UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File No.
(exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) (zip code)
(
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol(s) |
| Name of each exchange on which registered: |
|
|
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.
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).
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 | ☐ | ⌧ | |
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
As of July 19, 2024, Marine Products Corporation had
Marine Products Corporation
Table of Contents
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2024 AND DECEMBER 31, 2023
(In thousands, except shares and par value data)
| June 30, |
| December 31, |
| |||
| 2024 | 2023 |
| ||||
ASSETS |
| (Unaudited) |
| (Note 1) | |||
Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net of allowance for credit losses of $ |
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Inventories |
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Income taxes receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation of $ |
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Goodwill |
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Other intangibles, net |
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Deferred income taxes |
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Retirement plan assets | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Liabilities |
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Accounts payable | $ | | $ | | |||
Accrued expenses and other liabilities | |
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Total current liabilities |
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Retirement plan liabilities | |
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Other long-term liabilities | |
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Total liabilities |
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Commitments and contingencies (Note 15) | |||||||
Stockholders’ Equity | |||||||
Preferred stock, $ | |||||||
Common stock, $ | |
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Capital in excess of par value | — | — | |||||
Retained earnings | |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(In thousands except per share data)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||
2024 | 2023 | 2024 |
| 2023 | |||||||||
Net sales | $ | | $ | | $ | | $ | | |||||
Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Operating income |
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Interest income, net |
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Income before income taxes |
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Income tax provision |
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Net income | $ | | $ | | $ | | $ | | |||||
Earnings per share |
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Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
Dividends paid per share | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
4
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(In thousands)
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | ||||||||
Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive income, net of taxes: |
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Pension adjustment |
| — |
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| — |
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Comprehensive income | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
5
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(In thousands)
(Unaudited)
Six Months Ended June 30, 2024 | |||||||||||||||||
Accumulated | |||||||||||||||||
Capital in | Other | ||||||||||||||||
Common Stock | Excess of | Retained | Comprehensive | ||||||||||||||
| Shares |
| Amount |
| Par Value |
| Earnings |
| Loss |
| Total | ||||||
Balance, December 31, 2023 |
| | $ | | $ | — | $ | | $ | — | $ | | |||||
Stock issued for stock incentive plans, net |
| |
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| — |
| — |
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Stock purchased and retired |
| ( |
| ( |
| ( |
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| — |
| ( | |||||
Net income |
| — |
| — |
| — |
| |
| — |
| | |||||
Dividends paid |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Balance, March 31, 2024 | | | — | | — | | |||||||||||
Stock issued for stock incentive plans, net | | | | — | — | | |||||||||||
Stock purchased and retired | — | — | ( | | — | — | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Dividends paid | — | — | — | ( | — | ( | |||||||||||
Balance, June 30, 2024 | | $ | | $ | — | $ | | $ | — | $ | |
Six Months Ended June 30, 2023 | |||||||||||||||||
Accumulated | |||||||||||||||||
Capital in | Other | ||||||||||||||||
Common Stock | Excess of | Retained | Comprehensive | ||||||||||||||
| Shares |
| Amount |
| Par Value |
| Earnings |
| Loss |
| Total | ||||||
Balance, December 31, 2022 |
| | $ | | $ | — | $ | | $ | ( | $ | | |||||
Stock issued for stock incentive plans, net |
| |
| |
| |
| — |
| — |
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Stock purchased and retired |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||
Net income |
| — |
| — |
| — |
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| — |
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Pension adjustment, net of taxes |
| — |
| — |
| — |
| — |
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Dividends paid |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Balance, March 31, 2023 | | | — | | ( | | |||||||||||
Stock issued for stock incentive plans, net | | | | — | — | | |||||||||||
Stock purchased and retired | — | — | ( | | — | — | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Pension adjustment, net of taxes | — | — | — | — | | | |||||||||||
Dividends paid | — | — | — | ( | — | ( | |||||||||||
Balance, June 30, 2023 | | $ | | $ | — | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
6
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(In thousands)
(Unaudited)
Six months ended June 30, | |||||||
2024 | 2023 | ||||||
OPERATING ACTIVITIES |
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Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Deferred income tax provision | ( | ( | |||||
Pension settlement loss | — | | |||||
(Increase) decrease in assets: |
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Accounts receivable |
| ( |
| ( | |||
Income taxes receivable |
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| ( | |||
Inventories |
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Current pension assets | — | | |||||
Prepaid expenses and other current assets |
| ( |
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Other non-current assets |
| ( |
| ( | |||
Increase in liabilities: |
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Accounts payable |
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Accrued expenses and other liabilities | | | |||||
Other long-term liabilities | | | |||||
Net cash provided by operating activities |
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INVESTING ACTIVITIES |
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Capital expenditures |
| ( |
| ( | |||
Net cash used for investing activities |
| ( |
| ( | |||
FINANCING ACTIVITIES |
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Payment of dividends | ( |
| ( | ||||
Cash paid for common stock purchased and retired | ( |
| ( | ||||
Net cash used for financing activities | ( |
| ( | ||||
Net (decrease) increase in cash and cash equivalents |
| ( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental information: |
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Income tax payments, net | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The Consolidated Balance Sheet at December 31, 2023 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, 2023.
