UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
(Mark
One)
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|
|
x
|
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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|
o
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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FOR
THE
FISCAL YEAR ENDED DECEMBER 31, 2006
Commission
File No. 1-16263
MARINE
PRODUCTS CORPORATION
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Delaware
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58-2572419
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(State
of Incorporation)
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(I.R.S.
Employer Identification
No.)
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2801
BUFORD HIGHWAY, SUITE 520
ATLANTA,
GEORGIA 30329
(404)
321-7910
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each
class
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Name
of each exchange on which
registered
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COMMON
STOCK, $0.10 PAR VALUE
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NEW
YORK STOCK EXCHANGE
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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. o Yes x
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. o Yes x
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. x Yes o
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. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer o
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Accelerated filer x | Non-accelerated filer o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
The
aggregate market value of Marine Products Corporation common stock held by
non-affiliates on June 30, 2006, the last business day of the registrant’s most
recent second fiscal quarter, was $103,711,928 based on the closing price on
the
New York Stock Exchange on June 30, 2006 of $9.73 per share.
Marine
Products Corporation had 38,236,233 shares of common stock outstanding as of
February 15, 2007.
Documents
Incorporated by Reference
Portions
of the Proxy Statement for the 2007 Annual Meeting of Stockholders of Marine
Products Corporation are incorporated by reference into Part III, Items 10
through 14 of this report.
1
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,
statements that relate to our business strategy, plans and objectives, and
our
beliefs and expectations regarding future demand for our products and services
and other events and conditions that may influence our performance in the
future.
The
words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“plan,” “believe,” “seek,” “project,” “estimate,” and similar expressions used
in this document that do not relate to historical facts are intended to identify
forward-looking statements. Such statements are based on certain assumptions
and
analyses made by our management in light of its experience and its perception
of
historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. The forward-looking statements include,
without limitation, statements regarding our belief that international sales
could produce additional sales growth; our expectation to continue to offer
sales incentives and promotion programs in the future; management’s belief that
Marine Products is well positioned to take advantage of current market
conditions which characterize the industry; our intention to continue to
strengthen our dealer network and build brand loyalty with dealers and
customers; our ability to locate and complete strategic acquisitions that will
complement our existing product lines, expand our geographic presence and
strengthen our capabilities; our belief that our corporate infrastructure and
marketing and sales capabilities, in addition to our cost structure and
nationwide presence, enable us to compete effectively; our belief that we do
not
currently anticipate that any material expenditures will be required to continue
to comply with existing environmental or safety regulations; our belief that
our
product liability insurance will be adequate; our intention to pursue
acquisitions and form strategic alliances that will enable us to acquire
complementary skills and capabilities, offer new products, expand our customer
base and obtain other competitive advantages; our belief that the ultimate
outcome of litigation arising in the ordinary course of business will not have
a
material adverse effect on our liquidity, financial condition or results of
operations; our intention to continue to pay cash dividends; our ability to
execute stated business and financial strategies in the future to better manage
our Company; management’s belief that realizing growth in net sales and
profits in 2007 will be a challenge; management’s belief that advertising and
consumer targeting efforts will benefit the boating industry and our Company
and
could result in increased advertising and other selling and general
administrative expenses during 2007; expectations about the amount of capital
expenditures and contributions to our defined benefit plan during 2007 and
the
purpose of those capital expenditures; the adequacy of the Company’s capital
resources; the amount and timing of future contractual obligations; judgments
about the Company’s critical accounting policies; and the effect of various
recent accounting pronouncements on the Company, its operating results and
financial condition. These statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Marine Products Corporation to be materially different from
any future results, performance or achievements expressed or implied in such
forward-looking statements. These risks involve the outcome of current and
future litigation, the impact of interest rates, economic conditions, fuel
costs
and weather on our business, our dependence on a network of independent boat
dealers, the possibility of defaults by our dealers in their obligations to
third-party dealer floor plan lenders, and our reliance on third party
suppliers. 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 10 for a discussion of factors that
may cause actual results to differ from our projections.
Item
1. Business
Marine
Products manufactures fiberglass motorized boats distributed and marketed
through its independent dealer network. Marine Products’ product offerings
include Chaparral sterndrive and inboard pleasure boats and Robalo outboard
sport fishing boats.
Organization
and Overview
Marine
Products is a Delaware corporation incorporated on August 31, 2000, in
connection with a spin-off from RPC, Inc. (NYSE: RES) (“RPC”). Effective
February 28, 2001, RPC accomplished the spin-off by contributing 100 percent
of
the issued and outstanding stock of Chaparral to Marine Products, a newly formed
wholly-owned subsidiary of RPC, and then distributing the common stock of Marine
Products to RPC stockholders.
2
Marine
Products designs, manufactures and sells recreational fiberglass powerboats in
the sportboat, deckboat, cruiser, and sport fishing markets. The Company sells
its products to a network of 195 domestic and 44 international independent
authorized dealers. Marine Products’ mission is to enhance its customers’
boating experience by providing them with high quality, innovative powerboats.
The Company intends to remain a leading manufacturer of recreational powerboats
for sale to a broad range of consumers worldwide.
The
Company manufactures Chaparral sterndrive and inboard-powered sportboats,
deckboats and cruisers, and Robalo sport fishing boats, which are powered by
outboard engines and designed primarily for salt-water sport fishing. The most
recent available industry statistics [source: Statistical Surveys, Inc. report
dated September 30, 2006] indicate that Chaparral is the third largest
manufacturer of 18 to 35 foot sterndrive boats 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
the
Company grew by offering exceptional quality and consumer value. In 1976,
Chaparral moved to Nashville, Georgia, where a manufacturing facility of a
former boat manufacturing company was available for purchase. This provided
Chaparral an opportunity to obtain additional manufacturing space and access
to
a trained work force. With over 40 years of boatbuilding experience, Chaparral
continues to improve the design and manufacturing of its product offerings
to
meet the growing needs of discriminating recreational boaters.
Robalo
was founded in 1969 and its first boat was a 19-foot center console salt-water
fishing boat, among the first of this type of boat to have an “unsinkable” hull.
The Company believes that Robalo’s share of the outboard sport fishing boat
market is approximately one percent.
Products
Marine
Products offers a comprehensive range of motorized recreational boats. Marine
Products distinguishes itself by offering a wide range of products to the family
recreational market and cruiser market 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
- SSi Sportboats
|
12
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18′-28′
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$21,000
- $154,000
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Fiberglass
bowriders and closed deck runabouts. Encompasses affordable, entry-level
to mid-range and larger sportboats. Marketed as high value runabouts
for
family groups.
|
||||
|
Chaparral
- SSX
Sportdecks
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3
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24′-29′
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$49,000
- $142,000
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Fiberglass
bowrider crossover sportboats that combine the ride of a sportboat
and the
usefulness of a deckboat. Marketed as high value runabouts with
the
usefulness of a deckboat for family groups.
|
||||
|
|
|
|
|
|
||||
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Chaparral
- Sunesta Deckboats
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6
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22′-28′
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$41,000
- $82,000
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Fiberglass
deck boats. Encompasses affordable, entry-level to mid-range deck
boats.
Marketed as high value family pleasure boats with the handling
of a
runabout, the style of a sportboat and the roominess of a cruiser.
|
||||
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|
|
|
|
|
||||
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Chaparral
- Signature Cruisers
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7
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26′-35′
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$66,000
- $345,000
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Fiberglass,
accommodation-focused cruisers. Marketed to experienced boat owners
through trade magazines and boat show exhibitions.
|
||||
|
|
|
|
|
|
||||
|
Robalo
- Sport Fishing Boats
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8
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21′-29′
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$55,000
- $213,000
|
Sport
fishing boats for large freshwater lakes or saltwater use. Marketed
to
experienced fishermen.
|
3
Manufacturing
Marine
Products’ manufacturing facilities are located in Nashville, Georgia and
Valdosta, Georgia. Marine Products utilizes seven 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: 2000 certified, which is an international designation of design,
manufacturing, and customer service processes. ISO 9001: 2000 surpasses previous
ISO designations. Management believes Chaparral is the third largest sterndrive
boat manufacturing brand to hold the ISO 9001: 2000 certification. When fully
assembled and inspected, the boats are loaded onto either company-owned trailers
or third-party marine transport trailers for delivery to dealers. The
manufacturing process begins with the design of a product to meet dealer
and
customer needs. Plugs are constructed in the research and development phase
from
designs. Plugs are used to create a mold from which prototype boats can be
built. Adjustments are made to the plug design until acceptable parameters
are
met. The final plug is used to create the necessary number of production
molds.
Molds are used to produce the fiberglass hulls and decks. Fiberglass components
are made by applying the outside finish or gel coat to the mold, then numerous
layers of fiberglass and resin are applied during the lamination process
over
the gel coat. After curing, the hull and deck are removed from the molds
and are
trimmed and prepared for final assembly, which includes the installation
of
electrical and plumbing systems, engines, upholstery, accessories and graphics.
Product
Warranty
Marine
Products provides a five year transferable hull structural warranty on Chaparral
products against defects in material and workmanship and a 10 year transferable
structural hull warranty on Robalo products. A one year warranty on components
is provided as well. The engine manufacturer warrants engines included in
the
boats.
Suppliers
Marine
Products’ two most significant components used in manufacturing its boats, based
on cost, are engines and fiberglass. For each of these, there is currently
an
adequate supply available in the market. Marine Products has not experienced
any
material shortages in any of these products. Temporary shortages, when they
do
occur, usually involve manufacturers switching model mixes or introducing
new
product lines. Marine Products obtains most of its fiberglass from a leading
domestic supplier. Marine Products believes that there are several alternative
suppliers if this supplier fails to provide adequate quality or quantities
at
acceptable prices.
Marine
Products does not manufacture the engines installed in its boats. Engines
are
generally specified by the dealers at the time of ordering, usually on the
basis
of anticipated customer preferences or 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 outboard engine supply contracts with Honda and Yamaha. These engine
supply
arrangements were not negotiated through the ABA. In the event of a sudden
interruption in the supply of engines from these suppliers, our sales and
profitability could be negatively impacted. See “Growth Strategies” below.
Marine
Products uses other raw materials in its manufacturing processes. Among these
are stainless steel and resins made from feedstocks. During 2006 the price
of
these raw materials increased, adversely affecting our 2006 operating results.
See “Inflation” below.
Sales
and Distribution
Sales
are
made through approximately 167 Chaparral dealers and 53 Robalo dealers located
in markets throughout the United States. Approximately 25 of these dealers
sell both brands. Dealers market directly to consumers at boat show exhibitions
and in the dealers’ showrooms. Marine Products also has 44 international
dealers. 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’ nine independent field sales representatives call upon
existing dealers and develop new dealer relationships. The field sales
representatives are directed by a National Sales Coordinator, who is responsible
for developing a full dealer distribution network for the Company’s products.
The marketing of boats to retail customers is primarily the responsibility
of
the dealer. Marine Products supports dealer marketing efforts by supplementing
local advertising, sales and marketing follow up in boating magazines, and
participation in selected regional, national, and international boat show
exhibitions. No single dealer accounts for more than 10 percent of
sales.
4
Marine
Products continues to seek new dealers in many areas throughout the U.S.,
Europe, South America, Asia, Russia and the Middle East. In general, Marine
Products requires payment in full before it will ship a boat overseas.
Consequently, there is no credit risk associated with its international sales
or
risk related to foreign currency fluctuation. Marine Products believes
international sales could produce additional sales growth. Due in part to
U.S.
dollar weakness, sales to international dealers increased in 2006 compared
to
2005. International sales in 2006, 2005 and 2004 were approximately 18.0,
15.0
and 6.0 percent of total sales, respectively.
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 jointly monitoring their inventory levels. Knowledge of inventory
levels at the individual dealers facilitates production scheduling with very
short 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 the order has been cancelled. To date, order
delays
have not had a material effect on Marine Products.
Most
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 two major third-party financing institutions. Under these
arrangements, a dealer establishes lines of credit with one or more of these
third-party lenders for the purchase of boat inventory for sales to retail
customers in their show room or during boat show exhibitions. When a dealer
purchases and takes delivery of a boat pursuant to a floor plan financing
arrangement, it draws against its line of credit and the lender pays the
invoice
cost of the boat directly to Marine Products, generally, within 10 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. Most dealers maintain
financing arrangements with more than one lender. In connection with the
dealer’s floor plan financing arrangements with qualified lenders, Marine
Products or its subsidiaries have agreed to repurchase any of its boats,
up to
specified limits, which the lender repossesses from a dealer and returns
to
Marine Products in a “like new” condition. In the event that a dealer defaults
under a credit line, the lender may then invoke the manufacturers’ repurchase
agreement 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.
As of December 31, 2006, Marine Products’ aggregate obligation to repurchase
boats under these floor plan financing programs described above was
approximately $3.5 million. Unlike Marine Products’ obligation to repurchase
boats repossessed by lenders, Marine Products is under no obligation to
repurchase boats directly from dealers. Marine Products does not sponsor
financing programs to the consumer; any consumer financing promotions for
a
prospective boat purchaser would be the responsibility of the dealer.
Marine
Products’ dealer sales incentive programs are variously designed to promote
early replenishment of the stock in dealer inventories depleted throughout
the
prime spring and summer selling seasons, promote the sales of older models
in
dealer inventory and particular models during specified periods. These programs
help to stabilize Marine Products’ manufacturing between the peak and off-peak
periods, and promote sales of certain models. For the 2007 model year (which
commenced July 1, 2006), Marine Products offered its dealers several sales
incentive programs based on dollar volumes and timing of dealer purchases.
Program incentives offered include sales discounts, inventory reduction rebates,
and payment of floor plan financing interest charged by qualified floor plan
providers to dealers generally through March 31, 2007. 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 their particular lender.
These
various sales incentives and promotions have resulted in relatively level
month-to-month production and sales. Similar sales incentive and promotion
programs have been in effect during the past several years, and Marine Products
expects to continue to offer these types of programs in the future.
The
sales
order backlog was approximately 1,600 boats with estimated net sales of
approximately $75 million as of December 31, 2006. This represents an
approximate 13 week backlog based on recent production levels. As of December
31, 2005, the sales order backlog was approximately 1,900 boats with estimated
net sales of approximately $81 million. The decrease in the sales order backlog
is the result of production level adjustments made to manage field 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.
5
Research
and Development
Essentially
the same technologies and processes are used to produce fiberglass boats
by all
boat manufacturers. The most common method is open-face molding. This is
usually
a labor-intensive, manual process whereby employees hand spray and apply
fiberglass and resin in layers on open molds to create boat hulls, decks
and
other smaller fiberglass components. This process can result in inconsistencies
in the size and weight of parts, which may lead to higher warranty costs.
A
single open-face mold is typically capable of producing approximately three
hulls per week.
Marine
Products has been a leading innovator in the recreational boating industry.
One
of the Company’s most innovative designs is the full-length “Extended V-Plane”
running surface on its Chaparral boat models. Typically, sterndrive boats
have a
several foot gap on the bottom rear of the hull where the engine enters the
water. With the Extended V-Plane, the running surface extends the full length
to
the rear of the boat. The benefit of this innovation is more deck space,
better
planing performance and a more comfortable ride. Although the basic hull
designs
are similar, the Company introduces 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 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.
In
support of its new product development efforts, Marine Products incurred
research and development costs of $1.4 million in 2006, $1.9 million in 2005
and
$1.7 million in 2004.
Industry
Overview
For
2006,
the recreational boating industry accounted for less than one percent of
the
United States gross domestic product. The recreational marine market is a
mature
market, with 2005 (latest data available to us) retail expenditures of
approximately $37 billion spent on new and used boats, motors and engines,
trailers, accessories and other associated costs as estimated by the National
Marine Manufacturers Association (“NMMA”). Pleasure boats compete for consumers’
free time with all other leisure activities, from computers and video games
to
other outdoor sports. One of the greatest obstacles to continued growth for
the
recreational boating industry is consumers’ diminishing leisure
time.
The
NMMA
conducts various surveys of pleasure boat industry trends, and the most recent
surveys indicate that 69 million people in the United States participate
in
recreational boating. There are currently over 17 million boats owned in
the
United States, including outboard, inboard, sterndrive, sailboats, personal
watercraft, and miscellaneous (canoes, kayaks, rowboats, etc.). Marine Products
competes in the sterndrive and inboard boating category with its three lines
of
Chaparral boats, and in the outboard boating category with its Robalo sport
fishing boats. More than 90 percent of the Company’s models are sterndrive
boats.
