Description
Chaparral - Signature
Cruiser
3
(cid:21)(cid:26)(cid:397)-(cid:22)(cid:22)(cid:397)
$112,000 - $366,000 Fiberglass, accommodation-focused sterndrive
cruisers. Marketed to experienced boat owners
through trade magazines and boat show
exhibitions.
Robalo – Center
Console
Robalo – Cayman Bay
Boat
Robalo – Dual
Console
9
(cid:20)(cid:25)(cid:397)-(cid:22)(cid:19)(cid:397)
$20,000 - $198,000 Fiberglass outboard sport fishing boats for large
freshwater lakes or saltwater use. Marketed to
experienced fishermen. Smaller models marketed
with a national fixed retail price and trailer, and
new models designed for customers desiring extra
seating.
3
(cid:21)(cid:19)(cid:397)-(cid:21)(cid:23)(cid:397)
$31,000 - $89,000 Fiberglass outboard-powered sport fishing boats
for large freshwater lakes or coastal saltwater use.
Marketed to experienced fishermen. All models
marketed with a national fixed retail price and
trailer.
4
(cid:21)(cid:19)(cid:397)-(cid:22)(cid:20)(cid:397)
$37,000 - $240,000 Multi-purpose fiberglass outboard-powered sport
fishing boats for large freshwater lakes or
saltwater use. Marketed to experienced fishermen
and families looking for both fishing and cruising
features.
Robalo – Walkaround
2
(cid:21)(cid:25)(cid:397)-(cid:22)(cid:19)(cid:397)
$105,000 - $239,000 Multi-purpose fiberglass outboard-powered sport
fishing boats for large freshwater lakes or
saltwater use. Models feature cabins for overnight
use. Marketed to experienced fishermen and
families who want fishing features as well as
overnight accomodations.
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. When fully assembled and inspected, the boats are loaded onto either Company-owned
trailers or third-party marine transport trailers for delivery to dealers. The manufacturing process begins with the
design of a product to meet dealer and customer needs. Plugs are constructed in the research and development phase
from designs. Plugs are used to create a mold from which prototype boats can be built. Adjustments are made to the
plug design until acceptable parameters are met. The final plug is used to create the necessary number of production
molds. Molds are used to produce the fiberglass hulls and decks. Fiberglass components are made by applying the
outside finish or gel coat to the mold, then numerous layers of fiberglass and resin are applied during the lamination
process over the gel coat. After curing, the hull and deck are removed from the molds and are trimmed and prepared
for final assembly, which includes the installation of electrical and plumbing systems, engines, upholstery,
accessories and graphics.
Product Warranty
For our Chaparral products, Marine Products provides a lifetime limited structural hull warranty, a five-year
limited structural deck warranty, and a transferable one-year limited warranty on certain components against defects
11
in material and workmanship to the original owner. Warranties for additional items are provided for periods of one
to five years and are not transferrable. Additionally, as it relates to the first subsequent owner, a five-year
transferrable hull warranty and the remainder of the original one-year limited warranty on certain components are
available. The five-year transferable hull warranty terminates five years after the date of the original retail purchase.
Claim costs related to components are generally absorbed by the original component manufacturer.
For our Robalo products, Marine Products provides a ten-year limited structural hull warranty and a transferable
one-year limited warranty on certain components to the original owner against defects in material and workmanship.
Warranties on additional items are provided for periods of one to five years and are not transferrable. Additionally,
as it relates to the first subsequent owner, a five-year transferrable hull warranty and the remainder of the original
one-year limited warranty on certain components are available. The five-year transferable hull warranty terminates
five years after the date of the original retail purchase. Claim costs related to components are generally absorbed by
the original component manufacturer.
The manufacturers of the engines, generators, and navigation electronics included on our boats provide and
administer their own warranties for various lengths of time.
Suppliers
Marine Products’ three most significant cost components used in manufacturing its boats, are engines, resins
and fiberglass. For each of these, there is currently an adequate supply available in the market. Marine Products has
not experienced any significant shortages in any of these products. Temporary shortages, when they do occur,
usually involve manufacturers of these products adjusting model mixes, introducing new product lines or limiting
production in response to an industry-wide reduction in boat demand. Marine Products obtains most of its fiberglass
from a leading supplier. Marine Products believes that there are several alternative suppliers if this supplier fails to
provide adequate quality or quantities at acceptable prices.
Marine Products does not manufacture the engines installed in its boats. Engines are generally specified by the
dealers at the time of ordering, usually on the basis of anticipated customer preferences or actual customer orders.
Sterndrive engines are purchased through the American Boatbuilders Association (“ABA”), which has entered into
engine supply arrangements with Mercury Marine and Volvo Penta, the two currently existing suppliers of
sterndrive engines. These arrangements contain incentives and discount provisions, which may reduce the cost of the
engines purchased, if specified purchase volumes are met during specified periods of time. Although no minimum
purchases are required, Marine Products expects to continue purchasing sterndrive engines through the ABA on a
voluntary basis in order to receive volume-based purchase discounts. Marine Products does not have a long-term
supply contract with the ABA. Marine Products has an outboard engine supply contract with Yamaha and a jet
engine supply contract with BRP US Inc. These engine supply arrangements were not negotiated through the ABA.
In the event of a sudden and extended interruption in the supply of engines from any of these suppliers, our sales and
profitability could be negatively impacted. See “Risk Factors” below.
Marine Products uses other raw materials in its manufacturing processes. Among these are resins made from
hydrocarbon feedstocks, copper and steel. In response to global economic uncertainties, the costs of these
commodities have fluctuated significantly over the past several years. During the fourth quarter of 2016 and the first
quarter of 2017 the costs of several of these materials have begun to increase. See “Inflation” below.
Sales and Distribution
Domestic sales are made through approximately 53 Chaparral dealers, 26 Robalo dealers and 68 dealers that sell
both brands located in markets throughout the United States. Marine Products also has 90 international dealers.
During 2016 the financial strength of our dealer network continued to improve primarily due to better retail sales
volumes and increased 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’ eight 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
12
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 2016, 2015 or 2014.
Marine Products continues to seek new dealers in many areas throughout the U.S., Canada, Europe, South
America, Asia, Russia and the Middle East. In general, Marine Products requires full payment prior to shipping a
boat overseas. Consequently, there is no credit risk associated with these international sales or risk related to foreign
currency fluctuation. The Company’s international sales are affected by trends in consumer discretionary spending
and the value of the U.S. dollar on global currency markets, among other things. The volume of sales to international
dealers as a percentage of total net sales has continued to decline primarily due to the strength of the U.S. dollar.
International net sales as a percentage of total net sales were 5.7 percent in 2016, 10.8 percent in 2015, and 15.3
percent in 2014.
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 70 percent of Marine Products’ domestic shipments are made pursuant to “floor plan financing”
programs in which Marine Products’ subsidiaries participate on behalf of their dealers with major third-party
financing institutions. The remaining dealers finance their boat inventory with smaller regional financial institutions
in local markets or pay cash. Under these established arrangements with qualified lending institutions, a dealer
establishes a line of credit with one or more of these lenders for the purchase of boat inventory for sales to retail
customers in their showroom or during boat show exhibitions. In general, when a dealer purchases and takes
delivery of a boat pursuant to a floor plan financing arrangement, it draws against its line of credit and the lender
pays the invoice cost of the boat directly to Marine Products generally within ten business days. When the dealer in
turn sells the boat to a retail customer, the dealer repays the lender, thereby restoring its available credit line. Each
dealer’s floor plan credit facilities are secured by the dealer’s inventory, letters of credit, and perhaps other personal
and real property. Until recently, most dealers maintained financing arrangements with more than one lender,
although that is less common at the present time, given that there are fewer lenders. In connection with a dealer’s
floor plan financing arrangements with a qualified lending institution, Marine Products or its subsidiaries have
agreed to repurchase inventory which the lender repossesses from a dealer and returns to Marine Products in a “new
and unused” condition subject to normal wear and tear, as defined. The contractual agreements that Marine Products
or its subsidiaries have with these qualified lenders contain the Company’s assumption of specified percentages of
the debt obligation on repossessed boats, up to certain contractually determined dollar limits negotiated with the
lender.
The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase
amount is limited to a maximum of 16 percent of the average net receivables financed by the floor plan lender for
dealers during the prior 12 month period, which was $9.8 million as of December 31, 2016. The Company has
contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of
approximately $6.9 million, with various expiration and cancellation terms of less than one year. Accordingly, the
aggregate repurchase obligation with all financing institutions was approximately $16.7 million as of December 31,
2016. In the event that a dealer defaults on a credit line, the qualified lender may then invoke the manufacturers’
repurchase obligation with respect to that dealer. In that event, all repurchase agreements of all manufacturers
supplying a defaulting dealer are generally invoked regardless of the boat or boats with respect to which the dealer
has defaulted. Unlike Marine Products’ obligation to repurchase boats repossessed by qualified lenders, Marine
Products is under no obligation to repurchase boats directly from dealers. Marine Products does not sponsor
financing programs to the retail consumer; any consumer financing promotions for a prospective boat purchaser
would be the responsibility of the dealer.
Marine Products’ dealer sales incentive programs are generally designed to promote early replenishment of the
stock in dealer inventories depleted throughout the prime spring and summer selling seasons, and to promote the
sales of older models in dealer inventory and particular models during specified periods. These programs help to
stabilize Marine Products’ manufacturing between the peak and off-peak periods, and promote sales of certain
13
models. For the 2017 model year (which commenced July 1, 2016), Marine Products offered its dealers several sales
incentive programs based on dollar volumes and timing of dealer purchases. Program incentives offered include
sales discounts, retail sales incentives and payment of floor plan financing interest charged by qualified floor plan
lenders to dealers generally through April 30, 2017. After the interest payment programs end, interest costs revert to
the dealer at rates set by the lender. A dealer makes periodic curtailment payments (principal payments) on
outstanding obligations against its dealer inventory as set forth in the floor plan financing agreements between the
dealer and its particular lender.
We believe that dealer inventories of our boat models as of December 31, 2016 are appropriate relative to the
current level of retail customer demand; approximately 60 percent of dealer inventories were current model year
units at both December 31, 2016 and December 31, 2015. The sales order backlog as of December 31, 2016 was
approximately 1,585 boats with estimated net sales of approximately $60.7 million. This represents an approximate
13.1 week backlog based on recent production levels. As of December 31, 2015, the sales order backlog was
approximately 1,435 boats with estimated net sales of $55.6 million, representing an approximate 13.2 week
backlog. The Company will continue to monitor the number of boats in dealer inventories and is prepared to adjust
its production levels as it deems necessary to manage dealer inventory levels. The Company typically does not
manufacture a significant number of boats for its own inventory. The Company occasionally manufactures boats for
its own inventory because the number of boats required for immediate shipment is not always the most efficient
number of boats to produce in a given production schedule.
Research and Development
Essentially the same technologies and processes are used to produce fiberglass boats by all boat manufacturers.
The most common method to build fiberglass boats is with 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. A single open-face mold is typically capable of producing
approximately three hulls per week.
Marine Products has been a leading innovator in the recreational boating industry. One of the Company’s most
innovative designs is the full-length “Extended V-Plane” running surface on its Chaparral boat models. Typically,
sterndrive boats have a several foot gap on the bottom rear of the hull where the engine enters the water. With the
Extended V-Plane, the running surface extends the full length to the rear of the boat. The benefit of this innovation
is more deck space, better planing performance and a more comfortable ride. Although the basic hull designs are
similar, the Company has historically introduced a variety of new models each year and periodically replaces,
updates or discontinues existing models.
Another hull design is the Hydro 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 SSi Wide TechTM Sportboats, Sunesta
Sportdecks, 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
$858 thousand in 2016, $663 thousand in 2015, and $743 thousand in 2014.
Industry Overview
The recreational marine market in the United States is a mature market, with 2015 (latest data available to us)
retail expenditures of approximately $36 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.
14
The NMMA conducts various surveys of pleasure boat industry trends, and the most recent surveys indicate that
87 million adults in the United States participated in recreational boating in 2015, although non-active boat owners
cite lack of leisure time and increased operational costs as the primary reasons for not using their boats. There are
currently approximately 16 million boats owned in the United States, including outboard, inboard, sterndrive, jet
drive, sailboats, personal watercraft, and miscellaneous (canoes, kayaks, rowboats, etc.). Marine Products competes
in the sterndrive boating category with five lines of Chaparral boats, in the jet drive category with its Chaparral
Vortex jet boats and in the outboard category with its Robalo sport fishing boats and Chaparral SunCoast deck boats.
Approximately 42 percent of the Company’s unit sales in 2016 were sterndrive boats compared to 47 percent in
2015.
Industry sales of new sterndrive boats in the United States during 2016 totaling 11,648 (source: Info-Link
Technologies, Inc.) accounted for approximately 17 percent of the total new fiberglass powerboats sold between 18
and 33 feet in hull length. Sales of sterndrive boats had an estimated total retail value of $872 million, or an average
retail price per boat of approximately $75,000. Management believes that the five largest states for boat sales at the
present time are Florida, Texas, Michigan, Minnesota and New York. Marine Products has dealers in each of these
states.
