Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
Commission File No. 1-16263
MARINE PRODUCTS CORPORATION
(exact name of registrant as specified in its charter)
Delaware
58-2572419
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
2801 Buford Highway, Suite 300, Atlanta, Georgia 30329
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code -- (404) 321-7910
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol(s)
Name of each exchange on which registered:
Common stock, par value $0.10
MPX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
◻
Accelerated Filer
⌧
Non-accelerated filer
Smaller reporting company
☐
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of October 18, 2019, Marine Products Corporation had 33,960,500 shares of common stock outstanding.
Marine Products Corporation
Page No.
Part I. Financial Information
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets – As of September 30, 2019 and December 31, 2018
3
Consolidated Statements of Operations – for the three and nine months ended September 30, 2019 and 2018
4
Consolidated Statements of Comprehensive Income – for the three and nine months ended September 30, 2019 and 2018
5
Consolidated Statements of Stockholders’ Equity – for the three and nine months ended September 30, 2019
6
Consolidated Statements of Stockholders’ Equity – for the three and nine months ended September 30, 2018
7
Consolidated Statements of Cash Flows – for the nine months ended September 30, 2019 and 2018
8
Notes to Consolidated Financial Statements
9-21
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22-28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
29
Part II. Other Information
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
30
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
31
2
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(In thousands)
(Unaudited)
September 30,
December 31,
2019
2018
ASSETS
(Note 1)
Cash and cash equivalents
$
23,030
8,745
Marketable securities
—
2,966
Accounts receivable, net of allowance for doubtful accounts of $20 in 2019 and $25 in 2018
15,164
3,872
Inventories
45,013
46,770
Income taxes receivable
452
Prepaid expenses and other current assets
1,541
1,795
Total current assets
84,748
64,600
Property, plant and equipment, net of accumulated depreciation of $27,724 in 2019 and $26,213 in 2018
15,009
14,552
Goodwill
3,308
Other intangibles, net
465
4,699
Deferred income taxes
4,381
3,325
Other assets
11,120
9,931
Total assets
119,031
100,880
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
9,624
4,673
Income taxes payable
446
Accrued expenses and other liabilities
17,043
13,494
Total current liabilities
27,113
18,167
Pension liabilities
9,244
7,045
Other long-term liabilities
537
456
Total liabilities
36,894
25,668
Common stock
3,396
3,433
Capital in excess of par value
Retained earnings
81,273
73,954
Accumulated other comprehensive loss
(2,532)
(2,175)
Total stockholders’ equity
82,137
75,212
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(In thousands except per share data)
Three months ended September 30,
Nine months ended September 30,
Net sales
72,212
72,012
243,961
236,554
Cost of goods sold
56,463
55,829
189,089
183,248
Gross profit
15,749
16,183
54,872
53,306
Selling, general and administrative expenses
6,039
6,996
24,915
23,935
Operating income
9,710
9,187
29,957
29,371
Interest income
83
102
235
220
Income before income taxes
9,793
9,289
30,192
29,591
Income tax provision
1,938
2,128
5,495
5,831
Net income
7,855
7,161
24,697
23,760
Earnings per share
Basic
0.23
0.21
0.72
0.69
Diluted
Dividends paid per share
0.12
0.10
0.36
0.30
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income, net of taxes:
Pension adjustment
16
17
50
51
Unrealized gain on securities, net of reclassification adjustments
Comprehensive income
7,871
7,178
24,754
23,827
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019
Accumulated
Capital in
Other
Common Stock
Excess of
Retained
Comprehensive
Shares
Amount
Par Value
Earnings
Income (Loss)
Total
Balance, December 31, 2018
34,328
Adoption of accounting standard (Note 2)
414
(414)
Stock issued for stock incentive plans, net
141
14
524
538
Stock purchased and retired
(344)
(34)
(524)
(4,338)
(4,896)
7,469
Pension adjustment, net of taxes
Unrealized gain on securities, net of taxes and reclassification adjustment
Dividends paid
(4,117)
Balance, March 31, 2019
34,125
3,413
73,382
(2,565)
74,230
(11)
(1)
545
544
(69)
(8)
(545)
(443)
(996)
9,373
(4,092)
Balance, June 30, 2019
34,045
3,404
78,220
(2,548)
79,076
(85)
(544)
(719)
(1,271)
(4,083)
Balance, September 30, 2019
33,960
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
Balance, December 31, 2017
34,572
3,457
68,127
(1,980)
69,604
194
20
496
516
(200)
(20)
(496)
(2,419)
(2,935)
7,609
19
(3,465)
Balance, March 31, 2018
34,566
69,852
(1,954)
71,355
529
528
(17)
(529)
259
(271)
8,990
15
9
(3,455)
Balance, June 30, 2018
34,548
3,455
75,646
(1,930)
77,171
0
(49)
(5)
(528)
(397)
(930)
(3,452)
Balance, September 30, 2018
34,499
3,450
78,958
(1,913)
80,495
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
1,556
1,330
(Accretion) of discount/amortization of premium related to marketable securities, net
200
Stock-based compensation expense
1,626
1,572
Deferred income tax (benefit)/provision
(1,074)
239
(Increase) decrease in assets:
Accounts receivable
(11,292)
(4,353)
1,757
(11,865)
254
569
643
Other non-current assets
(918)
(1,227)
Increase (decrease) in liabilities:
4,951
6,863
3,502
(609)
2,122
1,063
Net cash provided by operating activities
28,074
18,185
INVESTING ACTIVITIES
Capital expenditures
(2,013)
(1,912)
Purchases of marketable securities
(299)
(15,075)
Sales of marketable securities
7,530
9,799
Maturities of marketable securities
448
1,973
Net cash provided by (used for) investing activities
5,666
(5,215)
FINANCING ACTIVITIES
Payment of dividends
(12,292)
(10,372)
Cash paid for common stock purchased and retired
(7,163)
(4,136)
Net cash used for financing activities
(19,455)
(14,508)
Net increase (decrease) in cash and cash equivalents
14,285
(1,538)
Cash and cash equivalents at beginning of period
7,684
Cash and cash equivalents at end of period
6,146
Supplemental information:
Income tax payments, net
5,710
4,597
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (all of which consisted of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report of Marine Products Corporation (“Marine Products,” the “Company” or “MPC”) on Form 10-K for the year ended December 31, 2018.