Industry
sales of sterndrive boats in the United States during 2006 totaling 55,363
(source: Info-Link Technologies, Inc.), accounted for approximately 42 percent
of the total new fiberglass powerboats sold that were between 18 and 35 feet
in
hull length. Sales of sterndrive boats had an estimated total retail value
of
$2.9 billion, or an average retail price per boat of approximately $52,000.
Management believes that the five largest states for boat sales are Florida,
Michigan, California, Minnesota and Texas. 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. New
fiberglass boat market segment with hull lengths of 18 to 35 feet, represented
$6.2 billion in retail sales during 2006. This is the market segment in which
Marine Products competes. The table below reflects the estimated sales within
this segment by category for 2006 and 2005, ranked by 2006 retail sales (source:
Info-Link Technologies, Inc.):
|
|
2006
|
2005
|
|||||||||||
|
|
Boats
|
Sales
($ B)
|
Boats
|
Sales
($ B)
|
|||||||||
|
Sterndrive
Boats
|
55,363
|
$
|
2.9
|
58,161
|
$
|
2.9
|
|||||||
|
Outboard
Boats
|
58,034
|
2.1
|
62,469
|
2.3
|
|||||||||
|
Inboard
Boats
|
14,485
|
1.1
|
13,995
|
1.0
|
|||||||||
|
Jet
Boats
|
3,943
|
0.1
|
4,169
|
0.1
|
|||||||||
|
TOTAL
|
131,825
|
$
|
6.2
|
138,794
|
$
|
6.3
|
|||||||
6
Chaparral’s
products are categorized as sterndrive and inboard boats and Robalo’s products
are categorized as outboard boats.
The
recreational boat manufacturing market remains highly fragmented. With the
exception of Brunswick Corporation and Genmar Holdings, Inc., which have
acquired a number of recreational boat manufacturing operations, there has
been
very little consolidation in the industry. We estimate that the boat
manufacturing industry includes over 150 sterndrive manufacturers and over
600
outboard boat manufacturers, largely 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, 2006 (latest information available), the top five sterndrive
manufacturers have a market share of approximately 52 percent. Chaparral’s
market share in units during the period was 8.1 percent, which represents a
decline of 0.2 percentage points compared to the same period in 2005. This
decline is attributable to Chaparral’s declining market share of boats that are
18 to 20 feet in length, although its market share in boats that are 21 to
35
feet in length increased during the same period. We attribute this decline
in
overall market share to Chaparral’s strategy of designing, building, and selling
larger boats which carry higher average selling prices, as well as the strategy
of certain other manufacturers who are designing smaller boats which are
manufactured in offshore manufacturing facilities and sold in the domestic
market at a lower price, thereby increasing the overall market share of these
manufacturers.
Several
factors influence sales trends in the recreational boating industry, including
general economic growth, consumer confidence, household incomes, weather, tax
laws, demographics and consumers’ leisure time. Interest rates and fuel prices
can have a direct impact on boat sales, as well as various trends at the local,
regional and national level. In addition, inflation has an impact on boat sales.
If the cost of raw materials used in the manufacturing process increases, then
the cost of boat ownership increases as well, which may prompt consumers either
to buy a smaller boat or not purchase one. Competition from other leisure and
recreational activities, such as vacation properties and travel, can also affect
sales of recreational boats.
Management
believes Marine Products is well positioned to take advantage of the following
conditions, which continue to characterize the industry:
| · |
labor-intensive
manufacturing processes that remain largely unautomated;
|
| · | increasingly strict environmental standards derived from governmental regulations and customer sensitivities; |
| · | a lack of focus on coordinated customer service and support by dealers and manufacturers; and |
| · | a high degree of fragmentation and competition among the more than 150 sterndrive recreational boat manufacturers. |
Growth
Strategies
Recreational
boating is a mature industry. According to Info-Link Technologies,
Inc., sales of sterndrive boats were comparable in 2004 and 2005, but
decreased by approximately five percent in 2006. During this time, Marine
Products has experienced a compound annual decline rate of approximately
eight percent in the number of boats sold. Marine Products has historically
grown its boat sales and net sales primarily through increasing market share
and
by expanding the number of models and product lines. Unit sales declined in
2006
partly due to industry conditions, but also because of Marine Products’ strategy
of building larger boats with higher average selling prices. Chaparral has
grown
its sterndrive market share in the 18 to 35 feet length category from 5.9
percent in fiscal 1996 to 8.1 percent during the nine months ended September
30,
2006 (the most recent information provided to us by Statistical Surveys, Inc.).
The Company continues to expand its product offerings in the outboard boat
market, the largest boat market not previously served by the Company’s products,
and by improvement of existing models and expansion into larger boats within
its
sterndrive and inboard offerings.
Marine
Products’ operating strategy emphasizes innovative designs and manufacturing
processes, by producing a high quality product while lowering manufacturing
costs through increased efficiencies in our facilities. 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 13 independent boat manufacturers that have formed
a
buying group to pool their purchasing power in order to gain improved pricing
on
engines, fiberglass, resin and many other components. Marine Products intends
to
continue seeking the most advantageous purchasing arrangements from its
suppliers.
7
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 239 dealers located
throughout the United States and internationally. Our strategy is to increase
selectively the quantity of our dealers, and work 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. Marine Products
intends to continue to strengthen its dealer network and build brand loyalty
with both dealers and customers.
As
part
of Marine Products’ overall strategy, Marine Products will also 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.
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 cost structure 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
between 2004 and 2006. Several of these manufacturers are part of larger
integrated boat building companies and are marked with asterisks. According
to
Info-Link Technologies, Inc., the companies set forth below represent
approximately 70 percent of all United States retail sterndrive boat
registrations between 2004 and 2006.
1. Sea
Ray
2. Bayliner*
3. Chaparral
4. Crownline
5. Four
Winns **
6. Tracker
Marine
7. Glastron
**
8. Stingray
9. Larson**
10. Cobalt
The
outboard engine powered market has a large breadth and depth, accounting for
almost 44 percent of all boats sold. Robalo’s share of the outboard sport
fishing boat market during the nine months ended September 30, 2006 was
approximately one percent. Primary competitors for Robalo include Sea-Pro,*
Grady-White, Mako, Trophy*, Boston Whaler* and Hydra Sports**.
|
*
|
a
subsidiary of Brunswick Corporation
|
|
|
|
|
**
|
a
subsidiary of Genmar Holdings, Inc.
|
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 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
its existing manufacturing facilities.
8
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. While Marine Products has instituted recalls for defective component
parts produced by other manufacturers, there has never been a safety related
recall resulting from Marine Products’ design or manufacturing process. None of
the recalls has had a material adverse effect on Marine Products.
Employees
As
of
December 31, 2006, Marine Products had approximately 1,100 employees, of whom
six were management and 48 administrative. None of Marine Products’ employees is
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 and trade names 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 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, 2006,
there were 22 Chaparral hull designs and four Robalo hull designs registered
under the Vessel Hull Design Protection Act.
Seasonality
Marine
Products’ quarterly operating results are affected by weather and general
economic conditions. Quarterly operating results for the second quarter have
historically recorded the highest sales volume for the year because this
corresponds with the highest retail sales volume period. The results for any
quarter are not necessarily indicative of results to be expected in any future
period.
Inflation
During
2006 and 2005 the Company has experienced an increase in certain material and
component costs. The Company has responded to these increases in costs by
instituting price increases to its dealers effective January 1, 2006, and
instituting an additional price increase for the 2007 model year which began
on
July 1, 2006. These price increases did not fully absorb the increased material
costs during 2006 and therefore negatively impacted the Company’s gross margin.
With the continued risk of high commodity prices, energy prices and petroleum
based products, the price of materials may continue to increase. If the prices
of these raw materials and components continue to increase, or the prices of
other factors of production increase, Marine Products will, to the extent deemed
appropriate, attempt to increase its product prices to offset its increased
costs. No assurance can be given, however, that the Company will be able to
adequately increase its product prices in response to inflation or estimate
the
impact on future sales of increasing our product prices.
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. Prospective buyers may choose to delay their purchases or buy a
less
expensive boat. The recent increases in interest rates may have had a negative
impact on our 2006 sales, and if interest rates remain at current levels or
increase further, our future sales and profits may be negatively
impacted.
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.
9
Item
1A. Risk Factors
Economic
Conditions 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 delay large discretionary
purchases pending the resolution of those uncertainties.
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
Growth Plans And Sales
Virtually
all of Marine Products’ sales are derived from its network of independent boat
dealers. Marine Products has no long-term agreements with these dealers.
Competition for dealers among recreational powerboat manufacturers continues
to
increase based on the quality of available products, the price and value of
the
products, and attention to customer service. We face 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 or quality of Marine Products’ network of
independent boat dealers would 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 growth plans.
Although
Marine Products’ management believes that the quality of its products and
services in the recreational boating market should permit it to maintain its
relationship with its dealers and its market position, there can be no assurance
that Marine Products will be able to sustain its current sales levels. In
addition, independent dealers in the recreational boating industry have
experienced significant consolidation in recent years, which could result in
the
loss of one or more of Marine Products’ dealers in the future if the surviving
entity in any such consolidation purchases similar products from a Marine
Products competitor. See “Growth Strategies” above.
Marine
Products’ Financials 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. Marine Products communicates
with its dealers and manages production levels to maintain the appropriate
level
of field inventory.
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 docking
facilities, as was the case during the 2005 hurricane season when several
boating markets were adversely affected.
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. Competitive manufacturers have executed a strategy of constructing
entry-level smaller boats which are constructed in off-shore manufacturing
plants with lower labor costs. These competitive conditions have contributed
to
our inability to pass along our increased manufacturing costs to customers,
reduced our market share in various selling categories including particularly
smaller boats, and caused our profit margins to decrease.
10
Marine
Products Has Potential Liability for Personal Injury and Property Damage Claims
The
products we sell or service may expose Marine Products to potential liabilities
for personal injury or property damage claims relating to the use of those
products. Historically, the resolution of product liability claims has not
materially affected Marine Products’ business. Marine Products maintains product
liability insurance that it believes to be adequate. However, there can be
no
assurance that Marine Products will not experience legal claims in excess of
its
insurance coverage or that claims will be covered by insurance. Furthermore,
any
significant claims against Marine Products could result in negative publicity,
which could cause Marine Products’ sales to decline.
Because
Marine Products Relies On Third Party Suppliers, Marine Products May Be Unable
To Obtain Adequate Raw Materials and Components
Marine
Products is dependent on third party suppliers to provide raw materials and
components essential to the construction of its various powerboats. Especially
critical are the availability and cost of marine engines and commodity raw
materials used in the manufacture of Marine Products’ boats. While Marine
Products’ management believes that supplier relationships currently in place are
sufficient to provide the materials necessary to meet present production
demands, there can be no assurance that these relationships will continue or
that the quantity or quality of materials available from these suppliers will
be
sufficient to meet Marine Products’ future needs, irrespective of whether Marine
Products successfully implements its growth and acquisition strategies.
Disruptions in current supplier relationships or the inability of Marine
Products to continue to purchase construction materials in sufficient quantities
and of sufficient quality at acceptable prices to meet ongoing production
schedules could cause a decrease in sales or a sharp increase in the cost of
goods sold. Additionally, because of this dependence, the volatility in
commodity raw materials or current or future price increases in construction
materials or the inability of Marine Products’ management to purchase
construction materials required to complete its growth and acquisition
strategies could cause a reduction in Marine Products’ profit margins or reduce
the number of powerboats Marine Products may be able to produce for sale.
Marine
Products May Be Unable To Identify, Complete or Successfully Integrate
Acquisitions
Marine
Products intends to pursue acquisitions and form strategic alliances that will
enable Marine Products to acquire complementary skills and capabilities, offer
new products, expand its customer base, and obtain other competitive advantages.
There can be no assurance, however, that Marine Products will be able to
successfully identify suitable acquisition candidates or strategic partners,
obtain financing on satisfactory terms, complete acquisitions or strategic
alliances, integrate acquired operations into its existing operations, or expand
into new markets. Once integrated, acquired operations may not achieve
anticipated levels of sales or profitability, or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
resources, and possible adverse effects on earnings and earnings per share
resulting from increased interest costs, the issuance of additional securities,
and difficulties related to the integration of the acquired business. The
failure to integrate acquisitions successfully may divert management’s attention
from Marine Products’ existing operations and may damage Marine Products’
relationships with its key customers and suppliers.
Marine
Products’ Success Will Depend On Its Key Personnel, and The Loss Of Any Key
Personnel May Affect Its Powerboat Sales
Marine
Products’ success will depend to a significant extent on the continued service
of key management personnel. The loss or interruption of the services of any
senior management personnel or the inability to attract and retain other
qualified management, sales, marketing and technical employees could disrupt
Marine Products’ operations and cause a decrease in its sales and profit
margins.
Marine
Products’ Ability to Attract and Retain Qualified Employees Is Crucial To Its
Results of Operations and Future Growth
Marine
Products relies on the existence of an available hourly workforce to manufacture
its products. As with many businesses, we are challenged 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.
11
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.
As
with
boat construction in general, our manufacturing processes involve the use,
handling, storage and contracting for recycling or disposal of hazardous or
toxic substances or wastes. Accordingly, we are subject to regulations regarding
these substances, and the misuse or mishandling of such substances could expose
Marine Products to liability or fines.
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 boat manufacturing
industry has been highly volatile. Likewise, the market price of our common
stock has varied significantly in the past. In addition, the availability of
Marine Products common stock to the investing public is limited to the extent
that shares are not sold by the executive officers, directors and their
affiliates, which could negatively impact the trading price of Marine Products’
common stock, increase volatility and affect the ability of minority
stockholders to sell their shares. Future sales by executive officers, directors
and their affiliates of all or a substantial portion of their shares could
also
negatively affect the trading price of Marine Products’ common stock.
Marine
Products’ Management Has a Substantial Ownership Interest; Public Stockholders
May Have No Effective Voice In Marine Products’ Management
The
Company has elected the “Controlled Corporation” exemption under Rule 303A of
the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
Corporation” because a group that includes the Company’s Chairman of the Board,
R. Randall Rollins and his brother, Gary W. Rollins, who is also a director
of
the Company, and certain companies under their control, controls in excess
of
fifty percent of the Company’s voting power. As a “Controlled Corporation,” the
Company need not comply with certain NYSE rules including those requiring a
majority of independent directors.
Marine
Products’ executive officers, directors and their affiliates hold directly or
through indirect beneficial ownership, in the aggregate, approximately 69
percent of Marine Products’ outstanding shares of common stock. As a result,
these stockholders effectively control the operations of Marine Products,
including the election of directors and approval of significant corporate
transactions such as acquisitions. This concentration of ownership could also
have the effect of delaying or preventing a third party from acquiring control
of Marine Products at a premium.
Provisions
in Marine Products’ Certificate of Incorporation and Bylaws May Inhibit a
Takeover of Marine Products
Marine
Products’ certificate of incorporation, bylaws and other documents contain
provisions including advance notice requirements for shareholder 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.
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 $3,000 per month in rent. Marine Products may cancel this
arrangement at any time after giving a 30 day notice.
12
Chaparral
owns and maintains approximately 1,065,500 square feet of space utilized for
manufacturing, research and development, warehouse, and sales office and
operations in Nashville, Georgia. In addition, the Company leases 83,000 square
feet of manufacturing space at the Robalo facility in Valdosta, Georgia, under
a
long-term arrangement expiring in 2014. Marine Products’ total square footage
under roof is allocated as follows: manufacturing — 795,000, research and
development — 67,500, warehousing — 201,000, office and other — 85,000.
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. Submission of Matters to a Vote of Security Holders
There
were no matters submitted to a vote of security holders during the fourth
quarter of 2006.
13
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
|
Age
|
Date
First Elected
to
Present Office
|
|
R.
Randall Rollins (1)
|
75
|
2/28/01
|
|
Chairman
of the Board
|
|
|
|
|
|
|
|
Richard
A. Hubbell (2)
|
62
|
2/28/01
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
James
A. Lane, Jr. (3)
|
64
|
2/28/01
|
|
Executive
Vice President and President of Chaparral Boats, Inc.
|
|
|
|
|
|
|
|
Linda
H. Graham (4)
|
70
|
2/28/01
|
|
Vice
President and Secretary
|
|
|
|
|
|
|
|
Ben
M. Palmer (5)
|
46
|
2/28/01
|
|
Vice
President, Chief Financial Officer and Treasurer
|
|
|
| (1) |
R.