The U.S. domestic recreational boating industry includes sales in the segments of new and used boats, motors
and engines, trailers, and other boat accessories. The new fiberglass boat market segment with hull lengths of 18 to
33 feet, the primary market segment in which Marine Products competes, represented $4.0 billion in retail sales
during 2016. The table below reflects the estimated sales within this segment by category for 2016 and 2015
(source: Info-Link Technologies, Inc.):
2016
2015
Sterndrive Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outboard Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inboard Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jet Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boats
11,648
45,543
9,261
2,480
68,932
$
Sales ($ B)
0.9
2.1
0.9
0.1
4.0
$
Boats
11,565
42,552
8,250
2,410
64,777
$
Sales ($ B)
0.8
1.7
0.8
0.1
3.4
$
Chaparral’s products are categorized as sterndrive boats, jet boats and outboard boats and Robalo’s products are
categorized as outboard boats. Although industry-wide sterndrive boat unit sales have been declining, the rate of
decline in recent years has slowed. The Company introduced its first three jet boat models in 2014 and has been
pleased with their reception by dealers and customers. Based on available market share data, Chaparral’s share of
the jet boat market during the nine months ended September 30, 2016 was approximately 8.9 percent.
The recreational boat manufacturing market remains highly fragmented with the exception of Brunswick
Corporation, which has acquired and currently operates a number of recreational boat brands. We estimate that the
boat manufacturing industry includes fewer than 20 sterndrive manufacturers and fewer than 75 outboard boat
manufacturers with significant unit production, 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, 2016 (latest information available), the top five
sterndrive manufacturers, which includes Chaparral, have a combined market share of approximately 57 percent;
compared to 54 percent in the same period one year ago. Chaparral’s market share in sterndrive units during this
nine month period was approximately 14.7 percent, which represents an increase of approximately 0.8 percentage
points compared to 13.9 percent during the nine months ended September 30, 2015. The Company believes that this
increase in market share is primarily due to the success of our value priced Chaparral H2O models.
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 many past boating participants do not currently participate in boating because of high costs and a lack
of leisure time. The increases in the cost of certain components, operating costs, and the impact of environmental
regulation have increased the cost of boats and boat ownership in recent years, and these trends may continue.
Competition from other leisure and recreational activities for available leisure time can also affect sales of
recreational boats.
15
Management believes Marine Products is well positioned to take advantage of the following conditions, which
continue to characterize the industry:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
labor-intensive manufacturing processes that remain largely unautomated;
increasingly strict environmental standards derived from governmental regulations and customer
sensitivities;
a lack of focus on coordinated customer service and support by dealers and manufacturers;
a lack of financial strength among retail boat dealers and many manufacturers; and
a high degree of fragmentation and competition among the large number of sterndrive and outboard
recreational boat manufacturers.
Business Strategies
Recreational boating is a mature industry. According to Info-Link Technologies, Inc., sales of new boats of all
types increased at a compounded annual rate of approximately 6.4 percent between 2012 and 2016. During this
period, Marine Products experienced a compounded annual growth rate of approximately 10.4 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 2016 the Company’s strategy was 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 2016, the Company’s dealer inventories were
approximately 18.8 percent higher than they were at the end of 2015, 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 2017 retail selling season. Chaparral has grown its sterndrive market share in the 18 to 33 feet
length category from 5.9 percent in fiscal 1996 to 14.7 percent during the nine months ended September 30, 2016
(the most recent information available to us from Statistical Surveys, Inc.).
During 2016, we continued to emphasize the value-priced Chaparral and Robalo models, as well as a new
Chaparral product lineup called the Surf Series. In addition, we continue to experience a favorable consumer
reception to our Chaparral Vortex jet boats and Chaparral SunCoast outboard boats. We believe that these boat
models will expand our customer base, and leverage our strong dealer network and reputation for quality and
styling. These models were partially responsible for increases in our net sales, gross profit, operating profit, and net
income.
These models align with Marine Products’ overall operating strategy, which emphasizes innovative designs and
manufacturing processes, and the production of a high quality product, while also seeking to lower manufacturing
costs through increased efficiencies in our facilities. In the current environment, this strategy also includes the
production of lower-priced, entry level models which appeal to a value-conscious consumer who wants an updated,
high quality product. In addition, we seek opportunities to leverage our buying power through economies of scale.
Management believes its membership in the ABA positions Marine Products as a significant third-party customer of
major suppliers of sterndrive engines. Marine Products’ Chaparral subsidiary is a founding member of the ABA,
which collectively represents 14 independent boat manufacturers that have formed a buying group to pool their
purchasing power in order to achieve improved pricing on engines, fiberglass, resin and many other components.
Marine Products intends to continue seeking the most advantageous purchasing arrangements from its suppliers.
Our marketing strategy seeks to increase market share by enabling Marine Products to expand its presence by
building dedicated sales, marketing and distribution systems. Marine Products has a distribution network of 237
dealers located throughout the United States and in several international markets. Our strategy is to increase
selectively the quantity of our dealers, and to improve the quality and effectiveness of our entire dealer network.
Marine Products seeks to capitalize on its strong dealer network by educating its dealers on the sales and servicing
of our products and helping them provide more comprehensive customer service, with the goal of increasing
customer satisfaction, customer retention and future sales. Marine Products provides promotional and incentive
programs to help its dealers increase product sales and customer satisfaction. During 2016 we expanded our
nationally advertised fixed retail pricing to include more of our models. We believe the nationally advertised fixed
retail pricing gives the consumer confidence that that they are getting the best possible price resulting in higher
customer satisfaction, and also encourages consistent pricing across our dealer network.
16
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 2016. According to Statistical Surveys, Inc., the companies
set forth below represent approximately 84 percent of all United States retail sterndrive boat registrations with hull
lengths of 18 to 33 feet for the nine months ended September 30, 2016.
1. Chaparral
2. Cobalt
3. Sea Ray*
4. Bayliner*
5. Regal
6. Tahoe
7. Monterey
8. Four Winns**
9. Crowline
10. Glastron
The outboard engine powered market encompasses a wide variety of boats, accounting for approximately 66.1
percent of traditional powerboat unit sales during 2016. Robalo was the fifth largest manufacturer of outboard boats
in lengths from 16 to 30 feet during the nine months ended September 30, 2016 and its share of the market during
this period was approximately five percent. Primary competitors for Robalo during 2016 included Carolina Skiff,
Sea Hunt Boats, Key West, Nautic Star, Mako, Boston Whaler*, Sea Fox, Sportsman and Ranger.
The jet engine powered market accounted for approximately 3.6 percent of traditional powerboat unit sales
during 2016. Chaparral was the third largest jet boat manufacturer in the 20 to 24 foot range during the nine months
ended September 30, 2016, and its share of the market during this period was approximately 8.9 percent. The largest
manufacturer of jet boats in the 20 to 24 foot range was Yamaha. Other competitors include Scarab and Glastron.
* Division or subsidiary of Brunswick Corporation
** Division or subsidiary of Beneteau Group
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 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
17
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 from time to time 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 engines used in
Marine Products’ Chaparral and Robalo product lines 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, 2016, Marine Products had approximately 823 employees (an increase from approximately
767 at December 31, 2015), of whom five were management, 47 were administrative and eight were sales.
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, 2016, 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, 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.
18
Inflation
The market prices of certain materials used in manufacturing the Company’s products, especially resins that are
made with hydrocarbon feedstocks, copper and steel, have been volatile in the years following the financial crisis of
2008. During the fourth quarter of 2016 and the first quarter of 2017, the costs of several of these raw materials have
begun to increase. As a result, it is possible the Company will incur higher materials purchase costs in 2017. These
higher prices of materials would increase the costs of manufacturing the Company’s products, and could negatively
affect our profit margins, due to the competitive nature of the selling environment for the Company’s products.
Furthermore, the costs of these raw materials remain volatile, and may decrease in the future.
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. Historical volatility in the prices and financial returns of investments and residential real estate 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 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. While dealer floor
plan credit is currently available for many of our dealers during the 2017 model year, the Company’s sales and
profitability could be adversely affected in the event of a decline in floor plan financing availability, or if financing
terms change unfavorably.
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
19
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 could 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.
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.
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 2015 and 2016, thus
increasing the rate of absorption of its fixed costs and improving operating and net income. Although the
Company’s unit sales have improved, Marine Products still operates at levels which are lower than full
manufacturing capacity. These lower operating levels may continue to have an adverse affect in 2017 and in future
periods beyond 2017. In addition, the Company’s ability to reduce its fixed costs 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, Engines and Components Which Could Adversely Affect Sales and Profit Margins
Marine Products is dependent on third-party suppliers to provide raw materials, engines and components
essential to the construction of its various powerboats. Especially critical are the availability and cost of marine
20
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 engines and materials
necessary to meet present production demands, there can be no assurance that these relationships will continue, that
these suppliers will remain in operation 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 production materials or the inability of Marine Products’ management to purchase engines
and materials required to complete its growth and acquisition strategies could reduce the number of boats Marine
Products may be able to produce for sale or cause a reduction in Marine Products’ profit margins.
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
21
regulations regarding these substances, and the misuse or mishandling of such substances could expose Marine
Products to liability or fines.
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. The Tender Offer completed in the fourth quarter of 2016 reduced the number of shares outstanding
by 3,500,000, which further reduces the availability of Marine Products common 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 Section 303A of the New York Stock
Exchange (“NYSE”) Listed Company Manual. 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 68 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.
Our Management has a Substantial Ownership Interest, and the Availability of the Company’s Common Stock to the
Investing Public may be Limited.
The availability of Marine Products’ common stock to the investing public may be limited to those shares not
held by the executive officers, directors and their affiliates, which could negatively impact Marine Products’ stock
trading prices and affect the ability of minority stockholders to sell their shares. Future sales by executive officers,
directors and their affiliates of all or a portion of their shares could also negatively affect the trading price of our
common stock.
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.
Item 1B. Unresolved Staff Comments
None.
22
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 $2,100 per month in rent. Marine Products may cancel this arrangement at any
time after giving a 30 day notice.
Chaparral owns and maintains approximately 1,017,000 square feet of space utilized for manufacturing,
research and development, warehouse, sales office and operations in Nashville, Georgia. In addition, the Company
owns 83,000 square feet of manufacturing space in Valdosta, Georgia. During 2008, this facility was temporarily
idled. 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 lease 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 — 136,100.
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.
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 (5)
R. Randall Rollins (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Age
85
Date First Elected to Present Office
2/28/01
Chairman of the Board
Richard A. Hubbell (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President and Chief Executive Officer
Linda H. Graham (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President and Secretary
Ben M. Palmer (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President, Chief Financial Officer and Treasurer
72
80
56
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 has also been
President of RPC since 1987 and its Chief Executive Officer since 2003. Mr. Hubbell serves on the Board of Directors of both of these
companies.
(3) 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 of both of these companies.
(4) 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.
(5) James A. Lane, Jr., deceased in March 2016, held the position of Executive Vice President and Director of Marine Products.
23
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 17, 2016, there were 34,957,356 shares of common stock outstanding.
At the close of business on February 17, 2016, there were approximately 3,194 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, 2016 and 2015 were as follows:
Quarter
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
$ 8.40
9.05
9.38
$ 14.51
2016
Low
$
4.92
7.29
8.09
8.76
$
Dividends
0.06
$
0.06
0.06
0.06
$
High
$ 8.99
8.90
7.55
$ 7.25
2015
Low
$
7.03
5.95
5.73
5.50
$
Dividends
0.04
$
0.04
0.04
0.08
$
The Company expects to continue to pay cash dividends to the common stockholders, subject to the earnings
and financial condition of the Company and other relevant factors.
Issuer Purchases of Equity Securities
In accordance with actions by the Company’s Board of Directors, an aggregate of 8,250,000 shares have been
authorized for repurchase in connection with a stock buyback program initially announced in 2001, and subsequent
increases announced in 2005 and 2008. These programs do not have predetermined expiration dates. There were no
shares repurchased as part of this program during the fourth quarter of 2016. As of December 31, 2016, a total of
2,858,730 shares remain available for repurchase under this program.
During the third quarter of 2016, the Company offered to purchase for cash 3,200,000 of its outstanding
common shares, with the option to increase the shares purchased to 3,500,000 at its sole discretion, par value $0.10
per share, at a purchase price of $9.00 per share (the “Tender Offer”), less any applicable withholding taxes and
without interest. Subsequently, the Company extended the terms of the Tender Offer and raised the offer price to
$9.64 per share. Upon completion of the Tender Offer on November 11, 2016, the Company purchased 3,500,000
shares for an aggregate cost of $33,740,000, plus fees and expenses relating to the tender offer totaling
approximately $229,000. The fees and expenses related to the Tender Offer are accounted for as part of the purchase
cost of the shares. The purchase cost is recorded as a reduction in the common stock to the extent of par value with
the excess recorded as a reduction in additional paid-in capital to the extent available, and then as a reduction to
retained earnings.
Period
October 1, 2016 to October 31, 2016 . . . . . . . .
November 1, 2016 to November 30, 2016 . . .
December 1, 2016 to December 31, 2016 . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Number of
Shares (or
Units)
Purchased
22 (2)
3,500,000 (3)
—
3,500,022
Average
Price Paid
Per Share
(or Unit)
8.44
9.64
—
9.64
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)(3)
—
3,500,000
—
3,500,000
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs (1)(3)
6,358,730
2,858,730
2,858,730
2,858,730
(1) The Company’s Board of Directors announced a stock buyback program on April 25, 2001 authorizing the repurchase of 2,250,000 shares
in the open market and another on March 14, 2005 authorizing the repurchase of an additional 3,000,000 shares. On January 22, 2008 the
Board of Directors authorized an additional 3,000,000 shares that the Company may repurchase. As of December 31, 2016, a total of
5,391,270 shares have been repurchased in the open market under this program and there are 2,858,730 shares that remain available for
repurchase. The program does not have a predetermined expiration date.