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.
2. RECENT ACCOUNTING STANDARDS
Recently Adopted Accounting Standards:
Recently Issued Accounting Standards Not Yet Adopted:
To be adopted in 2020 and later:
3. NET SALES
Accounting Policy:
MPC’s contract revenues are generated principally from selling: (1) fiberglass motorized boats and accessories and (2) parts to independent dealers. Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. Satisfaction of contract terms occur with the transfer of title of our boats, accessories, and parts to our dealers. Net sale is measured as the amount of consideration we expect to receive in exchange for transferring the goods to the dealer. The amount of consideration we expect to receive consists of the sales price adjusted for dealer incentives. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold as they are deemed to be assurance-type warranties (see Note 7). Incidental promotional items that are immaterial in the context of the contract are recognized as expense. Fees charged to customers for shipping and handling are included in net sales in the accompanying consolidated statements of operations and the related costs incurred by the Company are included in cost of goods sold.
10
Nature of goods:
MPC’s performance obligations within its contracts consists of: (1) boats and accessories and (2) parts. The Company transfers control and recognizes revenue on the satisfaction of its performance obligations (point in time) as follows:
Payment terms:
For most domestic customers, MPC manufactures and delivers boats and accessories and parts ahead of payment - i.e., MPC has fulfilled its performance obligations prior to submitting an invoice to the dealer. MPC invoices the customer when the products are delivered and receives the related compensation, typically within seven to ten business days after invoicing. For some domestic customers and all international customers, MPC requires payment prior to transferring control of the goods. These amounts are classified as deferred revenue and recognized when control has transferred, which generally occurs within three months of receiving the payment.
When the Company enters into contracts with its customers, it generally expects there to be no significant timing difference between the date the goods have been delivered to the customer (satisfaction of the performance obligation) and the date cash consideration is received. Accordingly, there is no financing component to the Company’s arrangements with its customers.
Significant judgments:
Determining the transaction price
The transaction price for MPC’s boats and accessories is the invoice price adjusted for dealer incentives. The Company utilizes the expected value method to estimate the variable consideration related to dealer incentives. Key inputs and assumptions in determining variable consideration includes:
Other:
Our contracts with dealers do not provide them with a right of return. Accordingly, we do not have any obligations recorded for returns or refunds.
11
Disaggregation of revenues:
The following table disaggregates our sales by major source (in thousands):
Three months ended
Nine months ended
(in thousands)
September 30, 2019
September 30, 2018
Boats and accessories
70,927
70,787
240,296
233,139
Parts
1,285
1,225
3,665
3,415
The following table disaggregates our revenues between domestic and international (in thousands):
Domestic
69,136
69,781
229,266
219,078
International
3,076
2,231
14,695
17,475
Timing of revenue recognition for each of the periods presented is shown below:
Products transferred at a point in time
Products transferred over time
Contract balances:
Amounts received from international and certain domestic dealers toward the purchase of boats are classified as deferred revenue and are included in accrued expenses and other liabilities on the Consolidated Balance Sheets.
2017
Deferred revenue
320
397
864
Substantially all of the amounts of deferred revenue disclosed above were recognized as sales during the immediately following quarters, respectively, when control transferred.
12
4. EARNINGS PER SHARE
Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the respective periods. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities. Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted average shares outstanding is as follows:
Net income available for stockholders:
Less: Adjustments for earnings attributable to participating securities
(187)
(194)
(594)
(658)
Net income used in calculating earnings per share
7,668
6,967
24,103
23,102
Weighted average shares outstanding (including participating securities)
34,001
34,539
34,111
34,563
Adjustment for participating securities
(817)
(950)
(837)
(979)
Shares used in calculating basic and diluted earnings per share
33,184
33,589
33,274
33,584
5. STOCK-BASED COMPENSATION
The Company reserved 3,000,000 shares of common stock under the 2014 Stock Incentive Plan with a term of ten years expiring in April 2024. All future equity compensation awards by the Company will be issued under the 2014 plan. This plan provides for the issuance of various forms of stock incentives, including among others, incentive and non-qualified stock options and restricted shares. As of September 30, 2019, there were approximately 1,741,200 shares available for grant.
