COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2025

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 10: COMMITMENTS AND CONTINGENCIES

Lawsuits

The Company is a defendant in certain lawsuits which allege that plaintiffs have been injured or incurred damages as a result of Company business activities or 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.

Litigation Related to the Proposed Mergers

Stockholders have and may continue to file lawsuits challenging the Mergers (as defined below), which may name us, MasterCraft (as defined below), members of our Board, members of the MasterCraft board, or others as defendants. No assurance can be made as to the outcome of such lawsuits, including the amount of costs associated with defending claims or any other liabilities that may be incurred in connection with the litigation of any claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Mergers on the agreed-upon terms, such an injunction may delay the completion of the Mergers or may prevent the Mergers from being completed altogether.

Dealer Floor Plan Financing 

To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various dealers and selected third-party floor plan lenders to guarantee varying amounts of qualifying dealers’ debt obligations. The Company’s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third party lender. The agreements provide for the return of repossessed boats to the Company in new and unused condition, subject to normal wear and tear, in exchange for the Company’s assumption of the debt obligation on those boats, as contractually defined by each lender. The Company had no material repurchases of dealer inventory under contractual agreements during 2025 and 2024 as a result of dealer defaults. Pursuant to the Merger Agreement we have agreed to limit repurchases pursuant to floorplan financing arrangements to $500,000 individually or $1,000,000 in the aggregate during the time period between the execution of the Merger Agreement and the completion of the Mergers except as specifically approved by MasterCraft.

Management continues to monitor the risk of additional defaults and resulting repurchase obligations based in part on information provided by the third-party floor plan lenders and will adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time.

The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is based on the highest of the following criteria: (i) a specified percentage of the average net receivables financed by the floor plan lender for our dealers, (ii) the total average net receivables financed by the floor plan lender for our two highest dealers for the three highest monthly receivables balances during the past twelve months, or (iii) $8.0 million, less repurchases during the prior 12 month period. As defined by the agreement, the repurchase limit for this lender was $9.3 million as of December 31, 2025. Also, the Company also has an agreement with an additional floorplan lender whereby the contractual repurchase limit is based on the highest of the following criteria: (i) a specified percentage of the average net receivables financed by the floor plan lender for our dealers, or (ii) $18.8 million through June 30, 2026, reducing to $3.0 million beginning July 1, 2026.  As defined by the agreement, the repurchase limit for this lender was $18.8 million as of December 31, 2025. Lastly, the Company has contractual repurchase agreements with other lenders with an aggregate maximum repurchase obligation of $1.5 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all floor plan financing institutions of $29.6 million as of December 31, 2025.

Income Taxes

The amount of income taxes the Company pays is subject to ongoing audits by federal and state tax authorities, which often result in proposed assessments. Other long-term liabilities included the Company’s estimated liabilities for probable assessments and totaled $1.3 million as of December 31, 2025, compared to $1.4 million as of December 31, 2024. See the note titled Income Taxes for further information related to those liabilities.

Short-Term Cash Incentive Compensation

In addition to recording Short-Term Cash Incentive (“STCI”) compensation expense for executive officers, STCI expense has been recorded for certain non-executive employees based on a percentage of Pre-Tax Profit (“PTP incentive”), defined as pretax income before goodwill adjustments and certain allocated corporate expenses. Through the third quarter of 2023, this PTP incentive was 16% in the aggregate per year and was subject to either a contractual arrangement or a discretionary determination. The PTP incentive under a contractual agreement with one employee, in the amount of seven percent per year, was discontinued at the end of the third quarter of 2023. Beginning in the fourth quarter of 2023, the PTP incentive, subject to a discretionary determination, is nine percent in the aggregate per year for three employees.

Total STCI expense for the reported years was as follows:

(in thousands)
December 31,	2025		2024		2023
STCI expense	$	2,877	$	2,698	$	10,651

These amounts are included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.