(2) Represents shares purchased by the Company in connection with taxes related to vesting of restricted shares.
(3) Represents shares purchased by the Company in connection with the Tender Offer.
24
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 in the Peer Group are Brunswick Corporation,
MarineMax, Inc. and Malibu Boats, Inc. Malibu Boats, Inc. is included in the Peer Group because it is a pleasure
boat manufacturer with similar products and operations as the Company, as well as a market capitalization that was
similar to the market capitalization of the Company at December 31, 2016. Malibu Boats, Inc. was not previously
included in the Peer Group because its common stock did not trade on a securities exchange until the first quarter of
2014. For comparison purposes, the following graph includes the performance of the Peer Group as well as the peer
group without the inclusion of Malibu Boats, Inc. (the “Former Peer Group”).
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 2016, the components of the Russell
2000 had an average market capitalization of $2.1 billion, and a median market capitalization of $802 million.
The graph below assumes the value of $100.00 invested on December 31, 2011.
25
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per share . . . . . . . . . . . . . . . . . . . .
Other Financial and Operating Data:
Gross profit margin percent . . . . . . . . . . . . . . . . . . .
Operating margin percent . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . .
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
(In thousands, except share, per share and employee data)
2014
2015
2013
2016
2012
$ 241,330
190,863
50,467
27,415
23,052
355
23,407
6,662
$ 16,745
$ 207,061
163,261
43,800
23,249
20,551
420
20,971
6,665
$ 14,306
$ 171,050
138,379
32,671
20,665
12,006
521
12,527
3,613
8,914
$
$ 168,293
138,480
29,813
20,307
9,506
524
10,030
2,502
7,528
$
$ 148,950
121,746
27,204
18,443
8,761
960
9,721
2,742
6,979
$
$
$
$
0.44
0.44
0.24
$
$
$
0.39
0.39
0.20
$
$
$
0.24
0.24
0.16
$
$
$
0.20
0.20
0.15
$
$
$
0.19
0.19
0.63
20.9 %
9.6 %
21.2 %
9.9 %
19.1 %
7.0 %
$ 15,837
$ 16,044
$ 10,656
$ 10,937
17.7 %
5.6 %
$
18.3 %
5.9 %
9,664
22,575
(43,779 )
1,940
823
$
(2,489 )
(9,641 )
3,878
767
(4,157 )
(7,541 )
451
605
(1,326 )
(6,145 )
521
651
15,329
(24,301 )
354
$
587
$
$
$
1,211
1,205
1,205
1,205
1,205
$
2,619
4,109
5,221
42,488
34,753
13,334
88,527
$ 65,445
$
7,986
7,825
27,129
32,638
38,846
12,761
110,677
$ 90,212
$
4,072
3,653
33,831
28,819
30,014
9,890
103,823
$ 83,494
$
5,114
5,639
30,949
28,859
30,698
11,265
102,553
$ 81,483
$
1,648
1,150
35,773
28,159
22,789
11,470
97,315
$ 77,747
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. Dealers either remit payment upon
26
receipt of the product or finance their inventory through third-party floor plan lenders, who pay Marine Products
generally within ten days of delivery of the products to the dealers.
We manage our Company by focusing on the execution of the following business and financial strategies:
(cid:120) Manufacturing high-quality, stylish, and innovative powerboats for our dealers and retail consumers,
(cid:120) 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,
(cid:120) 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,
(cid:120) Maintaining a flexible, variable cost structure which can be reduced quickly when deemed appropriate,
(cid:120) Focusing on the competitive nature of the boating business and designing our products and strategies in
order to grow and maintain profitable market share,
(cid:120) Monitoring the recreational boat market for strong complementary product lines which we may enter
through new product development or acquisition,
(cid:120) Extending our brand name recognition to enhance the success of new boat models that complement our
existing offerings,
(cid:120)
Improving our sales and profits by increasing the utilization of our manufacturing capacity,
(cid:120) Monitoring the activities and financial condition of our dealers and of the third-party floor plan lenders who
finance our dealers’ inventories,
(cid:120) 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
(cid:120) 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 2016, several segments of the recreational boating industry improved due to stable consumer confidence
and improving residential real estate markets, as well as a stable financing environment for dealers and consumers.
Overall industry retail sales of outboard recreational boats improved during 2016, although sterndrive unit sales
declined. Our net sales improved in 2016 compared to 2015 due to higher unit sales of our Robalo sport fishing
boats, coupled with higher unit sales of our Chaparral H2O models and sales of our SunCoast outboard models. We
achieved higher net sales, as well as increased gross profit and operating profit in 2016 compared to 2015.
Management will continue to monitor retail demand among the various segments in the recreational boat market,
dealer inventory levels and the availability of dealer and consumer financing for the purchase of our products and
adjust our production levels as deemed appropriate.
We continuously monitor our market share in the 18 to 33 foot sterndrive category as one indicator of the
success of our strategies and the market’s acceptance of our products. For the nine months ended September 30,
2016 (latest data available to us), Chaparral’s market share in the 18 to 33 foot sterndrive category was 14.7 percent
compared to 13.9 percent during the same period in 2015; the highest market share in this category. Chaparral’s
27
market share in the 18 to 20 foot category was 10.1 percent during this period in 2016, and its market share in the 21
to 33 foot category was 17.4 percent. Chaparral’s market share concentrations within these size ranges has remained
relatively consistent during the past several years. For the nine months ended September 30, 2016, Robalo’s share of
the 16 to 30 foot outboard sport fishing boat market was 4.6 percent. For the same period, Chaparral’s share of the
20 to 24 foot jet boat market was approximately 8.9 percent. We will continue to monitor our market share and
believe it to be important, but we believe that maximizing profitability takes precedence over growing our market
share. Furthermore, as we continue to expand the breadth of our product offerings within our core category and new
categories, we consider our overall market share across the various powerboat categories to be of greater importance
to the long-term health of our company than our market share within any specific type of recreational boat.
Outlook
We believe that recreational boating retail demand in many segments of the industry is improving. Attendance
and sales during the 2017 winter boat shows have been moderately higher than the 2016 winter boat show season,
residential real estate markets have improved, consumer confidence has stabilized, and fuel prices have declined.
We also believe that there is improved demand from consumers who have delayed purchasing a boat over the past
few years due to economic uncertainty.
Although industry wide retail boat sales remain lower than they were prior to the 2008 financial crisis, retail
boat sales have increased each year since 2011. We believe that continued improvements in retail boat sales will be
modest due to the lack of strong economic improvement, which tends to discourage consumers from purchasing
large discretionary goods such as pleasure boats. Fluctuations in fuel prices can impact our sales, and during 2015
and 2016 fuel prices decreased significantly, and have declined to some of the lowest inflation-adjusted levels
recorded during the past 10 years. In general, however, the overall cost of boat ownership has increased, especially
in the sterndrive recreational boat market segment, which comprises approximately 42 percent of the Company’s
sales. The higher cost of boat ownership discourages consumers from purchasing recreational boats. For a number of
years, Marine Products as well as other boat manufacturers have been improving their customer service capabilities,
marketing strategies and sales promotions in order to attract more consumers to recreational boating as well as
improve consumers’ boating experiences. The Company provides financial incentives to its dealers for receiving
favorable customer satisfaction surveys. In addition, the recreational boating industry conducts a promotional
program which involves advertising and consumer targeting efforts, as well as other activities designed to increase
the potential consumer market for pleasure boats. Many manufacturers, including Marine Products, participate in
this program. Management believes that these efforts have incrementally benefited the industry and Marine
Products. As in past years, Marine Products enhanced its selection of models for the 2017 model year which began
on July 1, 2016. We continue to emphasize the value-priced Chaparral and Robalo models, as well as the Surf
Series, a new line of Chaparral models first introduced for the 2017 model year. In addition, we continue to
experience a favorable consumer reception to our Chaparral Vortex jet boats and Chaparral SunCoast outboard
boats. We believe that these boat models will expand our customer base, and leverage our strong dealer network and
reputation for quality and styling. During 2016 we also expanded our nationally advertised fixed retail pricing to
include more of our models. We plan to continue to develop and produce additional new products for subsequent
model years.
Our financial results for 2017 will depend on a number of factors, including interest rates, consumer confidence,
the availability of credit to our dealers and consumers, fuel costs, the continued acceptance of our new products in
the recreational boating market, our ability to compete in the competitive pleasure boating industry, and the costs of
labor and certain of our raw materials and key components.
28
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 to net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of selling, general and administrative expenses to net sales . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years ended December 31,
2015
2014
2016
5,049
42.2
$
$ 241,330
4,285
43.5
$
$ 207,061
3,490
44.9
$
$ 171,050
20.9 %
11.4 %
21.2 %
11.2 %
19.1%
12.1%
$ 23,052
4,080
$
$ 20,551
1,222
$
$ 12,006
1,977
$
Year Ended December 31, 2016 Compared To Year Ended December 31, 2015
Net Sales. Marine Products’ net sales increased by $34.3 million or 16.6 percent in 2016 compared to 2015. The
increase was primarily due to a 17.8 percent increase in the number of boats sold, as well as an increase in parts and
accessories sales, partially offset by a 3.0 percent decrease in the average gross selling price per boat. Unit sales
increased due to higher sales of our Robalo outboard sport fishing boats, as well as increased unit sales of our
Chaparral H2O models and SunCoast outboards. Average selling prices decreased primarily due to a model mix
which included higher sales of our value priced H2O models. Domestic net sales were $220.1 million, an increase of
19.2 percent compared to the prior year. International sales decreased 5.0 percent during 2016 compared to 2015
primarily due to the strength of the U.S. dollar.
Cost of Goods Sold. Cost of goods sold increased 16.2 percent in 2016 compared to 2015. As a percentage of
net sales, cost of goods sold increased to 79.1 percent in 2016, compared to 78.8 percent in 2015, primarily due to a
model mix which included increased sales of our smaller models, partially offset by improved manufacturing
efficiencies due to higher production volumes.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 17.9
percent in 2016 compared to 2015 primarily due to an increase in warranty expense, coupled with costs that vary
with sales, such as sales commissions. Selling, general and administrative expenses as a percentage of sales
increased from 11.2 percent in 2015 to 11.4 percent in 2016. As a percentage of net sales, warranty expense
increased to 1.7 percent in 2016, compared to 0.6 percent in 2015. This increase was primarily due to an increase in
estimates for current and future warranty claims, coupled with net favorable adjustments that were recorded for
estimated warranties in 2015. Selling, general and administrative expenses also includes a net gain of approximately
$91 thousand that resulted from tax free gains on life insurance of approximately $751 thousand, partially offset by
accelerated stock compensation amortization of approximately $660 thousand related to shares held by an executive
officer that vested immediately upon his death.
Interest Income. Interest income declined to $355 thousand in 2016 compared to $420 thousand in 2015. Marine
Products generates interest income primarily from investments in tax-exempt municipal obligations. The decrease
was primarily due to net realized losses on the sale of marketable securities of $39 thousand during 2016 compared
to net realized gains of $45 thousand during 2015.
Income Tax Provision. The income tax provision was $6.7 million in 2016 and 2015. The effective tax rate in
2016 was 28.5 percent compared to 31.8 percent in 2015. The effective rate decreased primarily due to certain
beneficial tax differences generated from life insurance proceeds, favorable provision to return adjustments and a
partial release of the deferred tax asset valuation allowance associated with certain of the Company’s state net
operating losses.
Year Ended December 31, 2015 Compared To Year Ended December 31, 2014
Net Sales. Marine Products’ net sales increased by $36.0 million or 21.1 percent in 2015 compared to 2014. The
increase was primarily due to a 22.8 percent increase in the number of boats sold, partially offset by a 3.2 percent
decrease in the average gross selling price per boat. Unit sales increased due to higher sales of our Robalo outboard
sport fishing boats, as well as increased unit sales of our Chaparral Vortex jet boats and SunCoast outboards,
partially offset by a decrease in sales of our Chaparral sterndrive boats. Average selling prices decreased primarily
due to higher sales of our smaller Robalo models. Domestic net sales were $184.8 million, an increase of 27.6
29
percent compared to the prior year. International sales decreased 14.9 percent during 2015 compared to 2014
primarily due to the strength of the U.S. dollar.
Cost of Goods Sold. Cost of goods sold increased 18.0 percent in 2015 compared to 2014. As a percentage of
net sales, cost of goods sold decreased to 78.8 percent in 2015, compared to 80.9 percent in 2014, primarily due to
improved manufacturing efficiencies due to higher production volumes, coupled with a favorable model mix.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 12.5
percent in 2015 compared to 2014 primarily as a result of costs that vary with sales, such as sales commissions,
coupled with an increase in advertising expenses. Selling, general and administrative expenses as a percentage of net
sales decreased from 12.1 percent in 2014 to 11.2 percent in 2015. As a percentage of net sales, warranty expense
decreased to 0.6 percent in 2015, compared to 1.2 percent in 2014. This decrease was primarily due to a model mix
in recent years which included an increase in smaller boats with fewer accessories resulting in fewer warranty
claims, coupled with engineering improvements.
Interest Income. Interest income declined to $420 thousand in 2015 compared to $521 thousand in 2014. Marine
Products generates interest income primarily from investments in tax-exempt municipal obligations. The decrease
was primarily due to a 13.7 percent reduction in the average balance of our marketable securities portfolio.
Income Tax Provision. The income tax provision was $6.7 million in 2015 compared to $3.6 million in 2014.
The effective tax rate in 2015 was 31.8 percent compared to 28.8 percent in 2014. Our effective rate increased
primarily due to higher income which was subject to higher state and federal tax brackets.