Randall Rollins began working for Rollins, Inc. (consumer services)
in
1949. At the time of the spin-off of RPC from Rollins, 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 April 22, 2003. He has served as
Chairman of the Board of Marine Products since February 2001 and
Chairman
of the Board of Rollins, Inc. since October 1991. He is also a director
of
Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports,
Inc. and
until April 2004, he served as a director of SunTrust Banks, Inc.
and
SunTrust Banks of Georgia.
|
| (2) |
Richard
A. Hubbell has been the President and Chief Executive Officer of
Marine
Products since it was spun off in February 2001. He has also been
the
President of RPC since 1987 and its Chief Executive Officer since
April
22, 2003. Mr. Hubbell serves on the Board of Directors for both of
these
companies.
|
| (3) |
James
A. Lane, Jr., has held the position of President of Chaparral Boats
(formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive
Vice President and Director of Marine Products since it was spun
off in
2001. He is also a director of RPC and has served in that capacity
since
1987.
|
| (4) |
Linda
H. Graham has been Vice President and Secretary of Marine Products
since
it was spun off in 2001, and Vice President and Secretary of RPC
since
1987. Ms. Graham serves on the Board of Directors for both of these
companies.
|
| (5) |
Ben
M. Palmer has been Vice President, Chief Financial Officer and Treasurer
of Marine Products since it was spun off in 2001 and has served the
same
roles at RPC since 1996.
|
14
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.” All share and dividends per share data disclosed below
have been restated for the three-for-two stock split effective March 10, 2005.
At February 15, 2007, there were 38,236,233 shares of common stock outstanding.
At
the
close of business on February 15, 2007, there were approximately 4,200 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, 2006 and 2005 were as follows:
|
|
2006
|
2005
|
|||||||||||||||||
|
Quarter
|
High
|
|
Low
|
|
Dividends
|
|
High
|
|
Low
|
|
Dividends
|
||||||||
|
First
|
$
|
12.35
|
$
|
10.10
|
$
|
0.05
|
$
|
21.40
|
$
|
15.94
|
$
|
0.04
|
|||||||
|
Second
|
11.02
|
8.98
|
0.05
|
17.52
|
11.90
|
0.04
|
|||||||||||||
|
Third
|
9.98
|
7.65
|
0.05
|
15.10
|
10.55
|
0.04
|
|||||||||||||
|
Fourth
|
$
|
12.28
|
$
|
9.14
|
$
|
0.05
|
$
|
12.80
|
$
|
9.25
|
$
|
0.04
|
|||||||
At
the
January 23, 2007 Board of Directors’ Meeting, the Board approved an increase in
the quarterly cash dividend, from $0.05 to $0.06. The Company expects to
continue to pay cash dividends to common stockholders, subject to the earnings
and financial condition of the Company and other relevant factors.
15
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 beginning of each year.
The companies are Brunswick Corporation and MarineMax, Inc.
The
Russell 2000 is used because the Company became a component of the Russell
2000
in 2004, and because the Russell 2000 is a stock index representing small
capitalization U.S. stocks. During 2006 the components of the Russell 2000
had
an average market capitalization of $1.25 billion.
The
graph
below assumes the value of $100.00 invested on December 31, 2001.
16
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.
|
Years
Ended December 31,
|
||||||||||||||||
|
|
(In
thousands, except share, per share and employee data)
|
|||||||||||||||
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Statement
of Income Data:
|
|
|
|
|
|
|||||||||||
|
Net
sales
|
$
|
261,378
|
$
|
272,057
|
$
|
252,418
|
$
|
193,980
|
$
|
162,682
|
||||||
|
Cost
of goods sold
|
201,971
|
202,936
|
186,832
|
143,663
|
125,282
|
|||||||||||
|
Gross
profit
|
59,407
|
69,121
|
65,586
|
50,317
|
37,400
|
|||||||||||
|
Selling,
general and administrative expenses
|
32,474
|
33,557
|
29,810
|
23,015
|
18,018
|
|||||||||||
|
Operating
income
|
26,933
|
35,564
|
35,776
|
27,302
|
19,382
|
|||||||||||
|
Interest
income
|
2,502
|
1,330
|
590
|
501
|
600
|
|||||||||||
|
Income
before income taxes
|
29,435
|
36,894
|
36,366
|
27,803
|
19,982
|
|||||||||||
|
Income
tax provision
|
9,121
|
10,671
|
12,623
|
9,731
|
7,593
|
|||||||||||
|
Net
income
|
$
|
20,314
|
$
|
26,223
|
$
|
23,743
|
$
|
18,072
|
$
|
12,389
|
||||||
|
Earnings
per share:
|
||||||||||||||||
|
Basic
|
$
|
0.54
|
$
|
0.69
|
$
|
0.62
|
$
|
0.47
|
$
|
0.32
|
||||||
|
Diluted
|
$
|
0.52
|
$
|
0.65
|
$
|
0.58
|
$
|
0.45
|
$
|
0.31
|
||||||
|
Dividends
paid per share
|
$
|
0.20
|
$
|
0.16
|
$
|
0.11
|
$
|
0.07
|
$
|
0.03
|
||||||
|
Other
Financial and Operating Data:
|
||||||||||||||||
|
Gross
profit margin percent
|
22.7
|
%
|
25.4
|
%
|
26.0
|
%
|
25.9
|
%
|
23.0
|
%
|
||||||
|
Operating
margin percent
|
10.3
|
%
|
13.1
|
%
|
14.2
|
%
|
14.1
|
%
|
11.9
|
%
|
||||||
|
Net
cash provided by operating activities
|
$
|
23,997
|
$
|
19,366
|
$
|
29,405
|
$
|
17,828
|
$
|
11,696
|
||||||
|
Net
cash provided by (used for) investing activities
|
1,351
|
(2,023
|
)
|
(1,924
|
)
|
(4,432
|
)
|
2,860
|
||||||||
|
Net
cash used for financing activities
|
(8,494
|
)
|
(26,356
|
)
|
(7,110
|
)
|
(4,432
|
)
|
(2,229
|
)
|
||||||
|
Capital
expenditures
|
$
|
1,667
|
$
|
1,118
|
$
|
2,838
|
$
|
3,707
|
$
|
3,800
|
||||||
|
Employees
at end of year
|
1,089
|
1,065
|
1,187
|
975
|
867
|
|||||||||||
|
Factory
and administrative space at end of year (square ft.)
|
1,149
|
1,149
|
1,146
|
1,128
|
898
|
|||||||||||
|
Balance
Sheet Data at end of year:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$
|
54,456
|
$
|
37,602
|
$
|
46,615
|
$
|
26,244
|
$
|
17,280
|
||||||
|
Marketable
securities — current
|
652
|
1,323
|
132
|
1,402
|
1,929
|
|||||||||||
|
Marketable
securities — non-current
|
3,715
|
5,893
|
6,202
|
5,930
|
4,865
|
|||||||||||
|
Inventories
|
29,556
|
26,856
|
25,869
|
21,770
|
20,685
|
|||||||||||
|
Working
capital
|
76,506
|
61,341
|
61,989
|
45,984
|
33,390
|
|||||||||||
|
Property,
plant and equipment, net
|
16,641
|
17,252
|
18,362
|
17,761
|
16,216
|
|||||||||||
|
Total
assets
|
124,179
|
108,805
|
109,734
|
86,314
|
71,063
|
|||||||||||
|
Total
stockholders’ equity
|
$
|
101,401
|
$
|
87,688
|
$
|
87,372
|
$
|
69,966
|
$
|
56,833
|
||||||
17
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion is based upon and should be read in conjunction with
“Selected Financial Data” and “Financial Statements and Supplementary Data.” See
also “Forward-Looking Statements” on page 2.
Overview
Marine
Products, through our wholly-owned subsidiaries Chaparral and Robalo, is
a
leading manufacturer of recreational fiberglass powerboats. Our sales and
profits are generated by selling the products that we manufacture to a network
of independent dealers who in turn sell the products to retail customers.
These
dealers are located throughout the continental United States and in several
international markets. Most of these dealers finance their inventory through
third-party floorplan lenders, who pay Marine Products upon delivery of the
products to the dealers.
We
manage
our Company by focusing on the execution of the following business and financial
strategies:
| · |
Manufacturing
high-quality, stylish, and innovative powerboats for our dealers
and
retail customers,
|
| · |
Providing
our independent dealer network appropriate incentives, training,
and other
support to enhance their success and their customers’ satisfaction,
thereby facilitating their continued relationship with us,
|
| · |
Managing
our production and dealer order backlog to maximize profitability
and
reduce risk in the event of a downturn in sales of our
products,
|
| · |
Maintaining
a flexible, variable cost structure which can be reduced quickly
when
deemed appropriate,
|
| · |
Focusing
on the competitive nature of the boating business and designing our
products and strategies in order to grow and maintain profitable
market
share,
|
| · |
Maximizing
shareholder return by optimizing the balance of cash invested in
the
Company’s productive assets, the payment of dividends to shareholders, and
the repurchase of its common stock on the open
market,
|
| · |
Aligning
the interests of our management and
shareholders.
|
In
implementing these strategies and attempting to optimize our financial returns,
management closely monitors dealer orders and inventories, the production
mix of
its 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 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
2006, the industry continued the trend of lower wholesale and retail sales
that
began in the fourth quarter of 2005. The hurricanes in the Gulf of Mexico
in the
third quarter of 2005 damaged geographical areas that are popular for boating
and the boating-related infrastructure in those areas. The severe hurricanes
impacted consumer sentiment for 2006 because of the expectation that the
2006
hurricane season would be as active as the hurricane season in 2005. Although
the 2006 hurricane season was actually very mild by historical standards,
this
was not known until the end of the retail boating season. High fuel prices
during the beginning of 2006 also contributed to negative consumer sentiment,
because fluctuation in fuel prices created uncertainty which caused consumers
to
be concerned about the potential costs of operating a pleasure boat. These
industry conditions were reflected in our 2006 production levels, which were
lower than in 2005 in order to maintain appropriate dealer inventories and
backlog.
18
We
monitor our market share in the 18 to 35 foot sterndrive category as one
indicator of the success of our strategies and the market’s acceptance of our
products. For the nine months ended September 30, 2006 (latest data available
to
us), Chaparral’s market share in the 18 to 35 foot sterndrive category was 8.1
percent, a decline from our market share in the same category for the twelve
months ended December 31, 2005 of 8.3 percent. This decline was concentrated
in
the smaller 18 to 20 foot size boats in our market. We believe this was the
result of two factors: the execution of our stated strategy of selling larger,
more profitable boats, and the strategy of certain of our competitors, who
have
built and sold a large number of entry-level smaller boats which are constructed
in offshore manufacturing plants with lower cost labor. Although we will
continue to monitor our market share and believe it to be important, we also
believe that maximizing profitability takes precedence over growing our market
share.
Outlook
Management
believes that realizing growth in net sales and profits in 2007 will be a
challenge. This belief is based on lower attendance and sales during the
first
part of the 2007 winter boat show season compared to the same period in 2006.
In
addition, management believes that consumers are concerned about fluctuating
fuel prices and a possible slowing economy. Boat show attendance has
historically been positively correlated with retail boat sales later in the
selling season because consumers attend shows due to their interest in
recreational boating and make initial purchasing decisions at a boat show
exhibition. However, there can be no assurance that this relationship will
continue in 2007 or subsequent years. Pleasure boating is a discretionary
consumer activity, and can be negatively impacted by many factors; therefore,
an
increase in interest rates, the expectation of high fuel costs, or a decline
in
consumer confidence could have a serious and immediate negative impact on
net
sales and profits. Over the past several years, Marine Products as well as
other
manufacturers have been improving their customer service capabilities, marketing
strategies and sales promotions in order to attract more consumers to
recreational boating as well as improve consumers’ boating experiences. In
addition, the recreational boating industry has started 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, are participating in
this
program. Management believes that these efforts will benefit the industry
and
Marine Products, but could result in increased advertising and other selling,
general and administrative expenses during 2007.
Our
ability to maintain or improve our net sales and profits in 2007 will depend
on
a number of factors, including interest rates, fuel costs, consumer confidence,
the continued acceptance of our products in the recreational boating market,
our
ability to compete in the competitive pleasure boating industry, and the
costs
of certain of our raw materials.
Results
of Operations
|
($’s
in thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Total
number of boats sold
|
6,245
|
7,292
|
7,310
|
|||||||
|
Average
gross selling price per boat
|
$
|
41.1
|
$
|
37.3
|
$
|
34.9
|
||||
|
Net
sales
|
$
|
261,378
|
$
|
272,057
|
$
|
252,418
|
||||
|
Percentage
of gross profit to net sales
|
22.7
|
%
|
25.4
|
%
|
26.0
|
%
|
||||
|
Percentage
of selling, general and administrative expense to net sales
|
12.4
|
%
|
12.3
|
%
|
11.8
|
%
|
||||
|
Operating
income
|
$
|
26,933
|
$
|
35,564
|
$
|
35,776
|
||||
|
Warranty
expense
|
$
|
6,714
|
$
|
4,929
|
$
|
4,789
|
||||
19
Year
Ended December 31, 2006 Compared To Year Ended December 31,
2005
Net
Sales. Marine
Products’ net sales decreased by $10.7 million or 3.9 percent in 2006 compared
to 2005. The decrease was due to a 14.4 percent decrease in the number of
boats
sold, partially offset by an increase in the average gross selling price
per
boat and an increase in parts and accessories sales. A 10.2 percent increase
in
average gross selling price per boat was due to higher sales of larger boats,
in
addition to overall price increases that were implemented for the 2007 model
year, which began in the third quarter, and to a lesser extent, a price increase
of approximately one percent that took effect in January 2006 to offset the
higher cost of materials.
Cost
of Goods Sold.
Cost
of
goods sold decreased 0.5 percent in 2006 compared to 2005, less than the
decrease in net sales. As a percentage of net sales, cost of goods increased
in
2006 compared to 2005, primarily due to higher costs of raw materials and
accessories costs coupled with production inefficiencies due to lower production
volumes.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses decreased 3.2 percent in 2006 compared
to
2005. The decrease in selling, general and administrative expenses resulted
from
costs that vary with the level of Company sales and profitability, such as
incentive compensation, partially offset by an increase in warranty expense.
Warranty expense increased in 2006 due to adjustments based on a review of
recent claims experience to reflect changes in estimated costs per claim,
due
primarily to higher labor rates and parts cost. Warranty expense was 2.6
percent
of net sales in 2006 and 1.8 percent of net sales in 2005.
Interest
Income.
Interest
income was $2.5 million in 2006 compared to $1.3 million in 2005. Marine
Products generates interest income from investment of its available cash
primarily in overnight and marketable securities. The increase in interest
income resulted primarily from higher investable cash balances and higher
percentage yields, consistent with recent increases in short-term interest
rates.
Income
Tax Provision. The
higher effective tax rate in 2006 of 30.9 percent compared to 28.9 percent
in
2005 resulted from the one time effect of refunds in 2005 resulting from
amended
returns and reduced benefits from tax credits resulting from slightly reduced
production activities in 2006.
Year
Ended December 31, 2005 Compared To Year Ended December 31,
2004
Net
Sales. Marine
Products’ net sales increased by $19.6 million or 7.8 percent in 2005 compared
to 2004. The increase was due to a 6.9 percent increase in the average gross
selling price per boat, and an increase in parts and accessories sales offset
by
a slight decrease in the number of boats sold. The increase in average gross
selling price per boat was due to higher sales of larger boats, in addition
to
overall price increases that were implemented for the 2006 model year, which
began in July 2005, as well as a price increase of approximately one percent
that took effect in January 2005 to offset the higher cost of materials.
The
increase in parts and accessories sales was a result of high demand for
accessories ordered on base model boats and the higher numbers of boats sold
in
prior years that are still in operation and require routine maintenance and
repair.
Cost
of Goods Sold.
Cost
of
goods sold increased 8.6 percent in 2005 compared to 2004, slightly higher
than
the increase in net sales. As a percentage of net sales, cost of goods sold
increased slightly in 2005 compared to 2004, primarily due to increases in
the
cost of certain materials and components. Also contributing to the increase
was
higher transportation costs, primarily fuel, in 2005 compared to 2004.