Stock-based compensation for the three and nine months ended September 30, 2019 and 2018 were as follows:
Restricted Stock
Pre – tax cost
After tax cost
424
412
1,268
1,226
The following is a summary of the changes in non-vested restricted shares for the three months ended September 30, 2019:
Weighted
Average
Grant-Date
Fair Value
Non-vested shares at December 31, 2018
947,710
9.41
Granted
141,600
17.21
Vested
(260,770)
7.65
Forfeited
(11,300)
12.47
Non-vested shares at September 30, 2019
817,240
11.28
The total fair value of shares vested was approximately $3,818,000 during the nine months ended September 30, 2019 and approximately $4,289,000 during the nine months ended September 30, 2018.
13
As of September 30, 2019, total unrecognized compensation cost related to non-vested restricted shares was approximately $7,884,000. This cost is expected to be recognized over a weighted-average period of 2.4 years.
For the nine months ended September 30, 2019, approximately $456,000 of excess tax benefit for stock-based compensation awards has been recorded as a discrete tax adjustment and classified within operating activities in the consolidated statements of cash flows compared to approximately $604,000 for the nine months ended September 30, 2018.
6. MARKETABLE SECURITIES
During the first quarter of 2019, the Company changed its investment strategy and as of September 30, 2019, no longer held investments in marketable securities. The Company held investments in marketable securities for a short duration in the first quarter of 2019. During 2018, Marine Products’ marketable securities were held with a large, well-capitalized financial institution. Management determined the appropriate classification of debt securities at the time of purchase and reevaluated such designations as of each balance sheet date. Debt securities were classified as available-for-sale because the Company did not have the intent to hold the securities to maturity. Available-for-sale debt securities were 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 was 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 debt securities have been included in interest income.
The net realized gains (losses) and the reclassification of net realized gains (losses) from other comprehensive income are as follows:
Net realized gain (loss)
(16)
(36)
Reclassification of net realized gains from other comprehensive income
Gross unrealized gains (losses) on marketable securities are as follows:
December 31, 2018
Gross unrealized
Gains
(Losses)
Municipal Obligations
(2)
Corporate Obligations
1
(10)
(12)
There were no available-available-for sale securities as of September 30, 2019. The amortized cost basis, fair value and net unrealized gains on the available-for-sale debt securities as of December 31, 2018 are as follows:
Net
Amortized
Fair
Unrealized
Type of Securities
Cost Basis
Value
Losses
1,490
6,184
6,175
(9)
7,674
7,665
7. WARRANTY COSTS AND OTHER CONTINGENCIES
Warranty Costs:
For its Chaparral and Robalo products, Marine Products provides a lifetime limited structural hull warranty and a transferable one-year limited warranty to the original owner. Chaparral also includes a five-year limited structural deck warranty. Warranties for additional items are provided for periods of one to five years and are not transferrable. Additionally, as it relates to the second subsequent owner, a five-year transferrable hull warranty and the remainder of the original one-year limited warranty on certain components are available. The five-year transferable hull warranty terminates five years after the date of the original retail purchase. Claim costs related to components are generally absorbed by the original component manufacturer.
The manufacturers of the engines, generators, and navigation electronics included on our boats provide and administer their own warranties for various lengths of time.
An analysis of the warranty accruals for the nine months ended September 30, 2019 and 2018 is as follows:
Balance at beginning of period
5,607
5,373
Less: Payments made during the period
(3,134)
(3,016)
Add: Warranty provision for the period
3,135
3,026
Changes to warranty provision for prior periods
93
56
Balance at September 30
5,701
5,439
The warranty accruals are reflected in accrued expenses and other liabilities on the consolidated balance sheets.
Repurchase Obligations:
The Company is a party to various agreements with third party lenders that provide floor plan financing to qualifying dealers whereby the Company guarantees varying amounts of debt on boats in dealer inventory. The Company’s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender. The agreements provide for the return of repossessed boats to the Company in new and unused condition subject to normal wear and tear as defined, in exchange for the Company’s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits by the lenders. The Company had repurchases of dealer inventory totaling $3.4 million under contractual agreements during the third quarter of 2019 and no repurchases during the nine months ended September 30, 2018.
As previously noted, the Company recorded the repurchase of inventory totaling $3.4 million as a result of dealer defaults. At September 30, 2019, there was $2.7 million payable to floor plan lenders in connection with these repurchases and was recorded in accrued expenses. During the third quarter of 2019, the Company redistributed $3.1 million of these boats among existing and replacement dealers. The remaining repurchased boats are included in inventory as of September 30, 2019 and are recorded at a net realizable value of $0.3 million. The Company recorded $0.1 million of costs associated with these repurchases.
Management continues to monitor the risk of defaults and resulting repurchase obligations based in part on information provided by 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 16 percent of the amount of the average net receivables financed by the floor plan lender for our dealers during the prior 12 month period, which was $13.1 million as of September 30, 2019. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $7.2 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all floor plan financing institutions of approximately $20.3 million as of September 30, 2019.