Liquidity and Capital Resources
Cash and Cash Flows
The Company’s cash and cash equivalents were $2.6 million at December 31, 2016, $8.0 million at December
31, 2015 and $4.1 million at December 31, 2014. In addition, the aggregate of short-term and long-term marketable
securities was $9.3 million at December 31, 2016, $35.0 million at December 31, 2015 and $37.5 million at
December 31, 2014. The decline in marketable securities in 2016 was due to the liquidation of a portion of the
portfolio during the fourth quarter to fund the Tender Offer as discussed in Item 5 on page 24.
The following table sets forth the historical cash flows for the twelve months ended December 31:
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2016
$ 15,837
22,575
(43,779 )
(in thousands)
2015
$ 16,044
(2,489 )
(9,641 )
2014
$ 10,656
(4,157 )
(7,541 )
Cash provided by operating activities decreased by $0.2 million in 2016 compared to 2015. This decrease was
primarily due to a net unfavorable change in working capital, partially offset by an increase in net income.
The major components of the net unfavorable change in working capital were as follows: a favorable change in
accounts payable of $1.4 million due to the timing of payments; an unfavorable change of $6.0 million in
inventories to support higher production levels in the current year; and a $1.8 million favorable change in other
accrued expenses largely attributable to the timing of payments related to retail incentives and warranty claims.
Cash provided by investing activities was $22.6 million in 2016 compared to $2.5 million used for investing
activities in 2015. The increase in cash used for investing activities is primarily due to increased sales of marketable
securities, primarily used to fund the Tender Offer during the fourth quarter of 2016.
Cash used for financing activities increased $34.1 million in 2016 primarily due to the Tender Offer completed
in the fourth quarter of 2016, partially offset by a decrease in open market share repurchases in 2016 compared to
2015. The Company paid a $0.04 per share special dividend in the fourth quarter of 2015.
30
2015
Cash provided by operating activities increased by $5.4 million in 2015 compared to 2014. This increase was
primarily due to an increase in net income, partially offset by a net unfavorable change in working capital.
The major components of the net unfavorable change in working capital were as follows: a favorable change in
accounts payable of $2.1 million due to the timing of payments; an unfavorable change of $3.9 million in
inventories to support higher production levels in the current year; and a $1.5 million favorable change in accounts
receivable due to the timing of receipts.
Cash used for investing activities was $2.5 million in 2015 compared to $4.2 million used for investing
activities in 2014. The decrease in cash used for investing activities is primarily due to a decrease in purchases of
marketable securities, coupled with a decrease in proceeds from the sale of assets, partially offset by an increase in
capital expenditures.
Cash used for financing activities increased $2.1 million in 2015 primarily due to an increase in regularly
quarterly dividends paid in the current year, coupled with an increase in open market share repurchases in 2015
compared to 2014. The Company paid a $0.04 per share special dividend in both the fourth quarter of 2015 and the
fourth quarter of 2014.
Cash Requirements
Management expects that capital expenditures during 2017 will be approximately $1.8 million.
The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC. During 2016,
the Company made cash contributions of $180 thousand to this plan in order to achieve the Company’s funding
objective. We expect that additional contributions by the Company to the Retirement Income Plan of approximately
$200 thousand will be made in 2017.
On January 24, 2017, the Board of Directors approved a quarterly dividend of $0.07 per common share payable
March 10, 2017 to stockholders of record at the close of business on February 10, 2017.
The Company has an agreement with one employee that provides for a monthly payment to the employee equal
to 10 percent of profits (defined as pretax income before goodwill amortization and certain allocated corporate
expenses). In addition the Company had an agreement with another employee for prior years and through
approximately March 31, 2016 under the same terms.
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. The Company repurchased 11,027 shares in the
open market during 2016. As of December 31, 2016, the Company has repurchased under this program a total of
5,391,270 shares in the open market and there are 2,858,730 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 a 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 2016 or 2015. See further information regarding repurchase
obligations in “NOTE 9: COMMITMENTS AND CONTINGENCIES” of the Consolidated Financial Statements.
The Company believes that the liquidity provided by its existing cash and cash equivalents, marketable
securities, and cash expected to be generated from operations will provide sufficient capital to meet its requirements
for at least the next twelve months. The Company’s decisions about the amount of cash to be used for investing and
financing purposes are influenced by its capital position and the expected amount of cash to be provided by
operations.
31
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of December 31, 2016:
Contractual Obligations
(in thousands)
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
—
—
919
—
—
—
919
$
$
—
—
357
—
—
—
357
$
$
—
—
561
—
—
—
561
$
$
—
—
1
—
—
—
1
More
than 5 years
—
$
—
—
—
—
—
—
$
(1) Operating leases represent agreements for warehouse space, various office and operating 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 dealer inventory. As of December 31, 2016, there are no payables outstanding to floor plan lenders.
Fair Value Measurements
The Company’s assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2
or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price
are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to
quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a
recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a
recurring basis are classified as Level 3. For defined benefit plan and Supplemental Executive Retirement Plan
(“SERP”) investments measured at net asset value, 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 dealer inventory. The Company’s obligation under these guarantees becomes
effective in the case of a default under the financing arrangement between the dealer and the 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. There
were no material repurchases of inventory under contractual agreements during 2016 or 2015.
Management continues to monitor the risk of additional defaults and resulting repurchase obligation based
primarily upon information provided by the third-party floor plan lenders and to adjust the guarantee liability at the
end of each reporting period based on information reasonably available at that time. As of December 31, 2016, the
Company believes the fair value of its remaining guarantee liability is immaterial. See further information regarding
repurchase obligations in “NOTE 9: COMMITMENTS AND CONTINGENCIES” of the Consolidated Financial
Statements.
The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase
obligation is limited to a maximum of 16 percent of the average net receivables financed by the floor plan lender for
dealers during the prior 12 month period, which was $9.8 million as of December 31, 2016. The Company has
contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of
approximately $6.9 million, with various expiration and cancellation terms of less than one year. Accordingly, the
32
aggregate repurchase obligation with all financing institutions is approximately $16.7 million as of December 31,
2016. 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 $739,000 in 2016, $753,000 in 2015, and
$663,000 in 2014. The Company’s (payable) receivable due (to) from RPC for these services was $(60,000) as of
December 31, 2016 and $11,000 as of December 31, 2015. All of the Company’s directors, except one, are also
directors of RPC and all of the Company’s executive officers are employees of both the Company and RPC.
RPC and Marine Products own 50 percent each of a limited liability company called 255 RC, LLC that was
created for the joint purchase and ownership of a corporate aircraft. The purchase of the aircraft was completed in
January 2016, and the purchase was funded primarily by a $2,554,000 contribution by each company to 255 RC,
LLC. Each of RPC and Marine Products is a party to an operating lease agreement with 255 RC, LLC for a period of
five years. During 2016, Marine Products recorded certain net operating costs comprised of rent and an allocable
share of fixed costs of approximately $157,000 for the corporate aircraft. The Company accounts for this investment
using the equity method and its proportionate share of income or loss is recorded in selling, general and
administrative expenses. As of December 31, 2016, the investment closely approximates the underlying equity in the
net assets of 255 RC, LLC.
The Employee Benefits Agreement provides for, among other things, the Company’s employees to continue
participating subsequent to the spin-off in two RPC sponsored benefit plans, specifically, the defined contribution
401(k) plan and the defined benefit retirement income plan.
A group that includes the Company’s Chairman of the Board, R. Randall Rollins and his brother Gary W.
Rollins, who is also director of the Company, and certain companies under their control, controls in excess of fifty
percent of the Company’s voting power.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America, which require significant judgment by management in selecting the appropriate
assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of
existing contracts, trends in the industry, and information available from other outside sources, as appropriate.
Senior management has discussed the development, selection and disclosure of its critical accounting estimates with
the Audit Committee of our Board of Directors. The Company believes that, of its significant accounting policies,
the following may involve a higher degree of judgment and complexity.
Sales recognition - The Company sells its boats through its network of independent dealers. Sales orders used to
plan production are firm indications of interest from dealers and are cancelable at any time, although historically
very few orders are cancelled after they have been placed. The Company recognizes sales when all the following
conditions are met: (1) a fully executed sales agreement exists, (2) the price of the boat is established, (3) the dealer
takes delivery of the boat, and (4) collectability of the sales price is reasonably assured.
Sales incentives and discounts – The Company records incentives as a reduction of sales or as a cost of sales as
appropriate. Using historical trends and management estimates, adjusted for current changes, the Company estimates
the amount of incentives that will be paid in the future on boats sold and accrues an estimated liability. The
Company offers various incentives that promote sales to dealers, and to a lesser extent, retail customers. These
incentives are designed to encourage timely replenishment of dealer inventories after peak selling seasons, stabilize
manufacturing volumes throughout the year, and improve production model mix. The dealer incentive programs are
a combination of annual volume commitment discounts, and additional discounts at time of invoice for those dealers
who do not finance their inventory through specified floor plan financing agreements. The annual dealer volume
33
discounts are primarily based on July 1 through June 30 model year purchases. In addition, the Company offers at
various times other time-specific or model-specific incentives.
The factors that complicate the calculation of the cost of these incentives are the ability to forecast sales of the
Company and individual dealers, the volume and timing of inventory financed by specific dealers, identification of
which boats have been sold subject to an incentive, and the estimated lag time between sales and payment of
incentives. Settlement of the incentives generally occurs from three to twelve months after the sale. The Company
regularly analyzes the historical incentive trends and makes adjustments to recorded liabilities for changes in trends
and terms of incentive programs. Total cost of incentives recorded in net sales as a percentage of gross sales was 6.0
percent in 2016, 6.8 percent in 2015, and 8.3 percent in 2014. A 0.25 percentage point change in cost of incentives
as a percentage of gross sales during 2016 would have increased or decreased net sales, gross margin and
operating income by approximately $0.3 million.
Warranty costs -The Company records as part of selling, general and administrative expenses an experience
based estimate of the future warranty costs to be incurred when sales are recognized. The Company evaluates its
warranty obligation for each product line on a model year basis. The Company provides warranties against
manufacturing defects for various components of the boats, primarily the fiberglass deck and hull, with warranty
periods extending up to a lifetime. Warranty costs, if any, on other components of the boats are generally absorbed
by the original component manufacturer. Warranty costs can vary depending upon the size and number of
components in the boats sold, the pre-sale warranty claims, and the desired level of customer service. While we
focus on high quality manufacturing programs and processes, including actively monitoring the quality of our
component suppliers and managing the dealer and customer service warranty experience and reimbursements, our
estimated warranty obligation is based upon the warranty terms and the Company’s enforcement of those terms over
time, manufacturing defects or issues, 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 1.7 percent in 2016, 0.6 percent in 2015, and 1.2 percent in 2014. The
increase in warranties in 2016 was primarily due to an increase in estimates for warranty claims, coupled with net
favorable adjustments that were recorded for warranties in 2015. A 0.10 percentage point increase in the estimated
warranty expense as a percentage of net sales during 2016 would have increased selling, general and administrative
expenses and reduced operating income by approximately $0.3 million.
Income taxes - The effective income tax rate was 28.5 percent in 2016, 31.8 percent in 2015, and 28.8 percent
in 2014. The effective tax rates vary due to changes in estimates of future taxable income, fluctuations in the tax
jurisdictions in which the earnings and deductions are realized, variations in the relationship of tax-exempt income
or losses to income before taxes and favorable or unfavorable adjustments to estimated tax liabilities related to
proposed or probable assessments. As a result, the effective tax rate may fluctuate significantly on a quarterly or
annual basis.
The Company establishes a valuation allowance against the carrying value of deferred tax assets when it is
determined that it is more likely than not that the asset will not be realized through future taxable income. Such
amounts are charged to earnings in the period the determination is made. Likewise, if it is later determined that it is
more likely than not that the net deferred tax assets would be realized, the applicable portion of the previously
provided valuation allowance is reversed. The Company considers future market growth, forecasted earnings, future
taxable income, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax
planning strategies in determining the need for a valuation allowance.
The Company calculates the current and deferred tax provision based on estimates and assumptions that could
differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on
filed tax returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S.
federal and state provisions. Deferred tax liabilities and assets are determined based on the differences between the
financial and tax bases of assets and liabilities using enacted tax rates in effect in the year the differences are
expected to reverse.
The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities,
which often result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is
highly judgmental. The Company believes it has adequately provided for any reasonably foreseeable outcome
related to these matters. However, future results may include favorable or unfavorable adjustments to estimated tax
liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments
34
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, 2016, the Financial Accounting Standards Board (FASB) issued the
following Accounting Standards Updates (ASUs):
Recently Adopted Accounting Pronouncements:
(cid:120) Accounting Standards Update (ASU) No. 2015-16, Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments. The amendments eliminate the requirement to
retrospectively account for adjustments made to provisional amounts recognized in a business combination.
Adjustments to provisional amounts that are identified during the measurement period are required to be
recognized in the reporting period in which the adjustments are determined and calculated as if the accounting
had been completed at the acquisition date and either disclosed on the face of the income statement or in the
notes by each category. The Company adopted these provisions in the first quarter of 2016 and plans to apply
the provisions for all future business combinations. The adoption did not have a material impact on the
Company’s consolidated financial statements.
