Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - MARINE PRODUCTS CORP | ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - MARINE PRODUCTS CORP | ex31-1.htm |
| EX-31.2 - EXHIBIT 31.2 - MARINE PRODUCTS CORP | ex31-2.htm |
| EXCEL - IDEA: XBRL DOCUMENT - MARINE PRODUCTS CORP | Financial_Report.xls |
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 June 30, 2014
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) |
RGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left">Cash used for financing activities for the six months ended June 30, 2014 increased approximately $0.9 million compared to the six months ended June 30, 2013 primarily due to an increase in share repurchases, coupled with an increase in shares purchased for withholding taxes on the vesting of restricted shares.
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.
| 24 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
Cash Requirements
The Company currently expects that capital expenditures during 2014 will be approximately $1.4 million of which $258 thousand has been spent through June 30, 2014.
The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). The Company made a $135 thousand cash contribution to this plan during the first six months of 2014 and does not expect to make any additional contributions for the remainder of 2014.
As of June 30, 2014, the Company has purchased a total of 5,133,785 shares in the open market under the Company stock repurchase program and there are 3,116,215 shares that remain available for repurchase under the current authorization. The Company repurchased 100,000 shares under this program during the six months ended June 30, 2014.
The Company warrants components of the boat, excluding the engine, against defects in materials and workmanship for a period of one year. Cockpit upholstery is warranted for 2 years. The Company also warrants the structural hull, including its bulkhead and supporting stringer system, against defects in materials and workmanship for as long as the original purchaser owns the boat. The structural deck is warranted for a period of 5 years to the original purchaser. See Note 6 to the Consolidated Financial Statements for a detail of activity in the warranty accruals during the six months ended June 30, 2014 and 2013.
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 no material repurchases of inventory during the year ended December 31, 2013 or the six months ended June 30, 2014.
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.
The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is to not exceed 16 percent of the amount of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period, which was $7.8 million as of June 30, 2014. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $5.4 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all financing institutions of approximately $13.2 million as of June 30, 2014.
| 25 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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 $339 thousand in the six months ended June 30, 2014 and $268 thousand in the six months ended June 30, 2013.
During the quarter ended June 30, 2014, the Company purchased 100,000 shares for total consideration of $775,000, from one of its directors who is also an executive officer. The purchase was completed under the stock buyback program approved by the Board of Directors that is currently in effect.
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, 2013. 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 estimated effects on results of operations and financial condition.
SEASONALITY
Marine Products’ quarterly operating results are affected by weather and general economic conditions. Quarterly operating results for the second quarter historically have reflected the highest quarterly sales volume during the year with the first quarter being the next highest sales quarter. However, the results for any quarter are not necessarily indicative of results to be expected in any future period.
| 26 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
INFLATION
The market prices of certain material and component costs used in manufacturing the Company’s products, especially resins that are made with hydrocarbon feedstocks, copper and stainless steel, were very volatile as a result of the financial crisis of 2008, the ensuing global recession and the subsequent economic recovery. During the second quarter of 2014, the prices of many of these commodities were constant. Although the potential exists for these costs to remain volatile, we believe that the Company’s material costs will remain relatively stable in 2014. In the event that the prices of these commodities increase in the future and result in higher raw materials costs, we cannot be confident that the Company will be able to institute sufficient price increases to its dealers to compensate for these increased materials costs, or that the Company will be able to implement manufacturing strategies that will significantly reduce usage of raw materials that will compensate for any increased materials costs.
New boat buyers typically finance their purchases. Higher inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Should higher inflation and increased interest rates occur, prospective buyers may choose to forego or delay their purchases or buy a less expensive boat in the event that interest rates rise or credit is not available to finance their boat purchases.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, the expected effect of recent accounting pronouncements on the Company’s consolidated financial statements; the Company’s estimate for warranty accruals; our favorable outlook for the near-term selling environment for our products; our belief that recreational boating retail demand in many segments of the industry is improving; our belief that there is improved demand from consumers who have delayed purchasing a boat over the past few years due to economic uncertainty; our belief that the recent expansion of sales volumes will continue for the remainder of 2014; our belief that improvements in retail boat sales will be modest due to the lack of economic improvement; the Company’s belief that the recreational boating industry promotional program has incrementally benefited the industry and Marine Products; our plans to continue to emphasize the value-priced Chaparral and Robalo models as well as larger models in the Chaparral line-up including the SSX’s and new Robalo bay boat models; our plans to introduce a larger Vortex jet boat model for the 2015 model year and the anticipated timing for production of those models; our belief that these jet boat models will expand our customer base and leverage our strong dealer network and reputation for quality and styling; the Company’s belief that its liquidity, capitalization and cash expected to be generated from operations, will provide sufficient capital to meet the Company’s requirements for at least the next twelve months; the Company’s expectations about capital expenditures during 2014; the Company’s expectation about contributions to its pension plan in 2014; the Company’s belief that material costs will remain relatively stable in 2014; the Company’s belief that it may not be able to institute sufficient price increases to compensate for increased material costs or implement manufacturing strategies that will significantly reduce usage of raw materials to compensate for any increased material costs; the Company’s expectation regarding market risk of its investment portfolio; and the Company’s expectations about the effect of litigation on the Company’s financial position or results of operations.