8. BUSINESS SEGMENT INFORMATION
The Company has only one reportable segment, its powerboat manufacturing business; therefore, the majority of segment-related disclosures are not relevant to the Company. In addition, the Company’s results of operations and its financial condition are not significantly reliant upon any single customer or product model.
9. INVENTORIES
Inventories consist of the following:
Raw materials and supplies
29,623
26,874
Work in process
7,868
10,671
Finished goods
7,522
9,225
Total inventories
10. INCOME TAXES
The Company determines its periodic income tax provision based upon the current period income and the annual estimated tax rate for the Company adjusted for discrete items including tax credits and changes to prior year estimates. The estimated tax rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company’s current annual estimated tax rate.
Income tax provision for the third quarter of 2019 reflects an effective tax rate of 19.8 percent, compared to an effective tax rate of 22.9 percent for the comparable period in the prior year. For the nine months ended September 30, 2019, the effective tax rate reflects an income tax provision of 18.2 percent compared to 19.7 percent for the comparable period in the prior year. The slight decrease in effective rate is primarily due to an increase in tax exempt investment gains in 2019 as compared to the same period in 2018. The effective rate in all periods includes the effect of beneficial permanent differences including discrete adjustments related to restricted stock dividends.
11. EMPLOYEE BENEFIT PLANS
The Company participates in a multiple employer pension plan. The following represents the net periodic benefit cost and related components for the plan:
Interest cost
64
63
192
188
Expected return on plan assets
(117)
(126)
(352)
(376)
Amortization of net losses
22
66
61
Net periodic benefit
(31)
(43)
(94)
(127)
The Company did not make a contribution to this plan during the nine months ended September 30, 2019.
The Company permits selected highly compensated employees to defer a portion of their compensation into a non-qualified Supplemental Executive Retirement Plan (“SERP”). The Company maintains certain securities in the SERP that have been classified as trading. The SERP assets are stated at fair value and totaled approximately $6,323,000 as of September 30, 2019 and $5,518,000 as of December 31, 2018. The SERP assets are reported in other non-current assets on the consolidated balance sheets and changes to the fair value of the assets are reported in selling, general and administrative expenses in the consolidated statements of operations.
Trading gains related to the SERP assets totaled approximately $805,000 during the nine months ended September 30, 2019, compared to trading gains of approximately $211,000 during the nine months ended September 30, 2018.
12. FAIR VALUE MEASUREMENTS
The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:
The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of September 30, 2019 and December 31, 2018:
Fair Value Measurements at September 30, 2019 with:
Quoted prices in
Significant
active markets
other
for
observable
unobservable
identical assets
inputs
(Level 1)
(Level 2)
(Level 3)
Assets:
Available-for-sale debt securities:
Investments measured at Net Asset Value - Trading securities
6,323
Fair Value Measurements at December 31, 2018 with:
5,518
The carrying amount of other financial instruments reported in the consolidated balance sheets for current assets and current liabilities approximate their fair values because of the short-term nature of these instruments.
18
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
Pension
Loss On
Adjustment
Securities
Balance at December 31, 2018
(2,178)
Change during the period ended September 30, 2019:
(404)
Before-tax amount
Tax provision
(3)
Reclassification adjustment, net of taxes
Amortization of net loss (1)
Net realized gain (2)
Total activity for the period
47
Balance at September 30, 2019
Balance at December 31, 2017
(1,936)
(44)
Change during the period ended September 30, 2018:
(15)
Net realized loss (2)
67
Balance at September 30, 2018
(1,885)
(28)
14. LEASES
The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019 and recognized leases with duration greater than 12 months on the balance sheet using the modified retrospective approach. Prior year financial statements have not been restated and therefore those amounts are not presented below. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed for a carry-forward of the historical lease classification. For leases with terms greater than 12 months, the Company has recorded the related Right-Of-Use asset and liability at the present value of lease payments over the term. Renewal options have been factored into the determination of lease payments when appropriate. There are no residual value guarantees on the existing leases. The Company estimates its incremental borrowing rate, at lease commencement, to determine the present value of lease payments, since most of the Company’s leases do not provide an implicit rate of return.
The Company’s lease population consists primarily of office equipment. The Company does not have any finance leases. The Company determines at contract inception, if an arrangement is a lease or contains a lease based on whether the Company obtains the right to control the use of specifically identifiable property, plant and equipment for a period of time in exchange for consideration. The Company has elected not to separate non-lease components from lease components for its leases. Variable lease payments are recognized as expense when incurred.
As of September 30, 2019, the Company had no operating leases that had not yet commenced.