Selling,
General and Administrative Expenses. Selling,
general and administrative expenses increased 12.6 percent in 2005 compared
to
2004. The increase in selling, general and administrative expenses resulted
from
costs that vary with increased sales and profitability, such as incentive
compensation, sales commissions and warranty expense, in addition to increased
costs associated with public company compliance. Also contributing to the
increase were the costs associated with listing the Company shares for trading
on the New York Stock Exchange.
Warranty
expense increased in 2005 due to increased sales and was 1.8 percent of net
sales in 2005 and 1.9 percent of net sales in 2004. The expenses decreased
as a
percentage of sales due to quality improvement initiatives coupled with a
focus
on claims management processes.
Interest
Income.
Interest
income was $1.3 million in 2005 compared to $0.6 million in 2004. Marine
Products generates interest income from investment of its available cash
primarily in overnight and marketable securities. The increase in interest
income resulted primarily from higher percentage yields, consistent with
recent
increases in short-term interest rates, partially offset by lower investable
cash balances.
20
Income
Tax Provision. The
lower
effective tax rate in 2005 of 28.9 percent compared to 34.7 percent in 2004
resulted from the benefit of the new manufacturing deduction created by the
American Jobs Creation Act of 2004 and a contingency adjustment. The decrease
was also attributable to certain reductions in the tax provision resulting
from
the effect of these strategies reflected on prior year returns filed during
2005
and a tax benefit from a reduction in certain state tax liabilities.
Liquidity
and Capital Resources
Cash
and Cash Flows
The
Company’s cash and cash equivalents were $54.5 million at December 31, 2006,
$37.6 million at December 31, 2005 and $46.6 million at December 31,
2004.
The
following table sets forth the historical cash flows for the twelve months
ended
December 31:
|
(in
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Net
cash provided by operating activities
|
$
|
23,997
|
$
|
19,366
|
$
|
29,405
|
||||
|
Net
cash provided by (used for) investing activities
|
1,351
|
(2,023
|
)
|
(1,924
|
)
|
|||||
|
Net
(cash used) for financing activities
|
$
|
(8,494
|
)
|
$
|
(26,356
|
)
|
$
|
(7,110
|
)
|
|
2006
Cash
provided by operating activities increased by $4.6 million in 2006 compared
to
2005 as a result of an increase in other accrued expenses together with
decreases in accounts receivable and income taxes receivable, all due to
timing
differences, offset by lower operating income.
In
2006,
$2.9 million in net sales of marketable securities offset primarily by $1.7
million in capital expenditures resulted in $1.4 million of cash provided
by
investing activities. Cash used for investing activities in 2005 was comprised
of $1.1 million in capital expenditures and $0.9 million in net purchases
of
marketable securities.
Cash
used
for financing activities decreased $17.9 million in 2006 compared to 2005
due
primarily to a decrease of $19.3 million in cash used to purchase the Company’s
common stock in the open market partially offset by an increase in the cash
dividends paid per common share.
2005
Cash
provided by operating activities decreased by $10.0 million in 2005 compared
to
2004. Higher operating income in 2005 was offset by increased working capital
requirements primarily due to an increase in accounts receivable and decreases
in accounts payable and accrued expenses, each resulting from timing
differences.
Cash
used
for investing activities was comparable in 2005 and 2004 at approximately
$2.0
million. The $1.7 million decrease in capital expenditures was offset by
$0.9
million net purchases of marketable securities. Capital expenditures in 2004
included higher costs than in 2005 to expand manufacturing
facilities.
Cash
used
for financing activities increased $19.2 million in 2005 compared to 2004
primarily due to an increase of $17.7 million in cash amounts used to purchase
the Company’s common stock in the open market, and an increase from $0.027 to
$0.04 in quarterly dividends declared per common share.
21
Cash
Requirements
Management
expects that capital expenditures during 2007 will be approximately $3.0
million, and are expected to include investment towards enhancements to certain
manufacturing plants and the addition of a parts warehouse.
We
expect
that additional contributions to the defined benefit pension plan of
approximately $0.3 million will be required in 2007 to achieve the Company’s
funding objective.
At
the
January 23, 2007 Board of Directors’ meeting, the Board approved an increase in
the cash dividend per common share from $0.05 to $0.06. Based on the shares
outstanding on December 31, 2006, the aggregate annual dividends to be paid
at
this dividend rate would be approximately $9.1 million. The Company expects
to
continue to pay cash dividends to common stockholders, subject to the earnings
and financial condition of the Company and other relevant factors.
The
Company has an agreement with two employees, which provides for a monthly
payment to each of the employees equal to 10 percent of profits (defined
as
pretax income before goodwill amortization and certain allocated corporate
expenses).
The
Company has purchased a total of 2,650,357 shares in the open market and
as of
December 31, 2006 can purchase 2,599,643 additional shares under its
repurchase program.
The
Company believes that the liquidity provided by its existing cash and cash
equivalents, overall capitalization and cash expected to be generated from
operations will provide sufficient capital to meet its requirements for at
least
the next twelve months.
Contractual
Obligations
The
following table summarizes the Company’s contractual obligations as of December
31, 2006:
|
|
Payments
due by period
|
|||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5 years
|
|||||||||||
|
Long-term
debt
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Capital
lease obligation
|
239,257
|
—
|
—
|
—
|
239,257
|
|||||||||||
|
Operating
leases (1)
|
92,124
|
37,007
|
55,117
|
—
|
—
|
|||||||||||
|
Purchase
obligations (2)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Other
long-term liabilities (3)
|
250,000
|
250,000
|
—
|
—
|
—
|
|||||||||||
|
Total
|
$
|
581,381
|
$
|
287,007
|
$
|
55,117
|
$
|
—
|
$
|
239,257
|
||||||
| (1) |
Operating
leases represent agreements for various office equipment.
|
| (2) |
As
part of the normal course of business the Company enters into purchase
commitments to manage its various operating needs. However, the
Company
does not have any obligations that are non-cancelable or subject
to a
penalty if canceled.
|
| (3) |
Includes
expected cash payments for long-term liabilities reflected on the
balance
sheet where the timing of the payment is known. These amounts include
primarily known pension plan funding obligations. These amounts
exclude
pension obligations with uncertain funding requirements and deferred
compensation liabilities.
|
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 dealers and selected
third-party lenders to guarantee varying amounts of qualifying dealers’ debt
obligations. The Company’s obligation under these guarantees may become
effective in the case of default by one or more dealers. The agreements provide
for the lender to return all repossessed boats in “like new” condition to the
Company, in exchange for the Company’s assumption of specified percentages of
the dealers’ unpaid debt obligation on those boats. The maximum contractual
obligation and the amount outstanding under these agreements, which expire
in
2007, was $3.5 million as of December 31, 2006. The Company has recorded
the
estimated fair value of this guarantee; at December 31, 2006, this amount
is
immaterial and did not change from the prior year.
22
During
the fourth quarter of 2005, a dealer defaulted on its debt obligation to
a floor
plan lender related to approximately $5 million of boat inventory. During
2006,
the Company assisted the lender in coordinating the redistribution of these
boats among existing and replacement dealers. The ultimate cost to the Company
for these transactions and the impact on sales was not material.
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 2006, $616,000 in 2005 and $546,000
in
2004. The Company’s liability to RPC for these services as of December 31, 2006
and 2005 was approximately $236,000 and $66,000. The Company’s directors are
also directors of RPC and all of the executive officers with the exception
of
one director 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.
The
Tax
Sharing and Indemnification Agreement provides for, among other things, the
treatment of income tax matters for periods through the date of the spin-off
and
responsibility for any adjustments as a result of audit by any taxing authority.
The general terms provide for the indemnification for any tax detriment incurred
by one party caused by the other party’s action. In accordance with the
agreement, RPC transferred approximately $19,000 in 2004 to the Company related
to tax settlements.
Critical
Accounting Policies
The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, 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 very few orders are
cancelled after they have been placed. The Company recognizes sales when
all the
following conditions are met: (1) a fully executed sales agreement exists,
(2)
the price of the boat is established, (3) the dealer takes delivery of the
boat,
and (4) collectibility of the sales price is reasonably assured.
Sales
incentives and discounts - The Company records incentives as a reduction
of
sales. Using historical trends, adjusted for current changes, the Company
estimates the amount of incentives that will be paid in the future on boats
sold
and accrues an estimated liability. The Company offers various incentives
that
promote sales to dealers, and to a lesser extent, retail customers. These
incentives are designed to encourage timely replenishment of dealer inventories
after peak selling seasons, stabilize manufacturing volumes throughout the
year,
and improve production model mix. The dealer incentive programs are a
combination of annual volume commitment discounts, and additional discounts
at
time of invoice for those dealers who do not finance their inventory through
specified floor plan financing agreements. The annual dealer volume discounts
are 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 retail incentive programs have historically been used during
off-peak selling seasons in addition to the winter boat exhibition shows.
23
The
factors that complicate the calculation of the cost of these incentives are
the
ability to forecast sales of the Company and individual dealers, the volume
and
timing of inventory financed by specific dealers, identification of which
boats
have been sold subject to an incentive, and the estimated lag time between
sales
and payment of incentives. Settlement of the incentives generally occurs
from
three to twelve months after the sale. The Company regularly analyzes the
historical incentive trends and makes adjustments
to recorded liabilities for changes in trends and terms of incentive programs.
Total incentives as a percentage of gross sales were 13.3 percent in 2006,
13.0
percent in 2005 and 12.9 percent in 2004. A 0.25 percentage point change
in
incentives as a percentage of gross sales during 2006 would have increased
or
decreased net sales, gross margin and operating income by approximately $0.8
million.
Warranty
costs -The Company records as part of selling, general and administrative
expense an experience based estimate of the future warranty costs to be incurred
when sales are recognized. The Company evaluates its warranty obligation
on a
model year basis. The Company provides warranties against manufacturing defects
for various components of the boats, primarily the fiberglass deck and hull,
with warranty periods extending up to 10 years. Warranty costs, if any, on
other
components of the boats are generally absorbed by the original component
manufacturer. Warranty costs can vary depending upon the size and number
of
components in the boats sold, the pre-sale warranty claims, and the desired
level of customer service. While we focus on high quality manufacturing programs
and processes, including actively monitoring the quality of our component
suppliers and managing the dealer and customer service warranty experience
and
reimbursements, our estimated warranty obligation is based upon the warranty
terms and our enforcement of those terms over time, defects, repair costs,
and
the volume and mix of boat sales. The estimate of warranty costs is regularly
analyzed and is adjusted based on several factors including the actual claims
that occur. Warranty expense as a percentage of net sales was 2.6 percent
in
2006, 1.8 percent for 2005 and 1.9 percent in 2004. Warranty expense as a
percentage of net sales has increased in 2006 compared to 2005 because of
adjustments based on reviews of recent claims experience. These adjustments
reflect changes in estimated costs per claim due primarily to higher labor
rates
and parts costs. A 0.10 percentage point increase in the estimated warranty
expense as a percentage of net sales during 2006 would have increased selling,
general and administrative expenses and reduced operating income by
approximately $0.3 million.
Income
taxes— The effective income tax rates were 30.9 percent in 2006, 28.9 percent in
2005, and 34.7 percent in 2004. Our effective tax rates vary due to changes
in
estimates of our future taxable income, fluctuations in the tax jurisdictions
in
which our earnings and deductions are realized, and favorable or unfavorable
adjustments to our estimated tax liabilities related to proposed or probable
assessments. As a result, our effective tax rate may fluctuate significantly
on
a quarterly or annual basis.
We
establish a valuation allowance against the carrying value of deferred tax
assets when we determine 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 in which we make such determination. Likewise, if we later
determine that it is more likely than not that the net deferred tax assets
would
be realized, we would reverse the applicable portion of the previously provided
valuation allowance. We have considered future market growth, forecasted
earnings, future taxable income, the mix of earnings in the jurisdictions
in
which we operate, and prudent and feasible tax planning strategies in
determining the need for a valuation allowance.
We
calculate our current and deferred tax provision based on estimates and
assumptions that could differ from the actual results reflected in income
tax
returns filed during the subsequent year. Adjustments based on filed returns
are
recorded when identified, which is generally in the third quarter of the
subsequent year for U.S. federal and state provisions. Deferred tax liabilities
and assets are determined based on the differences between the financial
and tax
bases of assets and liabilities using enacted tax rates in effect in the
year
the differences are expected to reverse.
The
amount of income taxes we pay 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. We
believe we have adequately provided for any reasonably foreseeable outcome
related to these matters. However, our future results may include favorable
or
unfavorable adjustments to our estimated tax liabilities in the period the
assessments are made or resolved or when statutes of limitation on potential
assessments expire. Additionally, the jurisdictions in which our earnings
or
deductions are realized may differ from our current estimates.
Impact
of Recent Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for
Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and
140,” to permit fair value re-measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation
in
accordance with the provisions of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities.” The Company will adopt SFAS 155 in fiscal
year 2007. The adoption of this Statement is not expected to have a material
effect on the Company’s
consolidated results of operations and financial condition.
24
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets—an amendment of FASB Statement No. 140,” that provides guidance on
accounting for separately recognized servicing assets and servicing liabilities.
In accordance with the provisions of SFAS 156, separately recognized servicing
assets and servicing liabilities must be initially measured at fair value,
if
practicable. Subsequent to initial recognition, the Company may use either
the
amortization method or the fair value measurement method to account for
servicing assets and servicing liabilities within the scope of this Statement.
The Company will adopt SFAS 156 in fiscal year 2007. The adoption of this
Statement is not expected to have a material effect on the Company’s
consolidated results of operations and financial condition.
In
June
2006, the FASB issued Financial Interpretation No. ("FIN") 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109.” FIN 48
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. This interpretation also provides guidance on
de-recognition, classification, interest and penalties accounting in interim
periods, disclosure and transition. This interpretation is effective for
fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the
impact of applying the provisions of FIN 48.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
provides guidance for using fair value to measure assets and liabilities.
Under
SFAS 157, fair value refers to the price that would be received to sell an
asset
or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. SFAS
157
establishes a fair value hierarchy that prioritizes the information used
to
develop the assumptions that market participants would use when pricing the
asset or liability. The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest priority to unobservable data.
In
addition, SFAS 157 requires that fair value measurements be separately disclosed
by level within the fair value hierarchy. This standard will be effective
for
financial statements issued for fiscal periods beginning after November 15,
2007
and interim periods within those fiscal years. The Company is currently
evaluating the impact of applying the various provisions of SFAS 157.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements
No. 87, 88, 106, and 132(R).” This
Statement improves financial reporting by requiring an employer to recognize
the
over-funded or under-funded status of a defined benefit pension plan (other
than
a multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which
the
changes occur through comprehensive income. This Statement requires the Company
to measure the funded status of a plan as of the date of its year-end statement
of financial position, with limited exceptions. The requirement to recognize
the
funded status of a benefit plan and the disclosure requirements are effective
as
of the fiscal year ending after December 15, 2006. The requirement to measure
plan assets and benefit obligations as of the date of the employer’s fiscal
year-end statement of financial position is effective for fiscal years ending
after December 15, 2008. The
Company has adopted the recognition provisions of SFAS 158 as of December
31,
2006. See Note 10 to the consolidated financial statements for details. The
Company currently measures the plan assets and benefit obligations as of
its
fiscal year-end and therefore adoption of the measurement provisions will
not
have a significant impact on its consolidated results of operation and financial
condition.
In
September
2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying
a
current year misstatement. The SEC staff believes that registrants should
quantify errors using both a balance sheet and an income statement approach
and
evaluate whether either approach results in quantifying a misstatement that,
when all relevant quantitative and qualitative factors are considered, is
material. The guidance in SAB 108 must be applied to annual financial statements
for fiscal years ending after November 15, 2006. The adoption of SAB 108
did not
have a material effect on the Company’s
consolidated results of operations and financial condition.
In
September
2006, the Financial Accounting Standards Board ratified a consensus opinion
reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-5,
“Accounting for Purchases of Life Insurance - Determining the Amount That
Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The guidance
in EITF 06-5 requires policyholders to consider other amounts included in
the
contractual terms of an insurance policy, in addition to cash surrender value,
for purposes of determining the amount that could be realized under the terms
of
the insurance contract. If it is probable that contractual terms would limit
the
amount that could be realized under the insurance contract, those contractual
limitations should be considered when determining the realizable amounts.