| 27 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
The words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “project,” “estimate,” and similar expressions used in this document that do not relate to historical facts are intended to identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: economic conditions, unavailability of credit and possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, competition from other boat manufacturers and dealers, and insurance companies that insure a number of Marine Products’ marketable securities have been downgraded, which may cause volatility in the market price of Marine Products’ marketable securities. 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, 2013. The Company does not undertake to update its forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marine Products does not utilize financial instruments for trading purposes and, as of June 30, 2014, did not hold derivative financial instruments that could expose the Company to significant market risk. Also, as of June 30, 2014, the Company’s investment portfolio, totaling approximately $44.4 million and comprised primarily of municipal and corporate debt securities, is subject to interest rate risk exposure. This risk is managed through conservative policies to invest in high-quality obligations that are both short-term and long-term in nature. Because Marine Products’ investment portfolio mix has been allocated towards securities with similar term maturities compared to the end of fiscal year 2013, the risk of material market value fluctuations is not expected to be significantly different from the end of fiscal year 2013 and the Company currently expects no such changes through the remainder of the current year.
| 28 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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, June 30, 2014 (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, 2013.
| 29 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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 second quarter of 2014 are outlined below.
|
Period
|
Total Number
of Shares (or Units) Purchased |
Average
Price Paid Per Share (or Unit)
|
Total number of Shares (or
Units)
Purchased as
Part of Publicly Announced Plans or Programs |
Maximum Number (or
Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs [1] |
|||||||||
|
Total remaining repurchases
|
|||||||||||||
|
authorized
at March 31, 2014
|
3,216,215 | ||||||||||||
|
Month #1
|
|||||||||||||
|
April 1, 2014 to April 30, 2014
|
- | $ | - | - | 3,216,215 | ||||||||
|
Month #2
|
|||||||||||||
|
May 1, 2014 to May 31, 2014
|
- | - | - | 3,216,215 | |||||||||
|
Month #3
|
|||||||||||||
|
June 1, 2014 to June 30, 2014
|
100,000 |
[2]
|
|
7.75 | 100,000 | 3,116,215 | |||||||
|
Totals
|
100,000 | $ | 7.75 | 100,000 | 3,116,215 | ||||||||
| [1] The Company’s Board of Directors announced a stock buyback program on April 25, 2001 authorizing the repurchase of 2,250,000 shares in the open market and another on March 14, 2005 authorizing the repurchase of an additional 3,000,000 shares. On January 22, 2008 the Board of Directors authorized an additional 3,000,000 shares that the Company may repurchase. As of June 30, 2014, a total of 5,033,785 shares have been repurchased in the open market under this program and there are 3,116,215 shares that remain available for repurchase. The program does not have a predetermined expiration date. | |
| [2] The shares were purchased from a director who is also an executive officer. | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
None
| 30 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
|
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 3.1 to the Registrant’s Current Report on Form 8-K filed on October 25, 2007).
|
||||
|
|
|||||
|
4
|
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).
|
||||
|
|
|||||
|
10
|
2014 Stock Incentive Plan (incorporated herein by reference to Exhibit A to the Registrant’s definitive Proxy Statement filed on March 17, 2014).
|
||||
| 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
|
||||
| 31 |
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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.
|
MARINE PRODUCTS CORPORATION
|
||
| /s/ Richard A. Hubbell | ||
| Date: July 31, 2014 | Richard A. Hubbell | |
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ Ben M. Palmer | ||
| Date: July 31, 2014 | Ben M. Palmer | |
| Vice President, Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
| 32 |