Lease position:
The table below presents the assets and liabilities related to operating leases recorded on the balance sheet:
Classification on the Consolidated
Balance Sheet
Operating lease right-of-use assets
171
Liabilities:
Current maturities of operating leases
Long-term operating lease liabilities
122
Total lease liabilities
169
Lease Costs:
The components of lease expense for the period are reported as follows:
Statements of Operations
Operating lease cost
39
Short-term lease cost
Total lease cost
41
Other information:
Cash paid for amounts included in the measurement of lease liabilities –operating leases (in thousands)
34
Weighted average remaining lease term –operating leases
3.5
years
Weighted average discount rate – operating leases
3.68
%
Lease Commitments:
Future minimum lease payments at September 30, 2019 were as follows:
Maturity of lease liabilities
Operating Leases
2019 (excluding the nine months ended September 30, 2019)
2020
52
2021
2022
2023
Thereafter
Total lease payments
179
Less: Amounts representing interest
Present value of lease liabilities
In the second quarter of 2019, the Company entered into an operating lease as the lessor for certain real estate leased to a third party under an operating lease with an initial term of 36 months. The lease requires fixed monthly payments and does not contain clauses for future rent escalations or renewal options. There are no terms and conditions under which the lessee has the option to purchase this asset. As of September 30, 2019, projected future lease income on this lease totaled $588,750 scheduled to be received as follows: 2019 - $58,875 (excluding the nine months ended September 30, 2019), 2020 - $235,500, 2021 - $235,500 and 2022 - $58,875. During the three and nine months ended September 30, 2019, the Company recorded rental income of $59 thousand and $88 thousand and is classified as part of selling, general and administrative expenses on the consolidated statements of operations.
15. SUBSEQUENT EVENT
On October 22, 2019, the Board of Directors declared a regular quarterly cash dividend of $0.12 per share and a special year-end cash dividend of $0.10 per share. Both dividends are payable December 10, 2019 to common stockholders of record at the close of business November 11, 2019.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Marine Products Corporation, 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. Many of these dealers finance their inventory through third-party floorplan lenders, who pay Marine Products generally within twelve days after delivery of the products to the dealers.
The discussion on business and financial strategies of the Company set forth under the heading “Overview” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018 is incorporated herein by reference. There have been no significant changes in the strategies since year-end.
In executing these strategies and attempting to optimize our financial returns, management closely monitors dealer orders and inventories, the production mix of various models, and indications of near term demand such as consumer confidence, interest rates, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions. We also consider trends related to certain key financial and other data, including our historical and forecasted financial results, market share, unit sales of our products, average selling price per boat, and gross profit margins, among others, as indicators of the success of our strategies. Our 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.
Our net sales were slightly higher during the third quarter of 2019 compared to the third quarter of 2018 primarily due to an increase in average selling prices coupled with a slight decrease in sales discounts, partially offset by a decrease in number of units sold.
Operating income increased 5.7 percent during the third quarter of 2019 compared to the same period in the prior year primarily due to lower selling, general and administrative expenses partially offset by lower gross profit. Selling, general and administrative expenses decreased primarily due to state incentives of $1.6 million recorded in the third quarter of 2019, partially offset by higher advertising expense and employment-related costs during the third quarter on 2019 as compared to the same period in the prior year. Dealer inventory in units as of September 30, 2019 was lower than at the end of the second quarter of 2019 but higher than at the end of the third quarter of 2018.
OUTLOOK
The discussion of the outlook for 2019 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018.
We believe that recreational boating retail demand in many segments of the industry will decline during 2019. Positive factors influencing recreational boat demand include strong consumer confidence and a robust U.S. employment market, as well as a favorable financing environment for boat dealers and consumers. These positive factors are offset by potential weakness in residential real estate markets and the negative impact of recent stock market fluctuations. These issues may have impacted attendance at the 2019 winter boat shows, which was slightly lower in 2019 than in 2018.
Although industry wide retail boat sales remain lower than they were prior to the 2008 financial crisis, retail boat sales have increased each year since 2012. Fluctuations in fuel prices can impact our industry, although they were relatively stable in 2018 and we do not believe that they have recently impacted sales. In general, the overall cost of boat ownership has increased, especially in the sterndrive recreational boat market segment, which comprises approximately 33 percent of the Company’s unit sales. The higher cost of boat ownership discourages consumers from purchasing recreational boats. For years, Marine Products and other boat manufacturers have been improving their customer service capabilities, marketing strategies and sales promotions in order to attract more consumers to recreational boating as well as improve consumers’ boating experiences. The Company provides financial incentives to its dealers for receiving favorable customer satisfaction surveys. In addition, the recreational boating industry conducts a promotional program which involves advertising and consumer targeting efforts, as well as other activities designed to increase the potential consumer market for pleasure boats. Many manufacturers, including Marine Products, participate in this program. Management believes that these efforts have incrementally benefited the industry and Marine Products. As in past years, Marine Products enhanced its selection of models for the 2020 model year which began on July 1, 2019. We continue to emphasize the Surf Series line of Chaparral models, our larger Chaparral SSX models, and our larger Robalo models. In addition, we generated strong sales of our new Chaparral 300 OSX Bowriders. We believe that these boat models will expand our customer base and leverage our strong dealer network and reputation for quality and styling. We plan to continue to develop and produce additional new products for subsequent model years.
Our financial results will depend on a number of factors, including interest rates, consumer confidence, the availability of credit to our dealers and consumers, fuel costs, the continued acceptance of our new products in the recreational boating market, our ability to compete in the competitive pleasure boating industry, the availability of labor and certain costs of our raw materials and key components.