The
amount that could be realized under the insurance contract should be determined
on an individual policy (or certificate) level and should include any amount
realized on the assumed surrender of the last individual policy or certificate
in a group policy. The consensus in EITF Issue 06-5 is effective for fiscal
years beginning after December 15, 2006. The Company intends to adopt EITF
Issue
06-5 effective January 1, 2007, and does not believe that the adoption will
have
a significant effect on its financial statements.
25
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Marine
Products holds no derivative financial instruments which could expose Marine
Products to significant market risk. Marine Products maintains an investment
portfolio, comprised of United States Government, corporate backed obligations,
asset backed securities and municipal debt securities, which is 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.
26
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, 2006 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management’s assessment is that Marine Products Corporation maintained effective
internal control over financial reporting as of December 31, 2006.
The
independent registered public accounting firm, Grant Thornton LLP, has audited
the consolidated financial statements as of and for the year ended December
31,
2006, and has also issued their report on management’s assessment of the
Company’s internal control over financial reporting, included in this report on
page 28.
| /s/ Richard A. Hubbell | /s/ Ben M. Palmer | ||
|
Richard A. Hubbell
President
and Chief Executive Officer
|
Ben M. Palmer
Chief
Financial Officer and
Treasurer
|
Atlanta,
Georgia
February
27, 2007
27
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
Board
of
Directors and Stockholders of Marine Products Corporation
We
have
audited management’s assessment included in Management’s Report on Internal
Control Over Financial Reporting included in Marine Products Corporation’s Form
10-K for 2006, that Marine Products Corporation (a Delaware Corporation)
and
subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of December 31, 2006 based on criteria established
in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control
over
financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control,
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, management’s assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on criteria established in Internal
Control—Integrated Framework issued by the COSO. Also in our opinion, the
Company maintained, in all material respects, effective internal control
over
financial reporting as of December 31, 2006, based on criteria established
in
Internal Control—Integrated Framework issued by the COSO.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31, 2006 and 2005, and the related consolidated statements
of
income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2006 and our report dated February 27, 2007 expressed
an unqualified opinion on those consolidated financial statements.
 |
Atlanta,
Georgia
February
27, 2007
28
Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements
Board
of
Directors and Stockholders of 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, 2006 and 2005, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2006. These financial statements are the responsibility
of
the Company’s management. Our responsibility is to express an opinion on these
financial statements 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 audits 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 the Company as of December
31, 2006 and 2005, and the consolidated results of its operations and its
consolidated cash flows for each of the three years in the period ended December
31, 2006 in conformity with accounting principles generally accepted in the
United States of America.
Our
audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II, as listed
in the Index, is presented for purposes of additional analysis and is not
a
required part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of
the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
As
described in Note 1 to the consolidated financial statements, the Company
adopted the recognition provisions of Statement of Financial Accounting
Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)” and also the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” during 2006.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated
February 27, 2007 expressed an unqualified opinion.
|
Atlanta,
Georgia
February
27, 2007
29
Item
8. Financial Statements and Supplementary Data
CONSOLIDATED
BALANCE SHEETS
MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES
(in
thousands except share information)
|
December
31,
|
2006
|
2005
|
|||||
|
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
54,456
|
$
|
37,602
|
|||
|
Marketable
securities
|
652
|
1,323
|
|||||
|
Accounts
receivable, net
|
2,980
|
3,662
|
|||||
|
Inventories
|
29,556
|
26,856
|
|||||
|
Income
taxes receivable
|
834
|
2,528
|
|||||
|
Deferred
income taxes
|
3,244
|
3,079
|
|||||
|
Prepaid
expenses and other current assets
|
1,873
|
1,343
|
|||||
|
Current
assets
|
93,595
|
76,393
|
|||||
|
Property,
plant and equipment, net
|
16,641
|
17,252
|
|||||
|
Goodwill
|
3,308
|
3,308
|
|||||
|
Other
intangibles, net
|
465
|
430
|
|||||
|
Marketable
securities
|
3,715
|
5,893
|
|||||
|
Deferred
income taxes
|
1,449
|
1,126
|
|||||
|
Other
assets
|
5,006
|
4,403
|
|||||
|
Total
assets
|
$
|
124,179
|
$
|
108,805
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Liabilities
|
|||||||
|
Accounts
payable
|
$
|
3,455
|
$
|
3,461
|
|||
|
Accrued
expenses and other liabilities
|
13,634
|
11,591
|
|||||
|
Current
liabilities
|
17,089
|
15,052
|
|||||
|
Pension
liabilities
|
4,670
|
4,923
|
|||||
|
Other
long-term liabilities
|
1,019
|
1,142
|
|||||
|
Total
liabilities
|
22,778
|
21,117
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders’
Equity
|
|||||||
|
Preferred
stock, $0.10 par value, 1,000,000 shares authorized, none
issued
|
—
|
—
|
|||||
|
Common
stock, $0.10 par value, 74,000,000 shares authorized,
issued and outstanding - 37,908,188 shares in 2006, 37,697,925 shares
in
2005
|
3,791
|
3,770
|
|||||
|
Capital
in excess of par value
|
13,453
|
16,364
|
|||||
|
Retained
earnings
|
84,875
|
72,192
|
|||||
|
Deferred
compensation
|
—
|
(3,540
|
)
|
||||
|
Accumulated
other comprehensive loss
|
(718
|
)
|
(1,098
|
)
|
|||
|
Total
stockholders’ equity
|
101,401
|
87,688
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
124,179
|
$
|
108,805
|
|||
The
accompanying notes are an integral part of these statements.
30
CONSOLIDATED
STATEMENTS OF INCOME
MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES
(in
thousands except per share data)
|
Years
ended December 31,
|
2006
|
|
2005
|
|
2004
|
|||||
|
Net
sales
|
$
|
261,378
|
$
|
272,057
|
$
|
252,418
|
||||
|
Cost
of goods sold
|
201,971
|
202,936
|
186,832
|
|||||||
|
Gross
profit
|
59,407
|
69,121
|
65,586
|
|||||||
|
Selling,
general and administrative expenses
|
32,474
|
33,557
|
29,810
|
|||||||
|
Operating
income
|
26,933
|
35,564
|
35,776
|
|||||||
|
Interest
income
|
2,502
|
1,330
|
590
|
|||||||
|
Income
before income taxes
|
29,435
|
36,894
|
36,366
|
|||||||
|
Income
tax provision
|
9,121
|
10,671
|
12,623
|
|||||||
|
Net
income
|
$
|
20,314
|
$
|
26,223
|
$
|
23,743
|
||||
|
EARNINGS
PER SHARE
|
||||||||||
|
Basic
|
$
|
0.54
|
$
|
0.69
|
$
|
0.62
|
||||
|
Diluted
|
$
|
0.52
|
$
|
0.65
|
$
|
0.58
|
||||
|
Dividends
paid per share
|
$
|
0.20
|
$
|
0.16
|
$
|
0.11
|
||||
The
accompanying notes are an integral part of these statements.
31
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES
(in
thousands)
|
Three
Years Ended
December
31, 2006
|
Comprehensive
Income
|
Common
Shares
|
Stock
Amount
|
Capital
in
Excess
of
Par
Value
|
Retained
Earnings
|
Deferred
Compensation
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
Total
|
|||||||||||||||||
|
Balance,
December 31, 2003
|
38,592
|
$
|
3,859
|
$
|
34,436
|
$
|
32,409
|
$
|
(229
|
)
|
$
|
(509
|
)
|
$
|
69,966
|
||||||||||
|
Stock
issued for stock incentive plans, net
|
456
|
46
|
2,854
|
(1,925
|
)
|
975
|
|||||||||||||||||||
|
Stock
purchased and retired
|
(244
|
)
|
(24
|
)
|
(3,912
|
)
|
(3,936
|
)
|
|||||||||||||||||
|
Net
income
|
$
|
23,743
|
23,743
|
23,743
|
|||||||||||||||||||||
|
Minimum
pension liability adjustment, net of taxes
|
(301
|
)
|
(301
|
)
|
(301
|
)
|
|||||||||||||||||||
|
Unrealized
loss on securities, net of taxes and reclassification adjustments
|
(94
|
)
|
(94
|
)
|
(94
|
)
|
|||||||||||||||||||
|
Comprehensive
income
|
$
|
23,348
|
|||||||||||||||||||||||
|
Dividends
declared
|
(4,110
|
)
|
(4,110
|
)
|
|||||||||||||||||||||
|
Stock-based
compensation
|
255
|
255
|
|||||||||||||||||||||||
|
Excess
tax benefits for share-based payments
|
874
|
874
|
|||||||||||||||||||||||
|
Effect
of stock splits
|
139
|
13 | (13 | ) | — | ||||||||||||||||||||
|
Balance,
December 31, 2004
|
38,943
|
3,894
|
34,239
|
52,042
|
(1,899
|
)
|
(904
|
)
|
87,372
|
||||||||||||||||
|
Stock
issued for stock incentive plans, net
|
278
|
28
|
2,862
|
(2,391
|
)
|
499
|
|||||||||||||||||||
|
Stock
purchased and retired
|
(1,608
|
)
|
(161
|
)
|
(20,728
|
)
|
(20,889
|
)
|
|||||||||||||||||
|
Net
income
|
$
|
26,223
|
26,223
|
26,223
|
|||||||||||||||||||||
|
Minimum
pension liability adjustment, net of taxes
|
(178
|
)
|
(178
|
)
|
(178
|
)
|
|||||||||||||||||||
|
Unrealized
loss on securities, net of taxes and reclassification adjustments
|
(16
|
)
|
(16
|
)
|
(16
|
)
|
|||||||||||||||||||
|
Comprehensive
income
|
$
|
26,029
|
|||||||||||||||||||||||
|
Dividends
declared
|
(6,073
|
)
|
(6,073
|
)
|
|||||||||||||||||||||
|
Stock-based
compensation
|
750
|
750
|
|||||||||||||||||||||||
|
Effect
of stock splits
|
85
|
9
|
(9
|
)
|
—
|
||||||||||||||||||||
|
Balance,
December 31, 2005
|
37,698
|
3,770
|
16,364
|
72,192
|
(3,540
|
)
|
(1,098
|
)
|
87,688
|
||||||||||||||||
|
Stock
issued for stock incentive plans, net
|
381
|
38
|
434
|
472
|
|||||||||||||||||||||
|
Stock
purchased and retired
|
(171
|
)
|
(17
|
)
|
(1,615
|
)
|
(1,632
|
)
|
|||||||||||||||||
|
Net
income
|
$
|
20,314
|
20,314
|
20,314
|
|||||||||||||||||||||
|
Minimum
pension liability adjustment, net of taxes
|
344
|
344
|
344
|
||||||||||||||||||||||
|
Unrealized
gain on securities, net of taxes and reclassification adjustments
|
36
|
36
|
36
|
||||||||||||||||||||||
|
Comprehensive
income
|
$
|
20,694
|
|||||||||||||||||||||||
|
Dividends
declared
|
(7,631
|
)
|
(7,631
|
)
|
|||||||||||||||||||||
|
Stock-based
compensation
|
1,514
|
1,514
|
|||||||||||||||||||||||
|
Excess
tax benefits for share-based payments
|
296
|
296
|
|||||||||||||||||||||||
|
Adoption
of SFAS 123(R)
|
(3,540
|
)
|
3,540
|
—
|
|||||||||||||||||||||
|
Balance,
December 31, 2006
|
37,908
|
$
|
3,791
|
$
|
13,453
|
$
|
84,875
|
$
|
—
|
$
|
(718
|
)
|
$ |
101,401
|
|||||||||||
The
accompanying notes are an integral part of these statements.
32
CONSOLIDATED
STATEMENTS OF CASH FLOWS
MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES
(in
thousands)
|
Years
ended December 31,
|
2006
|
2005
|
2004
|
|||||||
|
OPERATING
ACTIVITIES
|
|
|
|
|||||||
|
Net
income
|
$
|
20,314
|
$
|
26,223
|
$
|
23,743
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation and amortization
|
2,130
|
2,268
|
2,277
|
|||||||
|
Stock-based compensation expense
|
1,514
|
750
|
255
|
|||||||
|
Excess tax benefit for share-based payments
|
(296
|
)
|
—
|
—
|
||||||
|
Deferred income tax benefit
|
(737
|
)
|
(1,970
|
)
|
(784
|
)
|
||||
|
(Increase)
decrease in assets:
|
||||||||||
|
Accounts receivable
|
682
|
(2,580
|
)
|
2,888
|
||||||
|
Inventories
|
(2,700
|
)
|
(987
|
)
|
(4,099
|
)
|
||||
|
Prepaid expenses and other current assets
|
(530
|
)
|
(467
|
)
|
(260
|
)
|
||||
|
Income taxes receivable
|
1,990
|
(1,476
|
)
|
787
|
||||||
|
Other non-current assets
|
(603
|
)
|
(1,751
|
)
|
(1,187
|
)
|
||||
|
Increase
(decrease) in liabilities:
|
||||||||||
|
Accounts payable
|
(6
|
)
|
(289
|
)
|
1,153
|
|||||
|
Other accrued expenses
|
2,043
|
(1,410
|
)
|
4,242
|
||||||
|
Other long-term liabilities
|
196
|
1,055
|
390
|
|||||||
|
Net
cash provided by operating activities
|
23,997
|
19,366
|
29,405
|
|||||||
|
INVESTING
ACTIVITIES
|
||||||||||
|
Capital
expenditures
|
(1,667
|
)
|
(1,118
|
)
|
(2,838
|
)
|
||||
|
Proceeds
from sale of assets
|
113
|
—
|
—
|
|||||||
|
Sale
(purchase) of marketable securities, net
|
2,905
|
(905
|
)
|
914
|
||||||
|
Net
cash provided by (used for) investing activities
|
1,351
|
(2,023
|
)
|
(1,924
|
)
|
|||||
|
FINANCING
ACTIVITIES
|
||||||||||
|
Payment
of dividends
|
(7,631
|
)
|
(6,073
|
)
|
(4,110
|
)
|
||||
|
Cash
paid for common stock purchased and retired
|
(1,337
|
)
|
(20,627
|
)
|
(3,768
|
)
|
||||
|
Excess
tax benefit for share-based payments
|
296
|
—
|
—
|
|||||||
|
Proceeds
received upon exercise of stock options
|
178
|
344
|
768
|
|||||||
|
Net
cash used for financing activities
|
(8,494
|
)
|
(26,356
|
)
|
(7,110
|
)
|
||||
|
Net
increase (decrease) in cash and cash equivalents
|
16,854
|
(9,013
|
)
|
20,371
|
||||||
|
Cash
and cash equivalents at beginning of year
|
37,602
|
46,615
|
26,244
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
54,456
|
$
|
37,602
|
$
|
46,615
|
||||
The
accompanying notes are an integral part of these statements.
33
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
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. Net sales
from
the Company’s international operations were approximately $47,000,000 in 2006,
$43,000,000 in 2005 and $27,500,000 in 2004.
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, 2006, 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.
Dividend
—
The
Board of Directors, at their quarterly meeting on January 23, 2007, declared
a
quarterly dividend of $0.06 per common share payable March 12, 2007 to
stockholders of record at the close of business on February 12,
2007.
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 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 collectibility is reasonably assured. See “Deferred revenue” below
for recognition of sales to international dealers.
Deferred
Revenue —
Marine
Products requires payment from international dealers prior to delivery of
products to these dealers. Amounts received from international dealers toward
the purchase of boats are categorized as deferred revenue and recognized
as
sales when the products are shipped.
34
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
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 income;
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, 2006
and
2005, the Company had approximately $525,000 and $390,000 in prepaid expenses
related to the unamortized product brochure costs. Advertising expenses totaled
approximately $2,789,000 in 2006, $2,622,000 in 2005 and $2,520,000 in 2004.
Sales
Incentives and Discounts —
Sales
incentives including dealer discounts and retail sales promotions are provided
for and recorded as a reduction in sales for the period in which the related
sales are recorded. The Company records 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 are
considered to be cash equivalents.
Marketable
Securities —
Marine
Products maintains investments held with several large, well-capitalized
financial institutions. 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 tax, 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. Realized gains (losses) on marketable securities totaled $(36,000)
in
2006, $(52,000) in 2005 and $148,000 in 2004. Of the total gains (losses)
realized, reclassification from other comprehensive income totaled approximately
$(25,000) in 2006, $(38,000) in 2005 and $165,000 in 2004. The fair value
and
the unrealized gains (losses) of the available-for-sale securities are as
follows:
|
December
31,
|
2006
|
2005
|
|||||||||||
|
Type
of Securities
|
Fair
Value
|
Unrealized
Gain (Loss)
|
Fair
Value
|
Unrealized
Gain (Loss)
|
|||||||||
|
U.S.