(cid:120) ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent). The amendments remove the requirement to
categorize within the fair value hierarchy all investments for which fair value is measured using the net asset
value per share (or its equivalent) practical expedient. In addition, there is no requirement to make certain
disclosures for such investments. The Company adopted these provisions in the first quarter of 2016 applied
retrospectively and has excluded the pension assets that are measured using the net asset value per share from
the fair value hierarchy disclosure. The adoption did not have a material impact on the Company’s consolidated
financial statements.
(cid:120) ASU No. 2014-15, Presentation of Financial Statements —Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Financial statements are
generally prepared under the presumption that the reporting organization will continue to operate as a going
concern, except in limited circumstances. This ASU provides guidance on management’s responsibility to
include footnote disclosures when there is substantial doubt about the organization’s ability to continue as a
going concern. The Company adopted these provisions in the first quarter of 2016 and will provide such
disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue
as a going concern. The adoption did not have a material impact on the Company’s consolidated financial
statements.
Recently Issued Accounting Pronouncements Not Yet Adopted:
To be adopted in 2017:
(cid:120) ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Current requirements
are to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value,
or net realizable value less an approximated normal profit margin. These amendments allow inventory to be
measured at lower of cost or net realizable value and eliminates the market requirement. Net realizable value is
the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The amendments do not apply to inventory that is measured using last-in, first-out
or the retail inventory method. The amendments will be adopted in the first quarter of 2017 and applied
prospectively. The Company does not expect the adoption of these provisions to have a material impact on its
consolidated financial statements.
(cid:120) ASU No. 2016-07, Investments —Equity Method and Joint Ventures (Topic 323) Simplifying the
Transition to the Equity Method of Accounting. The amendments eliminate the requirement to adjust the
investment, results of operations, and retained earnings retroactively when an investment qualifies for use of the
equity method as a result of an increase in the level of ownership interest or degree of influence. The cost of
acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously
held interest and the equity method is to be adopted as of the date the investment qualifies. In addition, an entity
35
that has an available-for-sale equity security that becomes qualified for the equity method of accounting is
required to recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive
income at the date the investment becomes qualified for use of the equity method. The amendments will be
adopted in the first quarter of 2017 and applied prospectively. The Company does not expect the adoption of
these provisions to have a material impact on its consolidated financial statements.
(cid:120) ASU No. 2016-09, Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting. The amendments simplify several aspects of the accounting for share-based
payment award transactions, requiring excess tax benefits and deficiencies to be recognized as a component of
income tax expense rather than equity. This guidance also requires excess tax benefits and deficiencies to be
presented as an operating activity on the statement of cash flows and allows an entity to make an accounting
policy election to either estimate expected forfeitures or to account for them as they occur. The Company will
adopt these provisions in the first quarter of 2017 and adoption of these provisions will result in the following -
inclusion of excess tax benefits and deficiencies as a component of income tax expense which may increase
volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from stock-
based compensation awards are dependent on the Company’s stock price as of the date the stock awards vest.
Based on the Company’s current stock price and its stock incentive plan awards this change resulted in a
beneficial adjustment of approximately $552 thousand to the provision for income taxes in the first quarter of
2017. The Company will continue to estimate expected forfeitures.
(cid:120) ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That are under
Common Control. The amendments affect reporting entities that are required to evaluate whether they should
consolidate a variable interest entity in certain situations involving entities under common control. Specifically,
the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable
interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity
treats indirect interests in the entity held through related parties that are under common control with the
reporting entity. The amendments will be adopted in the first quarter of 2017 and the Company does not expect
the adoption to have a material impact on its consolidated financial statements.
To be adopted in 2018:
REVENUE RECOGNITION:
The Financial Accounting Standards Board and International Accounting Standards Board issued their
converged standard on revenue recognition in May 2014. The standard provides a comprehensive, industry-neutral
revenue recognition model intended to increase financial statement comparability across companies and industries
and significantly reduce the complexity inherent in today’s revenue recognition guidance. The various ASUs related
to Revenue from Contracts with Customers (Topic 606) have been listed below:
(cid:120) ASU No. 2014-09. The core principle of the guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services using a five step process.
(cid:120) ASU No. 2015-14 deferred the effective date of ASU 2014-09 for all entities by one year to the first quarter of
2018 with early application permitted.
(cid:120) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The
amendments provide guidance on whether an entity is a principal or agent when providing services to a
customer along with another party.
(cid:120) ASU No. 2016-10, Identifying Performance Obligations and Licensing. The amendments clarify the earlier
guidance on identifying performance obligations and licensing implementation.
(cid:120) ASU No. 2016-11, Rescission of SEC Guidance Because of ASUs 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting. This ASU rescinds certain SEC guidance related to
issues that are currently codified under various topics.
(cid:120) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients. The amendments provide
clarifying guidance on certain aspects of the five step process and practical expedients regarding the effect of
36
modifications and status of completed contracts under legacy GAAP and disclosures related to the application
of this guidance using the modified retrospective or retrospective transition method.
(cid:120) ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09
and includes among others, loan guarantees, impairment testing of contract costs, performance obligations
disclosures and accrual of advertising costs.
Current Status of Implementation:
The Company is currently analyzing the effect of the standard across all of its revenue streams to evaluate the
impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices
to identify potential differences that would result from applying the requirements under the new standard. The
Company plans to adopt the standard in the first quarter of 2018 using the modified retrospective method by
recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of
retained earnings.
(cid:120) ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. The amendments make targeted improvements to existing U.S.
GAAP and affects accounting for equity investments and financial instruments and liabilities and related
disclosures. The amendments are effective starting in the first quarter of 2018, with early adoption permitted for
certain provisions. The Company is currently evaluating the impact of these provisions on its consolidated
financial statements.
(cid:120) ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments. The amendments provide guidance in the presentation and classification of certain cash
receipts and cash payments in the statement of cash flows including debt prepayment or debt extinguishment
costs, contingent consideration payments made after a business combination, proceeds from the settlement of
insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions
received from equity method investees. The amendments are effective starting in the first quarter of 2018 with
early adoption permitted. The amendments should be applied using a retrospective transition method to each
period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is
currently evaluating the impact of adopting these provisions on its consolidated financial statements.
(cid:120) ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The
amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity
transfer of an asset other than inventory. Two common examples of assets included in the scope of the
amendments are intellectual property and property, plant, and equipment. The amendments do not include new
disclosure requirements; however, existing disclosure requirements might be applicable when accounting for
the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The
amendments are effective starting in the first quarter of 2018 with early adoption permitted. The amendments
are required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact
of adopting these provisions on its consolidated financial statements.
(cid:120) ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments require that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The
amendments do not provide a definition of restricted cash or restricted cash equivalents. The amendments are
effective starting in the first quarter of 2018 with early adoption permitted. The amendments should be applied
using a retrospective transition method to each period presented. The Company is currently evaluating the
impact of adopting these provisions on its consolidated financial statements.
37
To be adopted in 2019 and later:
(cid:120) ASU —Leases (Topic 842). Under the new guidance, lessees will need to recognize a right-of-use asset and a
lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease), at
the commencement of the lease term. The liability will be equal to the present value of lease payments. The
asset will be based on the liability, subject to adjustment, such as for initial direct costs. The amendments in this
standard are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for
sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company
is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
(cid:120) ASU No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The amendments require the credit losses on available-for-sale debt securities and
purchased financial assets with credit deterioration should be presented as an allowance rather than a write-
down. It also allows recording of credit loss reversals in current period net income. The amendments are
effective starting in the first quarter of 2020 with early application permitted a year earlier. The Company is
currently evaluating the impact of adopting these provisions on its consolidated financial statements.
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, 2016 based on criteria established in 2013 Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management’s assessment is that Marine Products Corporation maintained
effective internal control over financial reporting as of December 31, 2016.
The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial
statements as of and for the year ended December 31, 2016, 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
Vice President, Chief Financial Officer and Treasurer
Atlanta, Georgia
February 28, 2017
39
Report of Independent Registered Public Accounting Firm
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, 2016, based on criteria established in the 2013
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of the Company as of and for the year ended December 31,
2016, and our report dated February 28, 2017 expressed an unqualified opinion on those financial statements.
Atlanta, Georgia
February 28, 2017
40
Report of Independent Registered Public Accounting Firm
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, 2016 and 2015 and the related consolidated
statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2016. Our audits of the basic consolidated financial statements included the financial
statement schedule listed in the index appearing under 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, 2016 and 2015, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 28, 2017 expressed an
unqualified opinion thereon.
Atlanta, Georgia
February 28, 2017
41
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(in thousands except share information)
December 31,
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$ 2,619
4,109
1,087
42,488
29
1,823
52,155
13,334
3,308
465
5,221
5,278
8,766
$ 88,527
$
7,986
7,825
1,256
32,638
820
2,119
52,644
12,761
3,308
465
27,129
4,338
10,032
$ 110,677
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 (Note 9)
$ 5,163
12,239
17,402
5,614
66
23,082
$
3,681
10,117
13,798
6,590
77
20,465
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 –
34,855,082 shares in 2016, 38,111,625 shares in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
3,486
—
64,141
(2,182)
65,445
$ 88,527
3,811
3,879
84,423
(1,901)
90,212
$ 110,677
The accompanying notes are an integral part of these statements.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EARNINGS PER SHARE
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$ 241,330
190,863
50,467
27,415
23,052
355
23,407
6,662
$ 16,745
2015
$ 207,061
163,261
43,800
23,249
20,551
420
20,971
6,665
$ 14,306
2014
$ 171,050
138,379
32,671
20,665
12,006
521
12,527
3,613
8,914
$
$
$
0.44
0.44
0.24
$
$
0.39
0.39
0.20
$
$
0.24
0.24
0.16
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 income, net of taxes: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on securities, net of reclassification adjustments. . . . . . . . . . . .
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$ 16,745
2015
$ 14,306
2014
$ 8,914
(252)
(29)
$ 16,464
125
(57)
$ 14,374
(1,034)
(82)
$ 7,798
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, 2016
Balance, December 31, 2013 . . . . . . . . . . . . . . . . .
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, 2014 . . . . . . . . . . . . . . . . .
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, 2015 . . . . . . . . . . . . . . . . .
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, 2016 . . . . . . . . . . . . . . . . .
(in thousands)
Common Stock
Capital in
Excess of
Par Value
3,583
$
1,729
(1,759)
—
—
Retained
Earnings
74,943
$
—
—
8,914
—
Amount
3,810
$
25
(22)
—
—
—
—
—
3,813
32
(34)
—
—
—
—
—
3,811
37
(362)
—
—
—
—
—
3,486
$
$
$
$
$
$
—
342
—
3,895
1,953
(2,225)
—
—
—
256
—
3,879
2,511
(6,550)
—
—
$
$
—
—
(6,102)
77,755
—
—
14,306
—
—
—
(7,638)
84,423
—
(27,825)
16,745
—
—
160
—
— $
—
—
(9,202)
64,141
Shares
38,095
260
(224)
—
—
—
—
—
38,131
317
(336)
—
—
—
—
—
38,112
369
(3,626)
—
—
—
—
—
34,855
Accumulated
Other
Comprehensive
Income (Loss)
$
(853)
—
—
—
(1,034)
(82)
—
$ (1,969)
—
—
—
125
(57)
—
—
$ (1,901)
—
—
—
(252)
(29)
—
—
$ (2,182)
Total
$ 81,483
1,754
(1,781)
8,914
(1,034)
(82)
342
(6,102)
$ 83,494
1,985
(2,259)
14,306
125
(57)
256
(7,638)
$ 90,212
2,548
(34,737)
16,745
(252)
(29)
160
(9,202)
$ 65,445
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) loss on sale of equipment and property . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premium related to marketable securities. . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits for share-based payments . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits for share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these statements.
2016
2015
2014
$ 16,745
$ 14,306
$
8,914
1,382
(103)
1,152
2,624
(160)
(862)
169
(9,850)
296
791
1,266
1,482
2,282
(1,377)
15,837
(1,940)
88
—
52,519
(28,092)
22,575
(9,202)
(34,737)
160
(43,779)
(5,367)
7,986
2,619
$
$
1,013
(12)
1,059
1,993
(256)
1,309
1,113
(3,819)
(413)
(441)
(139)
104
486
(259)
16,044
(3,878)
6
—
17,659
(16,276)
(2,489)
(7,638)
(2,259)
256
(9,641)
3,914
4,072
7,986
712
31
1,210
1,754
(342)
(805)
(348)
40
133
911
790
(1,992)
638
(990)
10,656
(451)
1,083
(2,554)
20,085
(22,320)
(4,157)
(6,102)
(1,781)
342
(7,541)
(1,042)
5,114
4,072
$
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 2016, 2015 or 2014. Net sales to the
Company’s international dealers were approximately $21 million in 2016, $22 million in 2015, and $26 million in
2014.
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, 2016, 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 and retained earnings if capital in excess of par value is depleted. The Company tracks capital
in excess of par value on a cumulative basis and at each reporting period, discloses the excess over capital in excess
of par value as part of stock purchased and retired in the consolidated statements of stockholders’ equity.
Dividend — On January 24, 2017, the Board of Directors approved a quarterly dividend of $0.07 per common
share payable March 10, 2017 to stockholders of record at the close of business on February 10, 2017.
Use of Estimates in the Preparation of Financial Statements — The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are used
in the determination of sales incentives and discounts, warranty costs, and income taxes.
Sales Recognition — Marine Products recognizes sales when a fully executed agreement exists, prices are
established, products are delivered to the dealer in the case of domestic dealers and collectability is reasonably
assured. See “Deferred Revenue” below for recognition of sales to international dealers.