RESULTS OF OPERATIONS
Key operating and financial statistics for the three and nine months ended September 30, 2019 and 2018 are as follows:
Total number of boats sold
1,165
1,241
4,004
4,301
Average gross selling price per boat (in thousands)
52.9
50.0
52.8
47.9
Net sales (in thousands)
Percentage of cost of goods sold to net sales
78.2
77.5
Gross profit margin percent
21.8
22.5
Percentage of selling, general and administrative expenses to net sales
8.4
9.7
10.2
10.1
Operating income (in thousands)
Warranty expense (in thousands)
944
937
3,228
3,082
23
THREE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2018
Net sales for the three months ended September 30, 2019 increased $0.2 million or 0.3 percent compared to the same period in 2018. The change in net sales during the quarter compared to the prior year was due primarily to a 5.8 percent increase in the average selling price per boat coupled with a small decrease in sales discounts, partially offset by a 6.1 percent decrease in the number of units sold. The increase in the average selling price per boat is primarily due to higher pricing for most of our model lines, as well as a model mix which included larger boats, such as our new 300 OSX Bowrider and Robalo 272. The decrease in unit sales was primarily due to a decrease in sales of several of our model lines. In the third quarter of 2019, net sales outside of the United States accounted for 4.3 percent of net sales compared to 3.1 percent of net sales in the third quarter of 2018. International sales remained low primarily due to the tariffs imposed on boat imports by Mexico and the European Union, coupled with the strong U.S. dollar. Domestic net sales decreased 0.9 percent to $69.1 million but international sales of $3.1 million increased 37.9 percent compared to the third quarter of the prior year. International sales increased during the third quarter of 2019 primarily due to the Canadian tariff on boat imports ceasing on April 30, 2019.
Cost of goods sold for the three months ended September 30, 2019 was $56.5 million compared to $55.8 million for the comparable period in 2018, an increase of $0.6 million or 1.1 percent. Cost of goods sold increased to 78.2 percent of net sales for the three months ended September 30, 2019 from 77.5 percent of net sales for the comparable period in 2018, primarily due to higher materials costs as a result of changes in model mix.
Selling, general and administrative expenses for the three months ended September 30, 2019 were $6.0 million compared to $7.0 million for the comparable period in 2018, a decrease of $1.0 million or 13.7 percent. This decrease was primarily due to state incentives of $1.6 million recorded in the third quarter of 2019, partially offset by higher advertising expense and employment-related costs during the third quarter on 2019 as compared to the same period in the prior year. Selling, general and administrative expenses as a percentage of net sales decreased to 8.4 percent in the third quarter of 2019 from 9.7 percent in the third quarter of 2018.
Operating income for the three months ended September 30, 2019 increased $0.5 million or 5.7 percent compared to the same period in 2018 primarily due to decrease in selling, general and administrative expenses partially offset by a decrease in gross profit.
Interest income for the three months ended September 30, 2019 decreased $19 thousand or 18.6 percent compared to the prior year primarily due to lower average balance of cash and cash equivalents.
Income tax provision for the third quarter of 2019 reflects an effective tax rate of 19.8 percent compared to an effective tax rate of 22.9 percent for the comparable period in the prior year. The slight decrease in the effective tax rate in the third quarter of 2019 is primarily due to higher tax-exempt investment gains in 2019 as compared to the same period in 2018. The effective rate in both periods includes the effect of beneficial permanent differences including discrete adjustments related to restricted stock dividends.
NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2018
Net sales for the nine months ended September 30, 2019 increased $7.4 million or 3.1 percent compared to the same period in 2018. The change in net sales during the nine months ended September 30, 2019 compared to the prior year was due primarily to a 10.2 percent increase in the average selling price per boat partially offset by a 6.9 percent decrease in the number of units sold. The increase in the average selling price per boat is primarily due to higher pricing for most of our model lines during the third quarter of 2019 coupled with a model mix which included larger boats, such as our new 300 OSX Bowrider and Robalo. The decrease in unit sales was primarily due to a decrease in sales of several of our model lines. During the nine months ended September 30, 2019, net sales outside of the United States accounted for 6.0 percent of net sales compared to 7.4 percent of net sales during the comparable period of 2018. International sales remained low primarily due to the tariffs imposed on boat imports by Canada, Mexico and the European Union, coupled with the strong U.S. dollar. Canadian tariffs ceased during the second quarter of 2019. Domestic net sales increased 4.7 percent to $229.3 million but international sales decreased 15.9 percent to $14.7 million compared to the first nine months of the prior year.
Cost of goods sold for the nine months ended September 30, 2019 was $189.1 million compared to $183.2 million for the comparable period in 2018, an increase of $5.9 million or 3.2 percent due to higher materials costs as a result of changes in model mix. Cost of goods sold remained unchanged at 77.5 percent of net sales for the nine months ended September 30, 2019 and 2018.
24
Selling, general and administrative expenses for the nine months ended September 30, 2019 were $24.9 million compared to $23.9 million for the comparable period in 2018, an increase of $1.0 million or 4.1 percent. This increase was primarily due to expenses that increase due to higher sales, as well as an increase in labor cost, partially offset by state incentives of $1.6 million recorded in the third quarter of 2019. Selling, general and administrative expenses as a percentage of net sales increased to 10.2 percent in the nine months ended September 30, 2019 from 10.1 percent in the nine months ended September 30, 2018.