Treasury Notes
|
$
|
—
|
$
|
—
|
$
|
1,630,000
|
$
|
(14,000
|
)
|
||||
|
Federal
Agency Obligations
|
471,000
|
(2,000
|
)
|
1,081,000
|
(15,000
|
)
|
|||||||
|
Corporate
Backed Obligations
|
2,349,000
|
(18,000
|
)
|
1,654,000
|
(24,000
|
)
|
|||||||
|
Asset
Backed Securities
|
1,547,000
|
(15,000
|
)
|
1,797,000
|
(39,000
|
)
|
|||||||
|
Municipal
Obligations
|
—
|
—
|
1,054,000
|
—
|
|||||||||
Corporate
backed obligations consist primarily of debentures and notes issued by other
companies ranging in maturity from less than ninety days to five years. These
securities are rated A1/P1 or higher for the short-term securities and BBB
or
higher for the long-term securities.
Asset
backed securities consist of a well diversified portfolio of securities backed
by receivables such as auto loans, equipment loans and credit cards. These
securities have a credit rating of A1/P1 or higher.
35
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
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 maturities
of
the Company’s non-current marketable securities are as follows: $0 in 2007,
approximately $3,679,000 between 2008 and 2012, $0 between 2013 and 2017,
$36,000 in 2018 and thereafter.
Accounts
Receivable — The
majority of the Company’s accounts receivable are due from dealers located in
markets throughout the Unites States. Most 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 two major
third-party financing institutions. Under these arrangements, a dealer
establishes lines of credit with one or more of these third-party lenders
for
the purchase of boat inventory for sales to retail customers in their show
room
or during boat show exhibitions. When a dealer purchases and takes delivery
of a
boat pursuant to a floor plan financing arrangement, it draws against its
line
of credit and the lender pays the invoice cost of the boat directly to Marine
Products within approximately 10 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 income.
All
other depreciation is included in selling, general and administrative expenses
in the accompanying consolidated statements of income. 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, 2006 and 2005. Pursuant to the adoption of
Statement of Financial Accounting Standards (“SFAS”) No. 142 beginning on
January 1, 2002, goodwill is no longer amortized to earnings but instead
is
subject to an annual test for impairment. The Company completed an initial
impairment analysis upon adoption of SFAS No. 142 and subsequent analyses
in
each year. Based upon the results of these analyses, the Company has concluded
that no impairment of its goodwill has occurred.
Investments
—
The
Company maintains certain securities in the non-qualified Supplemental Executive
Retirement Plan that have been classified as trading. See Note 10 for
further information regarding these securities.
Warranty
Costs —
The
Company warrants the entire boat, excluding the engine, against defects in
materials and workmanship for a period of one year. The Company also warrants
the entire deck and hull, including its bulkhead and supporting stringer
system,
against defects in materials and workmanship for periods extending up to
10
years. The Company accrues for estimated future warranty costs at the time
of
the sale based on its historical claims experience. An analysis of the warranty
accruals for the years ended December 31, 2006 and 2005 is as
follows:
|
(in
thousands)
|
2006
|
2005
|
|||||
|
Balance
at beginning of year
|
$
|
4,272
|
$
|
3,796
|
|||
|
Less:
Payments made during the year
|
(5,649
|
)
|
(4,453
|
)
|
|||
|
Add:
Warranty provision for the current year
|
4,729
|
4,435
|
|||||
|
Changes
to warranty provision for prior years
|
1,985
|
494
|
|||||
|
Balance
at end of year
|
$
|
5,337
|
$
|
4,272
|
|||
36
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Changes
to the warranty provision for prior years are the result of updated information
about the frequency and size of claims incurred related to prior period sales,
including changes in labor rates and component costs.
Insurance
Accruals —
The
Company fully insures its risks related to general liability, product liability,
workers’ compensation, and vehicle liability, whereas the health insurance plan
is self-funded up to a maximum annual claim amount for each covered employee
and
related dependents. The estimated cost of claims under the self-insurance
program is accrued as the claims are incurred and may subsequently be revised
based on developments relating to such claims.
Research
and Development Costs —
The
Company expenses research and development costs for new products and components
as incurred. Research and development costs are included in selling, general
and
administrative expenses and totaled $1,439,000 in 2006, $1,933,000 in 2005
and
$1,729,000 in 2004.
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.
Earnings
per Share —
SFAS
No. 128, “Earnings Per Share,” requires a basic earnings per share and diluted
earnings per share presentation. The two calculations differ as a result
of the
dilutive effect of stock options and time lapse restricted shares and
performance restricted shares included in diluted earnings per share, but
excluded from basic earnings per share. A reconciliation of weighted average
shares outstanding is as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Basic
|
37,338,724
|
38,015,899
|
38,452,704
|
|||||||
|
Dilutive
effect of stock options and restricted shares
|
1,639,582
|
2,101,028
|
2,318,547
|
|||||||
|
Diluted
|
38,978,306
|
40,116,927
|
40,771,251
|
|||||||
Fair
Value of Financial Instruments —
The
Company’s financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable and marketable securities. The carrying
value of cash, accounts receivable and accounts payable approximate their
fair
values because of the short-term nature of such instruments. The Company’s
marketable securities are classified as available-for-sale securities with
the
exception of securities held in the non-qualified Supplemental Retirement
Plan
(“SERP”) which are classified as trading securities. All of the securities are
carried at fair value in the accompanying consolidated balance sheets. The
fair
value of these securities is based upon quoted market prices.
Concentration
of Suppliers —
The
Company purchases a significant number of its sterndrive engines from only
two
available suppliers. This concentration of suppliers could impact our sales
and
profitability in the event of a sudden interruption in the delivery of these
engines.
New
Accounting Standards — In
February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
Statements No. 133 and 140,” to permit fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise
would
require bifurcation in accordance with the provisions of SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities.” The Company will adopt SFAS
155 in fiscal year 2007. The adoption of this Statement is not expected to
have
a material effect on the Company’s
consolidated results of operations and financial condition.
37
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets—an amendment of FASB Statement No. 140,” that provides guidance on
accounting for separately recognized servicing assets and servicing liabilities.
In accordance with the provisions of SFAS 156, separately recognized servicing
assets and servicing liabilities must be initially measured at fair value,
if
practicable. Subsequent to initial recognition, the Company may use either
the
amortization method or the fair value measurement method to account for
servicing assets and servicing liabilities within the scope of this Statement.
The Company will adopt SFAS 156 in fiscal year 2007. The adoption of this
Statement is not expected to have a material effect on the Company’s
consolidated results of operations and financial condition.
In
June
2006, the FASB issued Financial Interpretation No. ("FIN") 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109.” FIN 48
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. This interpretation also provides guidance on
de-recognition, classification, interest and penalties accounting in interim
periods, disclosure and transition. This interpretation is effective for fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the
impact of applying the provisions of FIN 48.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
provides guidance for using fair value to measure assets and liabilities. Under
SFAS 157, fair value refers to the price that would be received to sell an
asset
or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. SFAS 157
establishes a fair value hierarchy that prioritizes the information used to
develop the assumptions that market participants would use when pricing the
asset or liability. The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest priority to unobservable data.
In
addition, SFAS 157 requires that fair value measurements be separately disclosed
by level within the fair value hierarchy. This standard will be effective for
financial statements issued for fiscal periods beginning after November 15,
2007
and interim periods within those fiscal years. The Company is currently
evaluating the impact of applying the various provisions of SFAS
157.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements
No. 87, 88, 106, and 132(R).” This
Statement improves financial reporting by requiring an employer to recognize
the
over-funded or under-funded status of a defined benefit pension plan (other
than
a multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which
the
changes occur through comprehensive income. This Statement requires the Company
to measure the funded status of a plan as of the date of its year-end statement
of financial position, with limited exceptions. The requirement to recognize
the
funded status of a benefit plan and the disclosure requirements are effective
as
of the fiscal year ending after December 15, 2006. The requirement to measure
plan assets and benefit obligations as of the date of the employer’s fiscal
year-end statement of financial position is effective for fiscal years ending
after December 15, 2008. The
Company has adopted the recognition provisions of SFAS 158 as of December 31,
2006. See Note 10 to the consolidated financial statements for details. The
Company currently measures the plan assets and benefit obligations as of its
fiscal year-end and therefore adoption of the measurement provisions will not
have a significant impact on its consolidated results of operation and financial
condition.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). SAB 108 provides interpretive guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. The SEC staff believes
that registrants should quantify errors using both a balance sheet and an income
statement approach and evaluate whether either approach results in quantifying
a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. The guidance in SAB 108 must be applied to annual
financial statements for fiscal years ending after November 15, 2006. The
adoption of SAB 108 did not have a material effect on the Company’s
consolidated results of operations and financial condition.
In
September 2006, the Financial Accounting Standards Board ratified a consensus
opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-5,
“Accounting for Purchases of Life Insurance - Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The guidance
in EITF 06-5 requires policyholders to consider other amounts included in the
contractual terms of an insurance policy, in addition to cash surrender value,
for purposes of determining the amount that could be realized under the terms
of
the insurance contract. If it is probable that contractual terms would limit
the
amount that could be realized under the insurance contract, those contractual
limitations should be considered when determining the realizable amounts. The
amount that could be realized under the insurance contract should be determined
on an individual policy (or certificate) level and should include any amount
realized on the assumed surrender of the last individual policy or certificate
in a group policy. The consensus in EITF Issue 06-5 is effective for fiscal
years beginning after December 15, 2006. The Company
intends to adopt EITF Issue 06-5 effective January 1, 2007, and does not believe
that the adoption will have a significant effect on its financial
statements.
38
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Stock-Based
Compensation —
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
2004), “Share-Based Payment” (“SFAS 123(R)”), which revises SFAS 123,
“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be measured based on their fair values and recognized in the
financial statements over the requisite service period. See Note 10 regarding
the Company’s adoption of SFAS 123(R).
Prior
to
January 1, 2006, the Company provided the disclosures required by SFAS 123,
as
amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and
Disclosures”, and accounted for all of its stock-based compensation under the
provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees” using the intrinsic value method prescribed
therein. Accordingly, the Company did not recognize compensation expense for
the
options granted since the exercise price was the same as the market price of
the
shares on the date of grant. Compensation cost on the restricted stock was
recorded as deferred compensation in stockholders’ equity based on the fair
market value of the shares on the date of issuance and amortized ratably over
the respective vesting period. Forfeitures related to restricted stock were
previously accounted for as they occurred. See Note 10 for additional
information.
NOTE
2: ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
Trade
receivables
|
$
|
2,661
|
$
|
3,249
|
|||
|
Other
|
371
|
471
|
|||||
|
Total
|
3,032
|
3,720
|
|||||
|
Less:
Allowance for doubtful accounts
|
(52
|
)
|
(58
|
)
|
|||
|
Net
accounts receivable
|
$
|
2,980
|
$
|
3,662
|
|||
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 amounts due from vendors for
co-op advertising and rebates on engine purchases.
Changes
in the Company’s allowance for doubtful accounts are disclosed in Schedule II on
page 59 of this report.
NOTE
3: INVENTORIES
Inventories
consist of the following:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
Raw
materials
|
$
|
13,319
|
$
|
13,212
|
|||
|
Work
in process
|
9,383
|
7,727
|
|||||
|
Finished
goods
|
6,854
|
5,917
|
|||||
|
Total
inventories
|
$
|
29,556
|
$
|
26,856
|
|||
39
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
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,
|
Estimated
Useful
Lives
|
2006
|
2005
|
|||||||
|
(in
thousands)
|
|
|
|
|||||||
|
Land
|
N/A
|
$
|
495
|
$
|
495
|
|||||
|
Buildings
|
20-39
|
16,403
|
16,120
|
|||||||
|
Operating
equipment and property
|
3-15
|
8,861
|
8,453
|
|||||||
|
Furniture
and fixtures
|
5-7
|
1,594
|
1,224
|
|||||||
|
Vehicles
|
3-5
|
6,048
|
5,831
|
|||||||
|
Gross
property, plant and equipment
|
33,401
|
32,123
|
||||||||
|
Less:
accumulated depreciation
|
(16,760
|
)
|
(14,871
|
)
|
||||||
|
Net
property, plant and equipment
|
$
|
16,641
|
$
|
17,252
|
||||||
Depreciation
expense was $2,130,000 in 2006, $2,245,000 in 2005 and $2,237,000 in 2004.
NOTE
5: RELATED PARTY TRANSACTIONS
In
conjunction with its spin-off from RPC, Inc. (“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 2006, $616,000 in 2005 and $546,000
in
2004. The Company’s liability to RPC for these services as of December 31, 2006
and 2005 was approximately $236,000 and $66,000. The Company’s directors are
also directors of RPC and all of the executive officers with the exception
of
one director 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.
The
Tax
Sharing and Indemnification Agreement provides for, among other things, the
treatment of income tax matters for periods through the date of the spin-off
and
responsibility for any adjustments as a result of audit by any taxing authority.
The general terms provide for the indemnification for any tax detriment incurred
by one party caused by the other party’s action. In accordance with the
agreement, RPC transferred approximately $19,000 in 2004 to the Company related
to tax settlements. Subsequent to the spin-off, Marine Products and RPC file
separate tax returns.
40
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
NOTE
6: ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consist of the following:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
Accrued
payroll and related expenses
|
$
|
1,926
|
$
|
2,185
|
|||
|
Accrued
sales incentives and discounts
|
3,624
|
2,887
|
|||||
|
Accrued
warranty costs
|
5,337
|
4,272
|
|||||
|
Deferred
revenue
|
1,944
|
1,010
|
|||||
|
Other
|
803
|
1,237
|
|||||
|
Total
accrued expenses and other liabilities
|
$
|
13,634
|
$
|
11,591
|
|||
NOTE
7: INCOME TAXES
The
following table lists the components of the provision for income taxes:
|
Years
ended December 31,
|
2006
|
2005
|
2004
|
|||||||
|
(in
thousands)
|
|
|
|
|||||||
|
Current
provision:
|
|
|
|
|||||||
|
Federal
|
$
|
9,549
|
$
|
11,958
|
$
|
12,574
|
||||
|
State
|
309
|
683
|
833
|
|||||||
|
Deferred
(benefit) provision:
|
||||||||||
|
Federal
|
(778
|
)
|
(1,863
|
)
|
(678
|
)
|
||||
|
State
|
41
|
(107
|
)
|
(106
|
)
|
|||||
|
Total
income tax provision
|
$
|
9,121
|
$
|
10,671
|
$
|
12,623
|
||||
A
reconciliation between the federal statutory rate and Marine Products’ effective
tax rate is as follows:
|
Years
ended December 31,
|
2006
|
2005
|
2004
|
|||||||
|
Federal
statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||
|
State
income taxes, net of federal benefit
|
0.6
|
0.8
|
1.3
|
|||||||
|
Tax
exempt interest
|
(0.3
|
)
|
(1.0
|
)
|
(0.4
|
)
|
||||
|
ETI
benefit
|
(0.5
|
)
|
(0.7
|
)
|
0.0
|
|||||
|
Manufacturing
deduction
|
(1.0
|
)
|
(1.1
|
)
|
0.0
|
|||||
|
Other
|
(2.9
|
)
|
(4.1
|
)
|
(1.2
|
)
|
||||
|
Effective
tax rate
|
30.9
|
%
|
28.9
|
%
|
34.7
|
%
|
||||
41
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Significant
components of the Company’s deferred tax assets and liabilities are as follows:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
Deferred
tax assets:
|
|
|
|||||
|
Warranty
costs
|
$
|
1,922
|
$
|
1,580
|
|||
|
Sales
incentives and discounts
|
664
|
700
|
|||||
|
Stock-based
compensation
|
710
|
538
|
|||||
|
Pension
|
1,633
|
1,842
|
|||||
|
All
others
|
684
|
786
|
|||||
|
Total
deferred tax assets
|
5,613
|
5,446
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Depreciation
expense
|
(920
|
)
|
(1,241
|
)
|
|||
|
Net
deferred tax assets
|
$
|
4,693
|
$
|
4,205
|
|||
Total
income tax payments, net of refunds, were $7,985,000 in 2006, $14,307,000 in
2005 and $12,608,000 in 2004. The Company currently does not have a valuation
allowance because it has determined that all of the deferred tax assets are
more
likely than not to be realized based on 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.