Deferred Revenue — Marine Products requires payment from international dealers, other than Canada, prior to
shipment of products to these dealers. Amounts received from international dealers toward the purchase of boats are
classified as deferred revenue and recognized as sales when the products are shipped.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Shipping and Handling Charges — The shipping and handling of the Company’s products to dealers is handled
through a combination of third-party marine transporters and a company owned fleet of delivery trucks. Fees
charged to customers for shipping and handling are included in net sales in the accompanying consolidated
statements of operations and the related costs incurred by the Company are included in cost of goods sold.
Advertising — Advertising expenses are charged to expense during the period in which they are incurred.
Expenses associated with product brochures and other inventoriable marketing materials are deferred and amortized
over the related model year which approximates the consumption of these materials. As of December 31, 2016 and
2015, the Company had approximately $271,000 and $282,000 in prepaid expenses related to unamortized product
brochure costs. Advertising expenses totaled approximately $2,545,000 in 2016, $2,480,000 in 2015 and $2,291,000
in 2014 and are recorded in selling, general and administrative expenses.
Sales Incentives and Discounts — Sales incentives including dealer discounts and retail sales promotions are
provided for and recorded as a reduction of sales or as a cost of sales as appropriate. The Company records the
estimated cost of these incentives at the later of the recognition of the related sales or the announcement of a
promotional program.
Cash and Cash Equivalents — Highly liquid investments with original maturities of three months or less when
acquired are considered to be cash equivalents. The Company maintains its cash in bank accounts, which at times,
may exceed federally insured limits.
Marketable Securities — Marine Products maintains investments at a large, well-capitalized financial
institution. Marine Products’ investment policy does not allow investment in any securities rated less than
“investment grade” by national rating services.
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates
such designations as of each balance sheet date. Debt securities are classified as available-for-sale because the
Company does not have the intent to hold the securities to maturity. Available-for-sale securities are stated at their
fair values, with the unrealized gains and losses, net of taxes, reported as a separate component of stockholders’
equity. The cost of securities sold is based on the specific identification method. Realized gains and losses, declines
in value judged to be other than temporary, interest and dividends on available-for-sale securities are included in
interest income. Net realized (losses) gains on marketable securities totaled ($39,000) in 2016, $45,000 in 2015, and
$57,000 in 2014. Of the total (losses) gains realized, reclassification from other comprehensive income totaled
approximately ($39,000) in 2016, $45,000 in 2015, and $57,000 in 2014. Gross unrealized gains on marketable
securities totaled $4,000 as of December 31, 2016 and $26,000 as of December 31, 2015. Gross unrealized losses on
marketable securities totaled $53,000 as of December 31, 2016 and $29,000 as of December 31, 2015. The
amortized cost basis, fair value and net unrealized loss of the available-for-sale securities are as follows:
December 31,
Type of Securities
(in thousands)
Municipal Obligations . . . . . . . .
Corporate Obligations . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost Basis
2016
Fair
Value
Net
Unrealized
Loss
Amortized
Cost
Basis
2015
Fair
Value
Net
Unrealized
Loss
$
$
9,379
—
9,379
$
$
9,330
—
9,330
$
$
(49)
—
(49)
$ 30,996
3,961
$ 34,957
$ 30,996
3,958
$ 34,954
$
$
—
(3)
(3)
Municipal debt obligations consist primarily of municipal notes rated AA- or higher ranging in maturity from
less than one year to over 10 years. Investments with remaining maturities of less than 12 months are considered to
be current marketable securities. Investments with remaining maturities greater than 12 months are considered to be
non-current marketable securities. The Company’s non-current marketable securities as of December 31, 2016 are
scheduled to mature between 2018 and 2038.
Accounts Receivable — The majority of the Company’s accounts receivable are due from dealers located in
markets throughout the United States. Approximately 70 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
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
their show room or during boat show exhibitions. When a dealer purchases and takes delivery of a boat pursuant to a
floor plan financing arrangement, it draws against its line of credit and the lender pays the invoice cost of the boat
directly to Marine Products within approximately ten business days. The Company determines its allowance for
doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past
due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and
the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable
when they become uncollectible, and payments subsequently received on such receivables are credited to the
allowance.
Inventories — Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market
value. Market value is determined based on replacement cost for raw materials and net realizable value for work in
process and finished goods.
Property, Plant and Equipment — Property, plant and equipment is carried at cost. Depreciation is provided
principally on a straight-line basis over the estimated useful lives of the assets. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of
disposal with the resulting gain or loss credited or charged to income. Expenditures for additions, major renewals,
and betterments are capitalized while expenditures for routine maintenance and repairs are expensed as incurred.
Depreciation expense on operating equipment used in production is included in cost of goods sold in the
accompanying consolidated statements of operations. All other depreciation is included in selling, general and
administrative expenses in the accompanying consolidated statements of operations. Property, plant and equipment
are reviewed for impairment when indicators of impairment exist.
Goodwill and Other Intangibles — Intangibles consist primarily of goodwill and trade names related to
businesses acquired. Goodwill represents the excess of the purchase price over the fair value of net assets of
businesses acquired. The carrying amount of goodwill was $3,308,000 as of December 31, 2016 and 2015. 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. The Company also periodically
performs a valuation of its trade names and has concluded that the fair value of these assets is not impaired. Based
on these evaluations, the Company concluded that no impairment of its goodwill or trade names has occurred for the
years ended December 31, 2016, 2015 and 2014.
Investments — The Company maintains certain securities in the non-qualified Supplemental Executive
Retirement Plan that have been classified as trading. See Note 10 for further information regarding these securities.
Warranty Costs — The Company warrants the entire boat, excluding the engine, against defects in materials
and workmanship for a period of one year. The Company also warrants the entire deck and hull, including its
bulkhead and supporting stringer system, against defects in materials and workmanship for periods extending up to a
lifetime. The Company accrues for estimated future warranty costs at the time of the sale based on its historical
claims experience. An analysis of the warranty accruals for the years ended December 31, 2016 and 2015 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
3,405
(2,856)
3,527
553
4,629
$
$
3,836
(1,653)
2,074
(852)
3,405
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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 $858,000 in 2016, $663,000 in 2015, and $743,000 in 2014.
Repurchase Obligations — The Company has entered into agreements with third-party floor plan lenders where
it has agreed, in the event of default by the dealer, to repurchase MPC boats repossessed from the dealer. These
arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the
boats repurchased. The Company accrues estimated losses when a loss, due primarily to the default of one of our
dealers, is determined to be probable and the amount of the loss is reasonably estimable.
Income Taxes — Deferred tax liabilities and assets are determined based on the difference between the financial
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. The Company establishes a valuation allowance against the carrying value of deferred tax assets
if the Company concludes that it is more likely than not that the asset will not be realized through future taxable
income.
Stock-Based Compensation — Stock-based compensation expense is recognized for all share-based payment
awards, net of an estimated forfeiture rate. Thus, compensation cost is amortized for those shares expected to vest on
a straight-line basis over the requisite service period of the award. See Note 10 for additional information.
Earnings per Share —Financial Accounting Standards Board (FASB) Auditing Standards Codification (ASC)
Topic 260-10 “Earnings Per Share-Overall,” requires a basic earnings per share and diluted earnings per share
presentation. See Note 10 for further information on restricted stock granted to employees.
Basic and diluted earnings per share are computed by dividing net income by the weighted average number of
shares outstanding during the respective periods. In addition, the Company has periodically issued share-based
payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities.
Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted average
shares outstanding is as follows:
(In thousands)
Net income available for stockholders . . . . . . . . . . . . . .
Less: Adjustments for earnings attributable to
participating securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income used in calculating earnings per share . . .
2016
2015
2014
$
16,745
$
14,306
$
8,914
(535)
16,210
$
(464 )
13,842
$
$
(283 )
8,631
Weighted average shares outstanding (including
participating securities) . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for participating securities . . . . . . . . . . . . . .
Shares used in calculating basic earnings per share
Dilutive effect of stock based awards . . . . . . . . . . . . . . .
Shares used in calculating diluted earnings
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,857
(1,224)
36,633
—
36,955
(1,252 )
35,703
192
36,937
(1,246 )
35,691
291
36,633
35,895
35,982
Fair Value of Financial Instruments — The Company’s financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and marketable securities. The carrying value of cash and cash
equivalents, accounts receivable and accounts payable approximate their fair values because of the short-term nature
of such instruments. The Company’s marketable securities are classified as available-for-sale securities with the
exception of investments held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) which are
classified as trading securities. All of these securities are carried at fair value in the accompanying consolidated
balance sheets. See Note 8 for further information regarding the fair value measurement of assets and liabilities.
Concentration of Suppliers — The Company has only four suppliers for the three types of engines it purchases.
This concentration of suppliers could impact our sales and profitability in the event of a sudden interruption in the
delivery of these engines.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Reclassification — Certain prior year balances have been reclassified to conform to the current year
presentation.
Recent Accounting Pronouncements
During the year ended December 31, 2016, the FASB issued the following Accounting Standards Updates (ASUs):
Recently Adopted Accounting Pronouncements:
•
•
•
Accounting Standards Update (ASU) No. 2015-16, Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments. The amendments eliminate the requirement to
retrospectively account for adjustments made to provisional amounts recognized in a business combination.
Adjustments to provisional amounts that are identified during the measurement period are required to be
recognized in the reporting period in which the adjustments are determined and calculated as if the accounting
had been completed at the acquisition date and either disclosed on the face of the income statement or in the
notes by each category. The Company adopted these provisions in the first quarter of 2016 and plans to apply
the provisions for all future business combinations. The adoption did not have a material impact on the
Company’s consolidated financial statements.
ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent). The amendments remove the requirement to
categorize within the fair value hierarchy all investments for which fair value is measured using the net asset
value per share (or its equivalent) practical expedient. In addition, there is no requirement to make certain
disclosures for such investments. The Company adopted these provisions in the first quarter of 2016 applied
retrospectively and has excluded the pension assets that are measured using the net asset value per share from
the fair value hierarchy disclosure. The adoption did not have a material impact on the Company’s consolidated
financial statements.
ASU No. 2014-15, Presentation of Financial Statements —Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Financial statements are
generally prepared under the presumption that the reporting organization will continue to operate as a going
concern, except in limited circumstances. This ASU provides guidance on management’s responsibility to
include footnote disclosures when there is substantial doubt about the organization’s ability to continue as a
going concern. The Company adopted these provisions in the first quarter of 2016 and will provide such
disclosures as required if there are conditions and events that raise substantial doubt about its ability to continue
as a going concern. The adoption did not have a material impact on the Company’s consolidated financial
statements.
Recently Issued Accounting Pronouncements Not Yet Adopted:
To be adopted in 2017:
•
•
ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Current requirements
are to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value,
or net realizable value less an approximated normal profit margin. These amendments allow inventory to be
measured at lower of cost or net realizable value and eliminates the market requirement. Net realizable value is
the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. The amendments do not apply to inventory that is measured using last-in, first-out
or the retail inventory method. The amendments will be adopted in the first quarter of 2017 and applied
prospectively. The Company does not expect the adoption of these provisions to have a material impact on its
consolidated financial statements.
ASU No. 2016-07, Investments —Equity Method and Joint Ventures (Topic 323) Simplifying the
Transition to the Equity Method of Accounting. The amendments eliminate the requirement to adjust the
investment, results of operations, and retained earnings retroactively when an investment qualifies for use of the
equity method as a result of an increase in the level of ownership interest or degree of influence. The cost of
acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously
held interest and the equity method is to be adopted as of the date the investment qualifies. In addition, an entity
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
•
•
that has an available-for-sale equity security that becomes qualified for the equity method of accounting is
required to recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive
income at the date the investment becomes qualified for use of the equity method. The amendments will be
adopted in the first quarter of 2017 and applied prospectively. The Company does not expect the adoption of
these provisions to have a material impact on its consolidated financial statements.
ASU No. 2016-09, Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting. The amendments simplify several aspects of the accounting for share-based
payment award transactions, requiring excess tax benefits and deficiencies to be recognized as a component of
income tax expense rather than equity. This guidance also requires excess tax benefits and deficiencies to be
presented as an operating activity on the statement of cash flows and allows an entity to make an accounting
policy election to either estimate expected forfeitures or to account for them as they occur. The Company will
adopt these provisions in the first quarter of 2017 and adoption of these provisions which may result in the
following - inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase
volatility of the provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based
compensation awards are dependent on the Company’s stock price as of the date the stock awards vest. Based
on the Company’s current stock price and its stock incentive plan awards this change resulted in a beneficial
adjustment of approximately $552 thousand to the provision for income taxes in the first quarter of 2017. The
Company will continue to estimate expected forfeitures.
ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That are under
Common Control. The amendments affect reporting entities that are required to evaluate whether they should
consolidate a variable interest entity in certain situations involving entities under common control. Specifically,
the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable
interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity
treats indirect interests in the entity held through related parties that are under common control with the
reporting entity. The amendments will be adopted in the first quarter of 2017 and the Company does not expect
the adoption to have a material impact on its consolidated financial statements.
To be adopted in 2018:
REVENUE RECOGNITION:
The Financial Accounting Standards Board and International Accounting Standards Board issued their
converged standard on revenue recognition in May 2014. The standard provides a comprehensive, industry-neutral
revenue recognition model intended to increase financial statement comparability across companies and industries
and significantly reduce the complexity inherent in today’s revenue recognition guidance. The various ASUs related
to Revenue from Contracts with Customers (Topic 606) have been listed below:
•
•
•
•
•
•
ASU No. 2014-09. The core principle of the guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services using a five step process.