Operating income for the nine months ended September 30, 2019 increased $0.6 million or 2.0 percent compared to the same period in 2018 primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expense.
Interest income for the nine months ended September 30, 2019 increased $15 thousand or 6.8 percent compared to the prior year primarily due to lower average balance of cash and cash equivalents.
Income tax provision for the nine months ended September 30, 2019 reflects an effective tax rate of 18.2 percent, compared to an effective tax rate of 19.7 percent for the comparable period in the prior year. The slight decrease in effective rate in the first nine months of 2019 is primarily due to higher tax-exempt investment gains in 2019 as compared to the same period in 2018. The effective rate in both periods includes the effect of beneficial permanent differences including discrete adjustments related to restricted stock dividends.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company’s cash and cash equivalents at September 30, 2019 were $23.0 million compared to $8.7 million at December 31, 2018. The increase in cash and cash equivalents is due to a change in investment strategy to no longer hold investments in marketable securities. The aggregate of short-term and long-term marketable securities was $7.7 million at December 31, 2018, where no marketable securities were held at September 30, 2019.
The following table sets forth the cash flows for the applicable periods:
Cash provided by operating activities for the nine months ended September 30, 2019 increased $9.9 million compared to the comparable period in 2018. This increase is primarily due to a favorable change in working capital, as described in more detail below, coupled with an increase in net income.
The major components of the net favorable change in working capital were as follows: a favorable change of $13.6 million in inventories primarily due to the decrease in production and timing of shipments of finished boats; a $1.1 million favorable change in other long-term liabilities; a $1.9 million unfavorable change in accounts payable, primarily due to timing of payments; and a $6.9 million unfavorable change in accounts receivable primarily due to the $2.3 million receivable related to the sale of repurchased boats coupled with a state incentive receivable for $1.6 million during the third quarter of 2019.
Cash provided by investing activities for the nine months ended September 30, 2019 was approximately $5.7 million compared to $5.2 million used for investing activities for the same period in 2018. The increase in cash provided by investing activities is primarily due to increased net sales of marketable securities in the current period resulting from a change in investment strategy during the first quarter of 2019, partially offset by an increase in capital expenditures.
25
Cash used for financing activities for the nine months ended September 30, 2019 increased approximately $4.9 million compared to the nine months ended September 30, 2018 primarily due to both an increase in open market share repurchases and an increase in common stock dividends paid to shareholders in 2019 compared to the prior year.
Financial Condition and Liquidity
The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization and cash generated by operations will provide sufficient capital to meet the Company’s requirements for at least the next twelve months. The Company’s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations.
Cash Requirements
The Company currently expects that capital expenditures in 2019 will be approximately $3.2 million, of which $2.0 million has been spent through September 30, 2019.
The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). The Company did not make a cash contribution to this plan in the third quarter of 2019 and does not expect to make any additional contributions for the remainder of 2019.
As of September 30, 2019, the Company has repurchased a total of 6,492,649 shares in the open market under the Company stock repurchase program, which began in 2002. There are 1,757,351 shares that remain available for repurchase under the current authorization. There were 85,354 shares repurchased under this program during the three months ended September 30, 2019.
On October 22, 2019, the Board of Directors declared a regular quarterly cash dividend of $0.12 per share and a special year-end cash dividend of $0.10 per share. Both dividends are payable December 10, 2019 to common stockholders of record at the close of business November 11, 2019. The Company expects to continue to pay cash dividends to common stockholders, subject to industry conditions and Marine Product’s earnings, financial condition, and other relevant factors.
OFF BALANCE SHEET ARRANGEMENTS
To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various third-party floor plan lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company’s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender. The agreements provide for the return of all repossessed boats to the Company in a new and unused condition as defined, in exchange for the Company’s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits which vary by lender. The Company had repurchases of dealer inventory totaling $3.4 million under contractual agreements during the nine months ended September 30, 2019 and no repurchases during the nine months ended September 30, 2018.
Management continues to monitor the risk of 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.
26
The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is 16 percent of the amount of the average net receivables financed by the floor plan lender for our dealers during the prior 12 month period, which was $13.1 million as of September 30, 2019. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $7.2 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all financing institutions of approximately $20.3 million as of September 30, 2019.
RELATED PARTY TRANSACTIONS
In conjunction with its spin-off from RPC in 2001, the Company and RPC entered into various agreements that define their relationship after the spin-off. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $656 thousand for the nine months ended September 30, 2019 and approximately $667 thousand for the nine months ended September 30, 2018.
CRITICAL ACCOUNTING POLICIES
The discussion of Critical Accounting Policies is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018. There have been no significant changes in the critical accounting policies since year-end.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.
SEASONALITY
Marine Products’ quarterly operating results are affected by weather and general economic conditions. Quarterly operating results for the third quarter have historically recorded the highest sales volume for the year because this corresponds with the highest retail sales volume period. The results for any quarter are not necessarily indicative of results to be expected in any future period.