42
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
NOTE
8: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated
other comprehensive (loss) income consists of the following:
|
|
Minimum
Pension
Liability
|
Unrealized
Gain
(Loss) on
Securities
|
Total
|
|||||||
|
(in
thousands)
|
|
|
|
|||||||
|
Balance
at December 31, 2004
|
$
|
(853
|
)
|
$
|
(51
|
)
|
$
|
(904
|
)
|
|
|
Change
during 2005:
|
||||||||||
|
Before-tax
amount
|
(324
|
)
|
(63
|
)
|
(387
|
)
|
||||
|
Tax
benefit
|
146
|
23
|
169
|
|||||||
|
Reclassification
adjustment, net of taxes
|
—
|
24
|
24
|
|||||||
|
Total
activity in 2005
|
(178
|
)
|
(16
|
)
|
(194
|
)
|
||||
|
Balance
at December 31, 2005
|
$
|
(1,031
|
)
|
$
|
(67
|
)
|
$
|
(1,098
|
)
|
|
|
Change
during 2006:
|
||||||||||
|
Before-tax
amount
|
572
|
56
|
628
|
|||||||
|
Tax
provision
|
(228
|
)
|
(36
|
)
|
(264
|
)
|
||||
|
Reclassification
adjustment, net of taxes
|
—
|
16
|
16
|
|||||||
|
Total
activity in 2006
|
344
|
36
|
380
|
|||||||
|
Balance
at December 31, 2006
|
$
|
(687
|
)
|
$
|
(31
|
)
|
$
|
(718
|
)
|
|
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 lenders to guarantee varying amounts of qualifying dealers’
debt obligations. The Company’s obligation under these guarantees becomes
effective in the case of default by the dealer. The agreements provide for
the
return of all repossessed boats in “like new” condition to the Company, in
exchange for the Company’s assumption of specified percentages of the dealers’
unpaid debt obligation on those boats. The maximum contractual obligation
and
the amount outstanding under these agreements, which expire in 2007 was $3.5
million as of December 31, 2006. The Company has recorded the estimated fair
value of this guarantee; at December 31, 2006, this amount is immaterial
and did
not change from the prior year.
Lease
Obligation —
In
June
2001, the Company entered into a lease transaction for existing boat
manufacturing space located in Valdosta, Georgia. The lease has a term of
12
years. This lease has been accounted for as a capital lease and accordingly,
the
building, land, and miscellaneous equipment have been recorded in property,
plant and equipment on the consolidated balance sheet at a gross amount of
$992,000 with accumulated depreciation of approximately $149,000. A liability
equal to the estimated present value of the remaining lease obligation totaling
$239,000 has been recorded and is included in other long-term liabilities
on the
consolidated balance sheet.
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 consist primarily of the Company’s estimated liabilities
for these probable assessments and totaled approximately $780,000 as of December
31, 2006 and $992,000 as of December 31, 2005.
43
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Employment
Agreements —
The
Company has an agreement with two employees, which provides for a monthly
payment to each of the employees equal to 10 percent of profits (defined
as
pretax income before goodwill adjustments and certain allocated corporate
expenses) in addition to a base salary. The expense under these agreements
totaled approximately $7,999,000 in 2006, $10,320,000 in 2005 and $9,997,000
in
2004 and is included in selling, general and administrative expenses in the
accompanying consolidated statements of income.
NOTE
10: EMPLOYEE BENEFIT PLANS
Retirement
Plan —
Marine
Products participates in the tax-qualified, defined benefit, noncontributory,
trusteed retirement income plan sponsored by RPC that covers substantially
all
employees with at least one year of service prior to 2002. The Company’s Board
of Directors approved a resolution to cease all future retirement benefit
accruals under the Retirement Income Plan effective March 31, 2002. In lieu
thereof, the Company began providing enhanced benefits in the form of cash
contributions for certain longer serviced employees that had not reached
the
normal retirement age of 65 as of March 31, 2002. These discretionary
contributions are expected to be made over a seven year period beginning
in 2002
to either a non-qualified SERP established by the Company or to the 401(k)
plan
for each employee that is entitled to the enhanced benefit. The expenses
related
to the enhanced benefits were $119,000 in 2006, $119,000 in 2005 and $122,000
in
2004.
The
Company permits selected highly compensated employees to defer a portion
of
their compensation into the SERP. The SERP assets are marked to market and
as of
December 31, 2006 and 2005 totaled approximately $4,353,000 and $3,686,000.
The
SERP assets are reported in other assets on the consolidated balance sheets
and
changes related to the fair value of the assets are included in selling,
general
and administrative expenses in the consolidated statements of income for
2006
and 2005. The SERP deferrals and the contributions are recorded on the balance
sheet in pension liabilities with any change in the fair value of the SERP
liabilities recorded as compensation cost in the statements of income.
As
previously mentioned, the Company has adopted the provisions of SFAS 158.
In
accordance with the provisions of SFAS 158, the fair value of the plan assets
exceeded the Company’s projected benefit obligation under its pension plan by
$121,000 and thus the plan was not under-funded as of December 31, 2006.
Prior
to the adoption of SFAS 158, the Company’s disclosure of the funded status in
the notes to the consolidated financial statements did not differ from the
amount recognized in the consolidated balance sheets; therefore, the adoption
of
SFAS 158 did not have an affect on the balance sheet. The adoption of SFAS
158 had the following effect on the Company’s consolidated balance sheet as of
December 31, 2006:
|
As
of December 31, 2006
|
||||||||||
|
(in
thousands)
|
Prior
to adoption of SFAS 158
|
Effect
of adopting SFAS 158
|
Adjusted
|
|||||||
|
Asset
for pension benefits
|
$
|
121
|
$
|
—
|
$
|
121
|
||||
|
Deferred
income taxes
|
$
|
378
|
$
|
—
|
$
|
378
|
||||
|
Accumulated
other comprehensive income
|
$
|
1,065
|
$
|
—
|
$
|
1,065
|
||||
44
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
The
following table sets forth the funded status of the Retirement Income Plan
and
the amounts recognized in Marine Products’ consolidated balance sheets
subsequent to the adoption of SFAS 158:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
ACCUMULATED
BENEFIT OBLIGATION, END OF YEAR
|
$
|
4,699
|
$
|
4,917
|
|||
|
CHANGE
IN PROJECTED BENEFIT OBLIGATION:
|
|||||||
|
Benefit
obligation at beginning of year
|
$
|
4,917
|
$
|
4,403
|
|||
|
Service
cost
|
—
|
—
|
|||||
|
Interest
cost
|
246
|
251
|
|||||
|
Actuarial
(gain) loss
|
(401
|
)
|
336
|
||||
|
Benefits
paid
|
(63
|
)
|
(73
|
)
|
|||
|
Projected
benefit obligation at end of year
|
$
|
4,699
|
$
|
4,917
|
|||
|
CHANGE
IN PLAN ASSETS:
|
|||||||
|
Fair
value of plan assets at beginning of year
|
$
|
3,780
|
$
|
3,378
|
|||
|
Actual
return on plan assets
|
403
|
175
|
|||||
|
Employer
contributions
|
700
|
300
|
|||||
|
Benefits
paid
|
(63
|
)
|
(73
|
)
|
|||
|
Fair
value of plan assets at end of year
|
$
|
4,820
|
$
|
3,780
|
|||
|
Funded
status at end of year
|
$
|
121
|
$
|
(1,137
|
)
|
||
|
Unrecognized
net loss
|
1,637
|
||||||
|
Net
prepaid benefit cost
|
$
|
500
|
|||||
|
December
31,
|
2006
|
|||
|
(in
thousands)
|
||||
|
AMOUNTS
RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:
|
||||
|
Noncurrent
assets
|
$
|
121
|
||
|
Current
liabilities
|
—
|
|||
|
Noncurrent
liabilities
|
—
|
|||
|
$
|
121
|
|||
The
amount shown above has been recorded as part of other assets.
|
December
31,
|
2006
|
|||
|
(in
thousands)
|
||||
|
AMOUNTS
RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST
OF:
|
||||
|
Net
actuarial loss (gain)
|
$
|
1,065
|
||
|
Prior
service cost (credit)
|
—
|
|||
|
Net
transition obligation (asset)
|
—
|
|||
|
$
|
1,065
|
|||
The
accumulated benefit obligation for the defined benefit pension plan at December
31, 2006 and 2005 has been disclosed above. The Company uses a December 31
measurement date for this qualified plan.
45
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Amounts
recognized in the consolidated balance sheet and reflected as pension
liabilities consist of:
|
December
31,
|
2006
|
2005
|
|||||
|
(in
thousands)
|
|
|
|||||
|
Net
prepaid benefit cost
|
$
|
—
|
$
|
(500
|
)
|
||
|
Minimum
pension liability
|
—
|
1,637
|
|||||
|
SERP
employer contributions
|
344
|
275
|
|||||
|
SERP
employee deferrals
|
4,326
|
3,511
|
|||||
|
Net
amount recognized
|
$
|
4,670
|
$
|
4,923
|
|||
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. Marine Products contributed $700,000 in 2006 and $300,000 in
2005.
The
components of net periodic benefit cost are summarized as follows:
|
Years
ended December 31,
|
2006
|
2005
|
2004
|
|||||||
|
(in
thousands)
|
|
|
|
|||||||
|
Service
cost for benefits earned during the period
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Interest
cost on projected benefit obligation
|
246
|
251
|
240
|
|||||||
|
Expected
return on plan assets
|
(341
|
)
|
(285
|
)
|
(231
|
)
|
||||
|
Amortization
of net (gain) loss
|
108
|
122
|
86
|
|||||||
|
Net
periodic benefit cost
|
$
|
13
|
$
|
88
|
$
|
95
|
||||
The
Company recorded pre-tax minimum pension liability adjustments of $(572,000)
in
2006 and $324,000 in 2005. There were no previously unrecognized prior service
costs as of December 31, 2006 and 2005.
The
pre-tax amounts recognized in other comprehensive income at December 31,
2006
are summarized as follows:
|
(in
thousands)
|
2006
|
|||
|
Net
loss (gain)
|
$
|
(464
|
)
|
|
|
Amortization
of net (loss) gain
|
(108
|
)
|
||
|
Net
transition obligation (asset)
|
—
|
|||
|
Amount
recognized in other comprehensive income
|
$
|
(572
|
)
|
|
The
amounts in accumulated other comprehensive income expected to be recognized
as
components of net periodic benefit cost in 2007 are as follows:
|
(in
thousands)
|
2006
|
|||
|
Amortization
of net loss (gain)
|
$
|
95
|
||
|
Prior
service cost (credit)
|
—
|
|||
|
Net
transition obligation (asset)
|
—
|
|||
|
Estimated
net periodic cost
|
$
|
95
|
||
46
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
The
weighted average assumptions as of December 31 used to determine the projected
benefit obligation and net benefit cost were as follows:
|
December
31,
|
2006
|
|
2005
|
2004
|
||||||
|
PROJECTED
BENEFIT OBLIGATION:
|
|
|
||||||||
|
Discount
rate
|
5.500
|
%
|
5.500
|
%
|
5.750
|
%
|
||||
|
Rate
of compensation increase
|
N/A
|
N/A
|
N/A
|
|||||||
|
NET
BENEFIT COST:
|
||||||||||
|
Discount
rate
|
5.500
|
%
|
5.750
|
%
|
6.250
|
%
|
||||
|
Expected
return on plan assets
|
8.000
|
%
|
8.000
|
%
|
8.000
|
%
|
||||
|
Rate
of compensation increase
|
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 eight percent is
reasonable.
At
December 31, 2006 and 2005, the Plan’s assets were comprised primarily of listed
common stocks and U.S. Government and corporate securities. The plan’s weighted
average asset allocation at December 31, 2006 and 2005 by asset category along
with the target allocation for 2007 are as follows:
|
Asset
Category
|
Target
Allocation
for
2007
|
Percentage
of
Plan
Assets as of
December
31,
2006
|
Percentage
of
Plan
Assets as of
December
31,
2005
|
|||||||
|
Equity
Securities
|
48.1
|
%
|
49.6
|
%
|
48.3
|
%
|
||||
|
Debt
Securities — Core Fixed Income
|
28.3
|
28.6
|
28.7
|
|||||||
|
Tactical
— Fund of Equity and Debt Securities
|
5.4
|
5.4
|
2.6
|
|||||||
|
Real
Estate
|
5.4
|
5.5
|
5.4
|
|||||||
|
Other
|
12.8
|
10.9
|
15.0
|
|||||||
|
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
The
Company’s investment strategy for its pension plan is to maximize the long-term
rate of return on plan assets within an acceptable level of risk in order to
minimize the cost of providing pension benefits in accordance with this plan.
The investment policy establishes a target allocation for each asset class,
which is rebalanced as required. The Company utilizes a number of investment
approaches, including individual marketable securities, equity and fixed income
funds in which the underlying securities are marketable, and debt funds to
achieve this target allocation. The Company expects to contribute approximately
$250,000 to the pension plan in 2007 and does not expect to receive a refund
in
2007.
The
Company estimates that the future benefits payable for the defined benefit
plan
over the next ten years are as follows:
|
(in
thousands)
|
||||
|
2007
|
$
|
85
|
||
|
2008
|
196
|
|||
|
2009
|
209
|
|||
|
2010
|
214
|
|||
|
2011
|
228
|
|||
|
2012-2016
|
1,281
|
|||
47
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
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 $176,000 in
2006, $149,000 in 2005 and $149,000 in 2004.
Stock
Incentive Plan—
The
Company has granted various awards to employees under two stock incentive plans
(the “Plans”) that were approved by the shareholders in 2001 and 2004. The
Company reserved a total of 5,250,000 shares of common stock under
both Plans, each of which expires 10 years from approval. The Plans provide
for the issuance of various forms of stock incentives, including, among others,
incentive and non-qualified stock options and restricted stock. As of December
31, 2006, shares totaling 2,093,628 were available for grants.
As
previously noted, the Company adopted the provisions of SFAS 123(R),
“Share-Based Payment,” effective January 1, 2006. As permitted by SFAS 123(R),
the Company has elected to use the modified prospective transition method and
therefore financial results for prior periods have not been restated. Under
this
transition method, we will apply the provisions of SFAS123(R) to new awards
and
the awards modified, repurchased, or cancelled after January 1, 2006.
Additionally, the Company will recognize 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 as calculated for the pro forma disclosures required by Statement
123
less the cost of estimated forfeitures. SFAS 123(R) requires forfeitures to
be
estimated at the time of grant and revised, if necessary, in subsequent periods
to reflect actual forfeitures. SFAS 123(R) also requires that cash flows related
to share-based awards to employees that result in tax benefits in excess of
recognized cumulative compensation cost (excess tax benefits) be classified
as
financing cash flows.
Pre-tax
stock-based employee compensation expense was approximately $1,514,000
($1,129,000 after tax) for 2006, $750,000 ($506,000 after tax) for 2005 and
$255,000 ($191,000 after tax) for 2004. As a result of the adoption of SFAS
123(R), financial results were lower than under the previous accounting method
for share-based compensation by the following amounts:
|
(In
thousands)
|
Year
Ended
December
31, 2006
|
|||
|
Income
before income taxes
|
$
|
517
|
||
|
Net
income
|
$
|
487
|
||
|
Basic
earnings per common share
|
$
|
0.01
|
||
|
Diluted
earnings per common share
|
$
|
0.01
|
||
As
a
result of the adoption of SFAS 123(R), basic earnings per share decreased from
$0.55 to $0.54 and diluted earnings per share decreased from $0.53 to $0.52
for
the year ended December 31, 2006.