ASU No. 2015-14 deferred the effective date of ASU 2014-09 for all entities by one year to the first quarter of
2018 with early application permitted.
ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The
amendments provide guidance on whether an entity is a principal or agent when providing services to a
customer along with another party.
ASU No. 2016-10, Identifying Performance Obligations and Licensing. The amendments clarify the earlier
guidance on identifying performance obligations and licensing implementation.
ASU No. 2016-11, Rescission of SEC Guidance Because of ASUs 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting. This ASU rescinds certain SEC guidance related to
issues that are currently codified under various topics.
ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients. The amendments provide
clarifying guidance on certain aspects of the five step process and practical expedients regarding the effect of
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
modifications and status of completed contracts under legacy GAAP and disclosures related to the application
of this guidance using the modified retrospective or retrospective transition method.
•
ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers. The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09
and includes among others, loan guarantees, impairment testing of contract costs, performance obligations
disclosures and accrual of advertising costs.
Current Status of Implementation:
The Company is currently analyzing the effect of the standard across all of its revenue streams to evaluate the
impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices
to identify potential differences that would result from applying the requirements under the new standard. The
Company plans to adopt the standard in the first quarter of 2018 using the modified retrospective method by
recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of
retained earnings.
•
•
•
•
ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. The amendments make targeted improvements to existing U.S.
GAAP and affects accounting for equity investments and financial instruments and liabilities and related
disclosures. The amendments are effective starting in the first quarter of 2018, with early adoption permitted for
certain provisions. The Company is currently evaluating the impact of these provisions on its consolidated
financial statements.
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments. The amendments provide guidance in the presentation and classification of certain cash receipts and
cash payments in the statement of cash flows including debt prepayment or debt extinguishment costs,
contingent consideration payments made after a business combination, proceeds from the settlement of
insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions
received from equity method investees. The amendments are effective starting in the first quarter of 2018 with
early adoption permitted. The amendments should be applied using a retrospective transition method to each
period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is
currently evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The
amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset
other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity
transfer of an asset other than inventory. Two common examples of assets included in the scope of the
amendments are intellectual property and property, plant, and equipment. The amendments do not include new
disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the
current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The amendments
are effective starting in the first quarter of 2018 with early adoption permitted. The amendments are required to
be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings
as of the beginning of the period of adoption. The Company is currently evaluating the impact of adopting these
provisions on its consolidated financial statements.
ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments require that a
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The
amendments do not provide a definition of restricted cash or restricted cash equivalents. The amendments are
effective starting in the first quarter of 2018 with early adoption permitted. The amendments should be applied
using a retrospective transition method to each period presented. The Company is currently evaluating the
impact of adopting these provisions on its consolidated financial statements.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
To be adopted in 2019 and later:
•
•
ASU No. 2016-02 —Leases (Topic 842). Under the new guidance, lessees will need to recognize a right-of-use
asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term
lease), at the commencement of the lease term. The liability will be equal to the present value of lease payments.
The asset will be based on the liability, subject to adjustment, such as for initial direct costs. The amendments in
this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for
sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company is
currently evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The amendments require that credit losses on available-for-sale debt securities and
purchased financial assets with credit deterioration should be presented as an allowance rather than a write-
down. It also allows recording of credit loss reversals in current period net income. The amendments are
effective in the first quarter of 2020 with early application permitted a year earlier. The Company is currently
evaluating the impact of adopting these provisions on its consolidated financial statements.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
744
368
1,112
(25)
1,087
$
$
557
724
1,281
(25)
1,256
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 73 of this report.
NOTE 3: INVENTORIES
Inventories consist of the following:
December 31,
(in thousands)
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$
$
26,106
9,007
7,375
42,488
$
$
17,058
7,562
8,018
32,638
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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
2016
2015
N/A
7-40
3-15
5-7
5-10
$
$
878
18,314
10,070
1,535
6,007
36,804
(23,470 )
13,334
$
$
657
17,586
10,843
2,141
6,697
37,924
(25,163 )
12,761
Depreciation expense was $1,382,000 in 2016, $1,013,000 in 2015 and $712,000 in 2014.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
2015
2,381
4,155
4,629
416
658
12,239
$
$
2,060
3,309
3,405
721
622
10,117
NOTE 6: INCOME TAXES
The following table lists the components of the provision for income taxes:
Years ended December 31,
(in thousands)
Current provision:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred (benefit) provision:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$
$
7,263
261
(507)
(355)
6,662
$
$
5,056
300
1,256
53
6,665
$
$
4,275
143
(762 )
(43 )
3,613
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 . . . . . . . . . . . . . . . . . . . . . . .
Research and experimentation credit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt gain on SERP assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
35.0%
0.7
(1.0)
(0.4)
(1.3)
(3.0)
(1.4)
(0.1)
28.5%
35.0 %
0.8
(1.1 )
(0.4 )
(0.1 )
(2.5 )
—
—
31.7 %
35.0%
0.7
(2.1)
(1.1)
(0.5)
(3.3)
—
0.1
28.8%
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
(in thousands)
Deferred tax assets:
Warranty costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales incentives and discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uniform capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State credits and NOL’s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Depreciation and amortization expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basis differences in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$
$
1,643
725
1,015
1,993
298
489
5,129
(4,525)
6,767
(1,103)
(386)
5,278
$
$
1,209
547
1,061
2,300
96
418
4,967
(4,694)
5,904
(1,062)
(504)
4,338
Total net income tax payments were $6,546,000 in 2016, $5,797,000 in 2015, and $3,509,000 in 2014. As of
December 31, 2016 the Company had net operating loss carry forwards related to state income taxes of
approximately $15.5 million, and other state credits of approximately $4.5 million that will expire between 2017 and
2035. As of December 31, 2016 the Company released all valuation allowances related to net operating loss
carryforwards due to implemented tax planning strategies, yet retains a valuation allowance on state tax credits of
approximately $4.5 million, representing the tax affected amount of state tax credits 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, 2016 and 2015.
As of December 31, 2016 and 2015, our liability for unrecognized tax benefits was $15,000 and $15,000,
respectively, all of which would affect our effective rate if recognized. 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 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 2013 through 2016 tax years remain open to examination. Additional
years may be open to the extent attributes are being carried forward to an open year.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
NOTE 7: ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
(in thousands)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change during 2015:
Before-tax amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit (expense). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment, net of taxes
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total activity in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change during 2016:
Before-tax amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment, net of taxes
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total activity in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension
Adjustment
Unrealized
(Loss) gain
on
Securities
Total
$
(2,024)
$
55
$
(1,969)
119
(42)
48
—
125
(1,899)
(474)
168
54
—
(252)
(2,151)
$
$
$
$
(43)
15
—
(29)
(57)
(2)
(83)
29
25
(29)
(31)
$
$
76
(27)
48
(29)
68
(1,901)
(557)
197
54
25
(281)
(2,182)
NOTE 8: FAIR VALUE MEASUREMENTS
The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between
assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The
hierarchy consists of three broad levels as follows:
1. Level 1 – Quoted market prices in active markets for identical assets or liabilities.
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.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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, 2016 and 2015:
Fair Value Measurements at December 31, 2016 with:
(in thousands)
Assets:
Available-for-sale securities:
Municipal Obligations . . . . . . . . . . . . . . . . . . . .
Corporate Obligations . . . . . . . . . . . . . . . . . . . .
Investments measured at Net Asset Value-
Trading securities . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 9,330
—
$ 9,330
$ 5,547
Quoted prices in
active markets for
identical assets
(Level 1)
$ —
—
$ —
Significant
other
observable
inputs
(Level 2)
$ 9,330
—
$ 9,330
Significant
unobservable
inputs
(Level 3)
$ —
—
$ —
Fair Value Measurements at December 31, 2015 with:
(in thousands)
Assets:
Available-for-sale securities:
Municipal Obligations . . . . . . . . . . . . . . . . . . . .
Corporate Obligations . . . . . . . . . . . . . . . . . . . .
Investments measured at Net Asset Value-
Trading securities . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 30,996
3,958
$ 34,954
$ 6,491
Quoted prices in
active markets for
identical assets
(Level 1)
$ —
—
$ —
Significant
other
observable
inputs
(Level 2)
$ 30,996
3,958
$ 34,954
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 SERP assets, as described in Note 10, and are recorded
primarily at their net cash surrender values calculated using their net asset values, which approximate fair value, as
provided by the issuing insurance company. Significant observable inputs, in addition to quoted market prices, were
used to value the trading securities. The Company’s policy is to recognize transfers between levels at the beginning
of quarterly reporting periods. For the year ended December 31, 2016 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.
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
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 2016 or 2015.
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 16 percent of the average net receivables financed by the floor plan lender for dealers during
the prior 12 month period, which was $9.8 million as of December 31, 2016. The Company has contractual
repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately
$6.9 million, with various expiration and cancellation terms of less than one year, for an aggregate repurchase
obligation with all financing institutions of approximately $16.7 million as of December 31, 2016. This repurchase
obligation risk is mitigated by the value of the boat repurchased.
Minimum annual operating lease obligations with terms in excess of one year, in effect at December 31, 2016,
are summarized in the following table:
(in thousands)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rental commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 357
348
213
1
—
—
$ 919
Total rent expense charged to operations was approximately $352,000 in 2016, $135,000 in 2015 and $118,000
in 2014.
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 $43,000 as of December 31, 2016 and
December 31, 2015.
Employment Agreements — The Company has an agreement with one employee, that provides for a monthly
payment to the employee equal to 10 percent of profits (defined as pretax income before goodwill adjustments and
certain allocated corporate expenses) in addition to a base salary. In addition the Company had an agreement with
another employee for prior years and during the current year through March 31, 2016 under the same terms. The
expense under these agreements totaled approximately $4,202,000 in 2016, $6,411,000 in 2015 and $4,225,000 in
2014 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 $6.0 million as of December 31, 2016 and
$7.9 million as of December 31, 2015. 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+.
The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these
assets totaled $5,547,000 as of December 31, 2016 and $6,491,000 as of December 31, 2015. The SERP assets are
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 $106,000 in 2016, $(84,000) in 2015 and $187,000 in 2014. 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.
In connection with death of an executive officer during 2016, the Company recorded tax free gains of
approximately $751 thousand comprised of the following: $556 thousand generated by the insurance death proceeds
under a Company-owned life insurance contract of approximately $1.9 million less cash surrender value of
approximately $1.4 million, and $195 thousand as a result of insurance death benefits from a key-man life insurance
policy. The net gain is reflected as part of selling, general and administrative expenses.
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.
The Company’s projected benefit obligation exceeded the fair value of the plan assets for its Retirement Income
Plan by $51,000 and thus the plan was under-funded as of December 31, 2016.
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$ 6,083
$ 5,703
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
$ 5,703
—
274
342
(236)
$ 6,083
$ 5,813
275
180
(236)
$ 6,032
(51)
$
$ 6,355
—
259
(671)
(240)
$ 5,703
$ 6,014
(131)
170
(240)
$ 5,813
110
$
2016
2015
$ — $
—
(51)
(51)
$
$
110
—
—
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
The funded status of the Retirement Income Plan was recorded in the consolidated balance sheets in pension
liabilities as of December 31, 2016 and in other assets as of December 31, 2015.
December 31,
(in thousands)
AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER
COMPREHENSIVE LOSS CONSIST OF:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$ 3,335
—
—
$ 3,335
$ 2,944
—
—
$ 2,944
The accumulated benefit obligation for the Retirement Income Plan as of December 31, 2016 and 2015 has been
disclosed above. The Company uses a December 31 measurement date for this qualified plan.
Amounts recorded in the consolidated balance sheet as pension liabilities consist of:
December 31,
(in thousands)
SERP liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status of Retirement Income Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
$ (5,563)
(51)
$ (5,614)
$ (6,590)
—
$ (6,590)
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 $180,000 during
2016 and $170,000 during 2015.
The components of net periodic benefit cost of the Retirement Income Plan 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$ — $ — $ —
261
(411)
37
$ (113)
259
(421)
76
(86)
274
(406)
84
(48)
$
$
The Company recognized a pre-tax decrease to the funded status in accumulated other comprehensive income
of $390,000 in 2016 compared to a pre-tax increase of $195,000 in 2015 and a pre-tax decrease of $1,602,000 in
2014. There were no previously unrecognized prior service costs during 2016, 2015 and 2014. The pre-tax amounts
recognized in other comprehensive income for the years ended December 31, 2016, 2015 and 2014 are summarized
as follows:
(in thousands)
Net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount recognized in accumulated other comprehensive income. . . . . . . . . . . . . .
2016
474
(84)
—
390
$
$
2015
$ (119)
(76)
—
$ (195)
2014
$ 1,639
(37)
—
$ 1,602
The amounts in accumulated other comprehensive income expected to be recognized as components of net
periodic benefit cost in 2017 are as follows:
(in thousands)
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transition obligation (asset). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated net periodic cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
91
—
—
91
$
$
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
4.50 %
4.75%
4.25 %
N/A
N/A
N/A
4.75 %
7.00 %
4.25%
7.00%
5.35 %
7.00 %
N/A
N/A
N/A
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, 2016 and 2015 by asset category along with the
target allocation for 2017 are as follows:
Asset Category
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Equity Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments measured at net asset value . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target
Allocation
for 2017
0% - 5%
0% - 40%
0% - 40%
15% - 50%
0% - 20%
100.0%
Percentage of
Plan Assets as of
December 31,
2016
Percentage of
Plan Assets as of
December 31,
2015
3.3%
25.5
20.8
25.3
25.1
100.0%
0.7 %
27.6
19.1
25.8
26.8
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 small-cap companies
domiciled domestically and internationally. Fixed-income securities include corporate bonds, mortgage-backed
securities, sovereign bonds, and U.S. Treasuries. Other types of investments include real estate 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 plan utilizes a number of investment approaches, including
but not limited to individual market securities, equity and fixed income funds in which the underlying securities are
marketable, and debt funds to achieve this target allocation. Company management expects to make a contribution
to the pension plan of approximately $200,000 during fiscal year 2017.