INFLATION
The market prices of certain materials used in manufacturing the Company’s products, especially resins that are made with hydrocarbon feedstocks, copper and steel, have at certain periods been volatile. Although raw materials costs have not increased during 2019, the cost of certain components used in the manufacturing of the Company’s products has increased due to high demand and limited supplier capacity. As a result, it is possible the Company will incur higher materials purchase costs for the remainder of 2019. These higher prices of materials would increase the costs of manufacturing the Company’s products, and could negatively affect our profit margins, due to the competitive nature of the selling environment for recreational boats. Furthermore, the costs of these raw materials remain volatile, and may increase in the future.
New boat buyers typically finance their purchases. Higher inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. During 2018, inflation in the general economy began to increase, and general market interest rates have increased as well. If these trends continue, prospective buyers may choose to forego or delay their purchases or buy a less expensive boat in the event that interest rates rise or credit is not available to finance their boat purchases.
27
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, our belief that recreational boating retail demand in many segments of the industry will remain stable in 2019; our belief that fluctuations in fuel prices have not recently impacted sales; our belief that the recreational boating industry’s promotional program has incrementally benefited the industry and Marine Products; our plans to continue to emphasize the Surf Series line of Chaparral boats, our larger SSX models and our larger Robalo models and our belief that these boat models will expand our customer base and leverage our strong dealer network and reputation for quality and styling; our plans to continue to develop the additional new products for subsequent model years; our belief that we will generate continued positive financial results and that we will benefit from the lower tax rate through increased earnings in 2019; our belief that the liquidity provided by existing cash, cash equivalents and marketable securities, our overall strong capitalization and cash expected to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months; our expectations about capital expenditures in 2019; our expectation about contributions to the multiple employer Retirement Income Plan sponsored by RPC in 2019; statements regarding the potential decrease in costs of raw materials and its effect on the costs of manufacturing our products; and our belief that the outcome of any litigation, arising from time to time in the ordinary course of our business, will not have a material adverse effect on the financial position or results of operations of Marine Products.
The words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “seek,” “project,” “estimate,” and similar expressions used in this document that do not relate to historical facts are intended to identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: economic conditions, unavailability of credit and possible decreases in the level of consumer confidence impacting discretionary spending; business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of their inventory; our ability to insulate financial results against increasing commodity prices; the impact of rising gasoline prices and a weak housing market on consumer demand for our products; competition from other boat manufacturers and dealers; potential liabilities for personal injury or property damage claims relating to the use of our products; our ability to successfully identify suitable acquisition candidates or strategic partners, obtain financing on satisfactory terms, complete acquisitions or strategic alliances, integrate acquired operations into our existing operations, or expand into new markets; changes in various government laws and regulations, including environmental regulations and recent U.S. Government action concerning tariffs on goods; the possibility of retaliatory tariffs imposed on the export of our products to countries on which the U.S. has imposed tariffs; the higher prices of materials, such as hydrocarbon feedstocks, copper, and steel, would increase the costs of manufacturing our products, and could negatively affect our profit margins; higher inflation, which typically results in higher interest rates that could translate into an increased cost of boat ownership and prospective buyers may choose to forego or delay boat purchases; and the existence of certain anti-takeover provisions in our governance documents, which could make a tender offer, change in control or takeover attempt that is opposed by Marine Products’ Board of Directors more difficult or expensive. Additional discussion of factors that could cause actual results to differ from management’s projections, forecasts, estimates and expectations is contained in Marine Products Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2018.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marine Products does not hold derivative financial instruments that could expose the Company to significant market risk.
ITEM 4. 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, September 30, 2019 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date.
Changes in internal control over financial reporting – Management’s evaluation of changes in internal control did not identify any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. 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 outcome of such litigation will have a material adverse effect on the financial position or results of operations of Marine Products.
Item 1A. RISK FACTORS
See the risk factors described in the Company’s annual report on Form 10-K for the year ended December 31, 2018 and in the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Shares repurchased by the Company and affiliated purchases in the third quarter of 2019 are as follows:
Maximum Number
Total Number of
(or Approximate
Shares (or Units)
Dollar Value) of
Purchased as
Number of
Part of Publicly
that May Yet Be
Price Paid Per
Announced
Purchased Under
(or Units)
Share
Plans or
the Plans or
Period
Purchased
(or Unit)
Programs
Programs (1)
July 1, 2019 to July 31, 2019
9,200
14.48
1,833,505
August 1, 2019 to August 31, 2019
72,282
14.94
1,761,223
September 1, 2019 to September 30, 2019
14.98
1,757,351
Totals
85,354
14.89
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. Exhibits
Exhibit Number
Description
3.1(a)
Marine Products Corporation Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10 filed on February 13, 2001).
3.1(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 Registrant's Current Report on Form 8-K filed June 9, 2005).
3.2
Amended and Restated By-laws of Marine Products Corporation (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on July 31, 2015).
Restated Form of Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10 filed on February 13, 2001).
31.1
Section 302 certification for Chief Executive Officer
31.2
Section 302 certification for Chief Financial Officer
32.1
Section 906 certifications for Chief Executive Officer and Chief Financial Officer
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
SIGNATURES
Pursuant to the requirements 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.
/s/ Richard A. Hubbell
Date: October 31, 2019
Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ben M. Palmer
Ben M. Palmer
Vice President, Chief Financial Officer and Corporate Secretary
(Principal Financial and Accounting Officer)