48
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
The
following table illustrates the effect on net income and net income per common
share as if the Company had applied the fair value recognition provisions of
SFAS 123(R) to stock-based compensation for the years ended December 31, 2005
and 2004:
|
Years
ended December 31,
|
2005
|
2004
|
|||||
|
(in
thousands)
|
|||||||
|
Net
income — as reported
|
$
|
26,223
|
$
|
23,743
|
|||
|
Add:
Stock-based employee compensation expense included in reported net
income,
net of related tax effect
|
506
|
191
|
|||||
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effect
|
(1,055
|
)
|
(550
|
)
|
|||
|
Pro
forma net income
|
$
|
25,674
|
$
|
23,384
|
|||
|
Pro
forma income per share would have been as follows:
|
|||||||
|
Basic
- as reported
|
$
|
0.69
|
$
|
0.62
|
|||
|
Basic
- pro forma
|
$
|
0.68
|
$
|
0.61
|
|||
|
Diluted
- as reported
|
$
|
0.65
|
$
|
0.58
|
|||
|
Diluted
- pro forma
|
$
|
0.64
|
$
|
0.57
|
|||
As
prescribed by SFAS 123(R), the Company estimates the fair value of stock
options
as of the date of grant using the Black-Scholes option pricing model. For
options granted during 2004, the latest year for which the Company granted
stock
options, the weighted average assumptions used in the Black-Scholes option
pricing model were as follows:
|
|
2006
|
|
2005
|
2004
|
||||||
|
Risk
free interest rate
|
N/A
|
|
N/A
|
|
3.5
|
%
|
||||
|
Expected
dividend yield
|
N/A
|
N/A
|
0.9
|
% | ||||||
|
Expected
lives
|
N/A
|
|
N/A
|
|
7
years
|
|
||||
|
Expected
volatility
|
N/A
|
N/A
|
47-52
|
% | ||||||
The
total
fair value of options granted to Marine Products employees was $422,000
in
2004.
49
Notes
to Consolidated Financial Statements
Marine
Products Corporation and Subsidiaries
Years
ended December 31, 2006, 2005 and 2004
Transactions
involving the Marine Products stock options for the year ended December 31,
2006
were as follows:
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic Value
|
||||||||||
|
Outstanding
at January 1, 2006
|
2,272,313
|
2.67
|
4.7
years
|
||||||||||
|
Granted
|
—
|
—
|
N/A
|
||||||||||
|
Exercised
|
(308,773
|
)
|
1.56 |
N/A
|
|||||||||
|
Forfeited
|
(12,000
|
)
|
7.55 |
N/A
|
|||||||||
|
Expired
|
—
|
—
|
N/A
|
||||||||||
|
Outstanding
at December 31, 2006
|
1,951,540
|
2.82
|
3.9
years
|
$
|
17,407,737
|
||||||||
|
Exercisable
at December 31, 2006
|
1,435,392
|
2.36
|
3.3
years
|
$
|
13,463,977
|
||||||||
The
Company has not granted stock options to employees since 2004. The weighted
average grant date fair value of the options granted in 2004 was $6.18. The
total intrinsic value of share options exercised was approximately $2,813,000
during 2006, $3,286,000 during 2005 and $5,625,000 during 2004. There were
no
tax benefits associated with the exercise of stock options during 2006, 2005
or
2004, because all of the options exercised were incentive stock options which
do
not generate tax deductions for the Company
Restricted
Stock— Marine Products has granted employees two forms of restricted stock;
time lapse restricted and performance restricted. Time lapse restricted shares
vest after a certain stipulated number of years from the grant date, depending
on the terms of the issue. The Company has issued time lapse restricted shares
that vest over ten years in prior years and in 2006 and 2005 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 performance restricted shares are granted,
but
not earned and issued, until certain five-year tiered performance criteria
are
met. The performance criteria are predetermined market prices of Marine
Products’ common stock. On the date the common stock appreciates to each level
(determination date), 20 percent of performance shares are earned. Once earned,
the performance shares vest five years from the determination date. After the
determination date, the grantee will receive all dividends declared and also
voting rights to 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, shares with restrictions must be returned to the Company.
The
following is a summary of the changes in non-vested restricted shares for the
year ended December 31, 2006:
|
Shares
|
Weighted
Average
Grant-Date
Fair Value
|
||||||
|
Non-vested
shares at January 1, 2006
|
562,574
|
$
|
8.79
|
||||
|
Granted
|
153,000
|
11.24 | |||||
|
Vested
|
(94,870
|
)
|
5.07 | ||||
|
Forfeited
|
(29,870
|
)
|
13.42 | ||||
|
Non-vested
shares at December 31, 2006
|
590,954
|
$
|
9.79
|
||||
The
total
fair value of shares vested was approximately $1,267,000 during 2006, $0 during
2005 and $2,876,000 during 2004. The tax benefit for compensation tax deductions
in excess of compensation expense was credited to capital in excess of par
value
aggregating $296,000 in 2006, $0 in 2005 and $874,000 in 2004. The excess tax
deductions during the year ended December 31, 2006 are classified as financing
cash flows in accordance with SFAS 123(R).
Other
Information—As
of
December 31, 2006 total unrecognized compensation cost related to non-vested
restricted shares was approximately $4,264,000 which is expected to be
recognized over a weighted-average period of 3.1 years. Unearned compensation
cost associated with non-vested restricted shares of $3,540,000 previously
reflected as deferred compensation in stockholders’ equity at January 1, 2006
was reclassified to capital in excess of par value as required by SFAS 123(R).
As of December 31, 2006, total unrecognized compensation cost related to
non-vested stock options was approximately $488,000 which is expected to be
recognized over a weighted-average period of 1.2 years.
50
The
Company received cash from options exercised of $178,000 in 2006, $344,000
in
2005 and $768,000 in 2004. These cash receipts are classified as financing
cash
flows in the accompanying consolidated statements of cash flows. The fair value
of shares tendered to exercise employee stock options totaled approximately
$295,000 in 2006, $262,000 in 2005 and $168,000 in 2004 have been excluded
from
the consolidated statements of cash flows.
51
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, 2006 (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 the 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 27 of this report. Grant Thornton LLP, the
Company’s independent registered public accounting firm, has audited
management’s assessment of the effectiveness of internal control as of December
31, 2006 and issued a report thereon which is included on page 28 of this
report.
Changes
in internal control over financial reporting—
There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recently completed 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.
52
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Information
concerning directors and executive officers will be included in the Marine
Products Proxy Statement for its 2007 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 14
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 2007
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 Supplemental Code of Business Conduct and Ethics
for
directors, the Principal Executive Officer and Principal Financial and
Accounting Officer. 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.
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 2007 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 2007 Annual Meeting of Stockholders, in the
sections titled “Compensation Committee Interlocks and Insider Participation,”
“Director Compensation,” “Compensation Discussion and Analysis,” “Compensation
Committee Report,” 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 2007 Annual Meeting of Stockholders, in the sections titled,
“Capital Stock” and “Election of Directors.” This information is incorporated
herein by reference.
Information
regarding Marine Products’ equity compensation plans including plans approved by
security holders and plans not approved by security holders will be included
in
the section titled, “Executive Compensation” in the Marine Products Proxy
Statement for its 2007 Annual Meeting of Stockholders, which is incorporated
herein by reference.
53
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth certain information regarding equity compensation
plans as of December 31, 2006.
|
Plan
Category
|
(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))
|
|||||||
|
Equity
compensation plans approved by securityholders
|
1,951,540
|
$
|
2.82
|
2,093,628
(1
|
)
|
|||||
|
Equity
compensation plans not approved by securityholders
|
—
|
—
|
—
|
|||||||
|
Total
|
1,951,540
|
$
|
2.82
|
2,093,628
|
||||||
| (1) |
All
of the securities can be issued in the form of restricted stock or
other
stock awards.
|
See
Note
10 to the Consolidated Financial Statements for information regarding the
material terms of the equity compensation plans.
Item
13. Certain Relationships and Related Party Transactions, and Director
Independence
Information concerning certain relationships and related party transactions
will
be included in the Marine Products Proxy Statement for its 2007 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 2007 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 2007 Annual Meeting of Stockholders. This information is
incorporated herein by reference.
54
PART
IV
Item
15. Exhibits and Financial Statement Schedules
Consolidated
Financial Statements, Financial Statement Schedule and Exhibits.
|
1.
|
Consolidated
financial statements listed in the accompanying Index to Consolidated
Financial Statements and Schedule are filed as part of this report.
|
|
2.
|
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:
|
|
10.1
|
Marine
Products Corporation 2001 Employee Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the Form 10 filed on February
13,
2001).
|
|
10.6
|
Compensation
Agreement between James A. Lane, Jr. and Chaparral Boats, Inc.
(incorporated herein by reference to Exhibit 10.6 to the Form 10
filed on
February 13, 2001).
|
|
10.7
|
Marine
Products Corporation 2004 Stock Incentive Plan (incorporated herein
by
reference to Appendix B to the Definitive Proxy Statement filed on
March
24, 2004).
|
|
10.8
|
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).
|
|
10.9
|
Form
of time lapse restricted stock grant agreement under the 2001 Employee
Stock Incentive Plan (incorporated herein by reference to Exhibit
10.8 to
the Form 10-K filed on March 21,
2003).
|
|
10.10
|
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).
|
|
10.11
|
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).
|
|
10.12
|
Form
of time lapse restricted stock grant agreement under the 2004 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.8
to the
Form 10-Q filed on November 1,
2004).
|
|
10.13
|
Form
of performance restricted stock grant agreement under the 2004 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.9
to the
Form 10-Q filed on November 1,
2004).
|
|
10.14
|
Summary
of ‘at will’ compensation arrangements with the Executive Officers as of
February 28, 2006 (incorporated herein by reference to Exhibit 10.14
to
the Form 10-K filed on March 13, 2006).
|
|
10.15
|
Summary
of compensation arrangements with the Directors (incorporated herein
by
reference to Exhibit 10.15 to the Form 10-K filed on March 15,
2005).
|
|
10.16
|
Supplemental
Retirement Plan (incorporated herein by reference to Exhibit 10.16
to the
Form 10-K filed on March 15, 2005).
|
| 10.17 |
Summary
of ‘At-Will’ compensation arrangements with the Executive Officers as of
February 28, 2007.
|
| 10.18 |
Summary
of Compensation Arrangements with Non-Employee Directors as of February
28, 2007.
|
55
| 10.19 |
First
Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
Plan.
|
56
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
|
Bylaws
of Marine Products Corporation (incorporated herein by reference
to
Exhibit 3.2 to the Form 10-Q filed on May 5, 2004).
|
|
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
13,
2001).
|
|
10.1
|
Marine
Products Corporation 2001 Employee Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the Form 10 filed on February
13,
2001).
|
|
10.2
|
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).
|
|
10.3
|
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).
|
|
10.4
|
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).
|
|
10.5
|
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).
|
|
10.6
|
Compensation
Agreement between James A. Lane, Jr. and Chaparral Boats, Inc.
(incorporated herein by reference to Exhibit 10.6 to the Form 10
filed on
February 13, 2001).
|
|
10.7
|
Marine
Products Corporation 2004 Stock Incentive Plan (incorporated herein
by
reference to Appendix B to the Definitive Proxy Statement filed on
March
24, 2004).
|
|
10.8
|
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).
|
|
10.9
|
Form
of time lapse restricted stock grant agreement under the 2001 Employee
Stock Incentive Plan (incorporated herein by reference to Exhibit
10.8 to
the Form 10-K filed on March 21, 2003).
|
|
10.10
|
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).
|
|
10.11
|
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).
|
|
10.12
|
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).
|
|
10.13
|
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).
|
|
10.14
|
Summary
of ‘at will’ compensation arrangements with the Executive Officers as of
February 28, 2006 (incorporated herein by reference to Exhibit 10.14
to
the Form 10-K filed on March 13, 2006).
|
|
10.15
|
Summary
of compensation arrangements with the Directors (incorporated herein
by
reference to Exhibit 10.15 to the Form 10-K filed on March 15,
2005).
|
|
10.16
|
Supplemental
Retirement Plan (incorporated herein by reference to Exhibit 10.16
to the
Form 10-K filed on March 15, 2005).
|
|
10.17
|
Summary
of ‘At-Will’ compensation arrangements with the Executive Officers as of
February 28, 2007.
|
|
10.18
|
Summary
of Compensation Arrangements with Non-Employee Directors as of February
28, 2007.
|
|
10.19
|
First
Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
Plan.
|
|
21
|
Subsidiaries
of Marine Products Corporation
|
|
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
|
Any
schedules or exhibits not shown above have been omitted because they are not
applicable.
57
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
Marine
Products Corporation
|
|
|
|
|
|
/s/
Richard A. Hubbell
|
|
|
Richard
A. Hubbell
President
and Chief Executive Officer
March
2, 2007
|
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
|
|
/s/
Richard A.
Hubbell
Richard
A. Hubbell
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
March
2, 2007
|
|
|
||
|
/s/
Ben M.
Palmer
Ben
M. Palmer
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
March
2, 2007
|
The
Directors of Marine Products (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
|
James
B. Williams, Director
|
|
Wilton
Looney, Director
|
James
A. Lane, Jr., Director
|
|
Gary
W. Rollins, Director
|
Linda
H. Graham, Director
|
|
Henry
B. Tippie, Director
|
Bill
J. Dismuke, Director
|
/s/
Richard
A.
Hubbell
Richard
A. Hubbell
Director
and as Attorney-in-fact
March
2,
2007
58
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE
The
following documents are filed as part of this report.
|
FINANCIAL
STATEMENTS AND REPORTS
|
PAGE
|
|
Management’s
Report on Internal Control Over Financial Reporting
|
27
|
|
Report
of Independent Registered Public Accounting Firm on Internal Control
Over
Financial Reporting
|
28
|
|
Report
of Independent Registered Public Accounting Firm on Consolidated
Financial
Statements
|
29
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
30
|
|
Consolidated
Statements of Income for the three years ended December 31,
2006
|
31
|
|
Consolidated
Statements of Stockholders’ Equity for the three years ended December 31,
2006
|
32
|
|
Consolidated
Statements of Cash Flows for the three years ended December 31,
2006
|
33
|
|
Notes
to Consolidated Financial Statements
|
34-51
|
|
SCHEDULE
|
|
|
Schedule
II — Valuation and Qualifying Accounts
|
59
|
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)
|
|||||||||||||
|
|
For
the years ended December 31, 2006, 2005 and 2004
|
||||||||||||
|
Description
|
Balance
at
Beginning
of
Period
|
Charged
to
Costs
and
Expenses
|
Net
(Write-Offs)/
Recoveries
|
Balance
at
End of
Period
|
|||||||||
|
Year
ended December 31, 2006 Allowance
for doubtful accounts
|
$
|
58
|
$
|
—
|
$
|
(6
|
)
|
$
|
52
|
||||
|
|
|
|
|
|
|||||||||
|
Year
ended December 31, 2005 Allowance
for doubtful accounts
|
$
|
60
|
$
|
—
|
$
|
(2
|
)
|
$
|
58
|
||||
|
|
|
|
|
|
|||||||||
|
Year
ended December 31, 2004 Allowance
for doubtful accounts
|
$
|
67
|
$
|
—
|
$
|
(7
|
)
|
$
|
60
|
||||
59
SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
First
|
Second
|
Third
|
Fourth
|
||||||||||
|
|
(in
thousands except per share data)
|
||||||||||||
|
Restated
for the three-for-two stock split effective March 10, 2005.
|
|||||||||||||
|
2006
|
|
|
|
|
|||||||||
|
Net
sales
|
$
|
69,957
|
$
|
71,739
|
$
|
64,002
|
$
|
55,680
|
|||||
|
Gross
profit
|
16,818
|
16,136
|
14,705
|
11,748
|
|||||||||
|
Net
income
|
5,776
|
6,289
|
4,562
|
3,687
|
|||||||||
|
Earnings
per share — basic (a)
|
0.15
|
0.17
|
0.12
|
0.10
|
|||||||||
|
Earnings
per share — diluted (a)
|
0.15
|
0.16
|
0.12
|
0.09
|
|||||||||
|
2005
|
|
|
|
|
|||||||||
|
Net
sales
|
$
|
72,586
|
$
|
77,566
|
$
|
65,032
|
$
|
56,873
|
|||||
|
Gross
profit
|
18,948
|
19,875
|
17,145
|
13,153
|
|||||||||
|
Net
income
|
6,817
|
7,956
|
7,265
|
4,185
|
|||||||||
|
Earnings
per share — basic (a)
|
0.18
|
0.21
|
0.19
|
0.11
|
|||||||||
|
Earnings
per share — diluted (a)
|
0.17
|
0.20
|
0.18
|
0.11
|
|||||||||
| (a) |
The
sum of the earnings per share for the four quarters may differ from
annual
earnings per share due to the required method of computing the weighted
average shares in interim periods.
|
60