Some of our assets, primarily our private equity and real estate 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, 2016, publicly traded asset pricing was used where possible. For assets without readily
determinable values, estimates were derived from investment manager statements combined with discussions
focusing on underlying fundamentals and significant events. Additionally, these investments are valued based on the
net asset value per share calculated by the funds in which the plan has invested and the valuation is based on
significant non-observable inputs which do not have a readily determinable fair value. These assets have been
excluded from the fair value hierarchy applied retrospectively based on the accounting guidance recently adopted.
The 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
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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, 2016 and 2015.
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, 2016:
Investments (in thousands)
Cash and Cash Equivalents (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Equity Securities (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets in the Fair Value Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments measured at Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments at Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
200
1,529
1,539
1,252
$ 4,520
1,512
$ 6,032
Fair Value Hierarchy as of December 31, 2015:
Investments (in thousands)
Cash and Cash Equivalents (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Securities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Equity Securities (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Equity Securities (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets in the Fair Value Hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments measured at Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments at Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
39
1,501
1,602
1,111
$ 4,253
1,560
$ 5,813
Level 1
200
—
775
—
975
Level 2
$
—
1,529
764
1,252
$ 3,545
Level 1
39
—
804
—
843
Level 2
$
—
1,501
799
1,111
$ 3,411
$
$
$
$
(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) Domestic equity securities are valued using a market approach based on the quoted market prices of identical instruments in their respective
(4)
markets.
International equity securities are valued using a market approach based on the quoted market prices of identical instruments in their
respective markets.
The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years
are as follows:
(in thousands)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022-2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
284
292
299
293
298
$ 1,596
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 $270,000 in 2016, $250,000 in 2015 and $194,000 in
2014.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Stock Incentive Plan— The Company reserved 3,000,000 shares of common stock under the 2014 Stock
Incentive Plan with a term of ten years expiring in April 2024. All future equity compensation awards by the
Company will be issued under the 2014 plan. This plan provides for the issuance of various forms of stock
incentives, including among others, incentive and non-qualified stock options and restricted shares. As of December
31, 2016, there were approximately 2,250,300 shares available for grant.
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.
Pre-tax stock-based employee compensation expense was approximately $2,624,000 ($1,692,000 after tax) for
2016, $1,993,000 ($1,285,000 after tax) for 2015 and $1,754,000 ($1,131,000 after tax) for 2014. During 2016, the
Company recorded accelerated compensation expense in selling, general and administrative expenses of
approximately $660 thousand that related to restricted shares issued to an executive officer that vested immediately
upon his death.
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.
There were no options exercised in 2016 and there have been no stock options outstanding since December 31,
2013. There was no tax benefit associated with the exercise of non-qualified stock options during 2016, 2015 or
2014.
Restricted Stock— Marine Products grants selected employees time lapse restricted stock that vest after a
certain stipulated number of years from the grant date, depending on the terms of the issue. The Company has
currently 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.
The following is a summary of the changes in non-vested restricted shares for the year ended December 31,
2016:
Non-vested shares at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,254,200
371,950
(422,533 )
(2,717 )
1,200,900
Weighted Average
Grant-Date Fair
Value
$ 6.80
5.77
6.52
6.21
$ 6.58
The following is a summary of the changes in non-vested restricted shares for the year ended December 31,
2015:
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marine Products Corporation and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Non-vested shares at January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested shares at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
1,251,400
319,750
(313,800)
(3,150)
1,254,200
Weighted Average
Grant-Date Fair
Value
$ 6.47
7.08
5.77
6.89
$ 6.80
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 $5.77 in 2016, $7.08 in 2015 and $7.90
in 2014. The total fair value of shares vested was approximately $2,686,000 in 2016, $2,254,000 in 2015 and
$2,295,000 during 2014. 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 $160,000 in 2016, $256,000 in 2015
and $342,000 in 2014. The excess tax deductions are classified as financing cash flows in the accompanying
consolidated statements of cash flows.
Other Information— As of December 31, 2016 total unrecognized compensation cost related to non-vested
restricted shares was approximately $6,431,000 which is expected to be recognized over a weighted-average period
of 3.4 years.
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 $739,000 in 2016, $753,000 in 2015 and
$663,000 in 2014. The Company’s (payable) receivable due (to) from RPC for these services was $(60,000) as of
December 31, 2016 and $11,000 as of December 31, 2015. All of the Company’s directors, except one, are also
directors of RPC and all of the Company’s executive officers 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.
RPC and Marine Products own 50 percent each of a limited liability company called 255 RC, LLC that was
created for the joint purchase and ownership of a corporate aircraft. The purchase of the aircraft was completed in
January 2016, and the purchase was funded primarily by a $2,554,000 contribution by each company to 255 RC,
LLC. Each of RPC and Marine Products is a party to an operating lease agreement with 255 RC, LLC for a period of
five years. During 2016, Marine Products recorded certain net operating costs comprised of rent and an allocable
share of fixed costs of approximately $157,000 for the corporate aircraft. The Company accounts for this investment
using the equity method and its proportionate share of income or loss is recorded in selling, general and
administrative expenses. As of December 31, 2016, the investment closely approximates the underlying equity in the
net assets of 255 RC, LLC.
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.
65
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, 2016 (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, 2016 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.
66
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information concerning directors and executive officers will be included in the Marine Products Proxy
Statement for its 2017 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 23 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 2017 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 2017 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 2017 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
2017 Annual Meeting of Stockholders, in the sections titled, “Capital Stock” and “Election of Directors.” This
information is incorporated herein by reference.
67
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information regarding equity compensation plans as of December 31,
2016.
Plan Category
Equity compensation plans approved
by securityholders . . . . . . . . . . . . . . . . . .
Equity compensation plans not
approved by securityholders. . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(A)
Number of Securities To
Be Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(B)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
—
—
—
$ —
—
$ —
(C)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
2,250,300(1)
—
2,250,300
(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 2017 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 2017 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 2017 Annual Meeting of
Stockholders. This information is incorporated herein by reference.
68
Item 15. Exhibits and Financial Statement Schedules
Consolidated Financial Statements, Financial Statement Schedule and Exhibits
PART IV
1. Consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and
Schedule are filed as part of this report.
2. The financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and
Schedule is filed as part of this report.
3. 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:
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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 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 10.8 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 10.9 to the Form 10-Q filed on November 1, 2004).
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 by reference to Exhibit 10.19 to the Form 10-K filed on March 2, 2007).
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 26, 2013).
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).
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).
Summary of compensation arrangements with non-employee directors (incorporated herein by
reference to Exhibit 10.16 to the Form 10-K filed on February 27, 2015.
2014 Stock Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s
definitive Proxy Statement filed on March 17, 2014).
10.18 Marine Products Corporation Cash Based Incentives (Discretionary) Acknowledgement of Cash
Based Incentives for Executive Officers.
69
Exhibits (inclusive of item 3 above):
Exhibit
Number
Description
3.1 (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).
3.2 Amended and Restated Bylaws of Marine Products Corporation (incorporated herein by reference to
Exhibit 3.2 to the Form 10-Q filed on July 31, 2016).
4 Form of Common Stock Certificate of Marine Products Corporation (incorporated herein by reference to
Exhibit 4.1 to the Form 10 filed on February 3, 2001).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 Marine Products Corporation 2004 Stock Incentive Plan (incorporated herein by reference to Appendix B
to the Definitive Proxy Statement filed on March 24, 2004).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.16 to the Form 10-K filed
on March 15, 2005).
70
10.12 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).
10.13 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 26, 2013).
10.14 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).
10.15 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).
10.16 Summary of compensation arrangements with non-employee directors (incorporated herein by reference
to Exhibit 10.16 to the Form 10-K filed on February 27, 2015.
10.17 2014 Stock Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s definitive
Proxy Statement filed on March 17, 2014).
10.18 Marine Products Corporation Cash Based Incentives (Discretionary) Acknowledgement of Cash Based
Incentives for Executive Officers.
21 Subsidiaries of Marine Products Corporation (incorporated herein by reference to Exhibit 21 to the Form
10-K filed on March 4, 2008).
23 Consent of Grant Thornton LLP
24 Powers of Attorney for Directors
31.1 Section 302 certification for Chief Executive Officer
31.2 Section 302 certification for Chief Financial Officer
32.1 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.
71
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.
SIGNATURES
Marine Products Corporation
Richard A. Hubbell
President and Chief Executive Officer
February 28, 2017
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
(Principal Executive Officer)
February 28, 2017
Ben M. Palmer
Vice President, Chief Financial Officer and Treasurer February 28, 2017
(Principal Financial and Accounting Officer)
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
Gary W. Rollins, Director
Henry B. Tippie, Director
James B. Williams, Director
Timothy C. Rollins, Director
Linda H. Graham, Director
Bill J. Dismuke, Director
Larry L. Prince, Director
Richard A. Hubbell
Director and as Attorney-in-fact
February 28, 2017
72
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PAGE
39
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . .
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for each of the three years ended December 31, 2016 . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2016 .
Consolidated Statements of Stockholders’ Equity for each of the three years ended December 31, 2016. . . .
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2016 . . . . . . . . . . . .
40
41
42
43
44
45
46
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47-65
SCHEDULE
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
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)
Description
Year ended December 31, 2016
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . . . . . . . .
Year ended December 31, 2015
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . . . . . . . .
Year ended December 31, 2014
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . . . . . . . .
For the years ended December 31, 2016, 2015 and 2014
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Net
(Write-Offs)/
Recoveries
Balance
at End of
Period
$
25
$ 4,694
$
25
$ 4,401
$
25
$ 4,359
$ —
$ —
$ —
$ 293
$ —
$ 42
$ —
$ (169)
$ —
$ —
$ —
$ —
$
25
$ 4,525
$
25
$ 4,694
$
25
$ 4,401
73
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per share data)
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic (a) . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted (a). . . . . . . . . . . . . . . . . . . . . . . .
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — basic (a) . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted (a). . . . . . . . . . . . . . . . . . . . . . . .
First
Second
Third
Fourth
$ 63,665
12,688
3,921
0.10
0.10
$
$ 65,066
13,808
4,818
0.13
0.13
$
$ 55,361
11,768
4,284
0.11
0.11
$
$ 57,238
12,203
3,722
0.10
0.10
$
$ 50,644
10,205
2,929
0.08
0.08
$
$ 59,498
12,604
4,429
0.12
0.12
$
$ 47,038
9,874
3,103
0.08
0.08
$
$ 49,881
11,117
3,845
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.
74
Corporate Information
OFFICERS
R Randall Rollins
Chairman of the Board of Directors
Richard A Hubbell
President and Chief Executive Officer
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 services)
Henry B Tippie *†
Chairman of the Board and Chief Executive Officer,
Tippie Services, Inc. (management services)
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 and
President and Chief Executive Officer, RPC, Inc.
(oil and gas services)
Linda H Graham
Vice President and Secretary and Vice President
and Secretary, RPC, Inc. (oil and gas services)
Bill J Dismuke °
Retired President, Edwards Baking Company
(manufacturer of pies and pie parts)
Larry L Prince *
Retired Chairman of the Board, Genuine Parts
Company
(automotive parts distributor)
Timothy C Rollins
Vice President of Rollins Investment Company
(management services)
* 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
info@amstock.com
www.amstock.com
Annual Meeting
The annual meeting of Marine Products Corporation will be held at
12:00 p.m., April 25, 2017, 2170 Piedmont Road, NE, Atlanta, GA 30324.
In Memoriam
James Albert “Jim” Lane, Jr
September 23, 1942 – March 19, 2016
Member of the Board of Directors, Marine Products Corporation
Executive Vice President, Marine Products Corporation
President, Chaparral Boats, Inc.
Member of the Board of Directors, RPC, Inc.
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, the anticipated benefits of our investment portfolio, anticipated
dividend payments in fiscal 2017, the Company’s belief that its current liquidity position
will support both current operations as well as future growth opportunities, expectations
regarding strong cash flow in fiscal 2017, the response of the Company’s business to the
recent loss of a top executive, the Company’s expectations regarding a strong upcoming retail
selling season and the position of its products to meet customers’ preferences, the Company’s
expectations that Robalo outboard sport fishing boats are continuing to gain market share,
and along with Chaparral outboard models, account for a growing percentage of Company
sales, the Company’s belief that the market for its products is expanding, market opportunities
presented by boaters who know the Company’s name and quality, but are interested in a
broader array of power choices, the impact of and opportunities presented by the Company’s
higher production volumes; and the Company’s receptiveness to considering acquisition
candidates which manufacture complementary products. 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. In addition, the payment of future dividends is subject to Board discretion and
depends on many factors, including the Company’s available cash flow and competing uses
for cash. 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. The Company does not undertake to update these forward-looking statements.
2801 Buford Highway NE, Suite 520
Atlanta, Georgia 30329
404.321.7910 www.marineproductscorp.com
© 2017 Marine Products Corporation
All rights reserved. The names of other companies and products
mentioned herein may be the trademarks of their respective owners.