A group that includes Gary W. Rollins, Pamela R. Rollins, Amy Rollins Kreisler and Timothy C. Rollins, each of whom is a director of the Company, and certain companies under their control, controls in excess of
2. RECENT ACCOUNTING STANDARDS
The FASB issued the following Accounting Standards Updates (ASUs):
Recently Issued Accounting Standards Not Yet Adopted:
ASU No. 2023-07 — Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require an entity to disclose the title and position of the Chief Operating Decision Maker (CODM) and the significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss. These amendments are effective for annual disclosures beginning in 2024 and interim disclosures beginning in the first quarter of 2025, with early adoption permitted. These amendments are effective retrospectively to all prior periods presented in the financial statements. The Company has one reportable segment and is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU No. 2023-09 — Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require an entity to include consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid, disaggregated by jurisdiction. These amendments are effective for annual disclosures beginning in 2025, with early adoption permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
Securities and Exchange Commission (SEC) Final Rules: Climate related Disclosure: The SEC adopted final rules designed to enhance public company disclosures related to the risks and impacts of climate-related matters. The new rules require disclosures relating to climate-related risks and risk management as well as the board and management’s governance of such risks. In addition, the rules include requirements to disclose the financial effects of severe weather events and other natural conditions in the audited financial statements and disclose information about greenhouse gas emissions, which will be subject to a phased-in assurance requirement. On April 4, 2024, the SEC stayed its climate disclosure rules to “facilitate the orderly judicial resolution” of pending legal challenges. If litigation is resolved in favor of the SEC, a majority of the final rules will be effective for MPC beginning in the year 2026.
8
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 occurs with the transfer of title of our boats and accessories and parts to our dealers. Net sales are 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 titled Warranty Costs). 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.
Nature of goods:
MPC’s performance obligations within its contracts consist 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:
● | Boats and accessories (domestic sales) – upon delivery and acceptance by the dealer |
● | Boats and accessories (international sales) – upon delivery to shipping port |
● | Parts – upon shipment/delivery to carrier |
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 typically receives the payment within
to 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. Key inputs and assumptions in determining variable consideration related to dealer incentives include:
● | Inputs: Current model year boat sales, total potential program incentive percentage, prior model year results of dealer incentive activity (i.e., incentive earned as a percentage of total incentive potential). |
9
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
● | Assumption: Current model year incentive activity will closely reflect prior model year actual results, adjusted as necessary for dealer purchasing trends or economic factors. |
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.
Disaggregation of revenues:
The following table disaggregates our sales by major source:
Three months ended | Six months ended | ||||||||||||
(in thousands) |
| June 30, 2024 |
| June 30, 2023 |
| June 30, 2024 |
| June 30, 2023 |
| ||||
Boats and accessories | $ | | $ | | $ | | $ | | |||||
Parts |
| |
| |
| |
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Net sales | $ | | $ | | $ | | $ | |
The following table disaggregates our revenues between domestic and international:
Three months ended | Six months ended | ||||||||||||
(in thousands) |
| June 30, 2024 |
| June 30, 2023 |
| June 30, 2024 |
| June 30, 2023 |
| ||||
Domestic | $ | | $ | | $ | | $ | | |||||
International |
| |
| |
| |
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Net sales | $ | | $ | | $ | | $ | |
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 in the accompanying Consolidated Balance Sheets.
June 30, |
| December 31, | |||||
(in thousands) |
| 2024 | 2023 |
| |||
Deferred revenue | $ | | $ | |
Substantially all of the amounts of deferred revenue disclosed above were or will be recognized as sales during the immediately following quarters, respectively, when control is transferred.
10
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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:
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||
Net income available for stockholders: | $ | | $ | | $ | | $ | | |||||
Less: Adjustments for earnings attributable to participating securities |
| ( |
| ( |
| ( |
| ( | |||||
Net income used in calculating earnings per share | $ | | $ | | $ | | $ | | |||||
Weighted average shares outstanding (including participating securities) |
| |
| |
| |
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Adjustment for participating securities |
| ( |
| ( |
| ( |
| ( | |||||
Shares used in calculating basic and diluted earnings per share |
| |
| |
| |
| |
5. STOCK-BASED COMPENSATION
The Company has issued various forms of stock incentives, including, incentive and non-qualified stock options, time-lapse restricted shares and performance stock unit awards under its Stock Incentive Plans to officers, selected employees and non-employee directors.
The Company’s 2014 Stock Incentive Plan expired in April 2024. At the April 23, 2024, annual meeting of stockholders, the 2024 Stock Incentive Plan, reserving
6. WARRANTY COSTS
For its Chaparral and Robalo products, Marine Products provides a lifetime limited structural hull warranty and a transferable
11
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
An analysis of the warranty accruals for the six months ended June 30, 2024 and 2023 is as follows:
(in thousands) |
| 2024 |
| 2023 | ||
Balance at January 1 | $ | | $ | | ||
Less: Payments made during the period |
| ( |
| ( | ||
Add: Warranty provision for the period |
| |
| | ||
Changes to warranty provision for prior periods |
| |
| | ||
Balance at June 30 | $ | | $ | |
The warranty accruals are reflected in Accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.
7. BUSINESS SEGMENT INFORMATION
The Company has
8. INVENTORIES
Inventories consist of the following:
| June 30, |
| December 31, | |||
2024 | 2023 | |||||
(in thousands) | ||||||
Raw materials and supplies | $ | | $ | | ||
Work in process |
| |
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Finished goods |
| |
| | ||
Total inventories | $ | | $ | |
9. 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, at the end of each successive interim period to the Company's current annual estimated tax rate.
For the three months ended June 30, 2024, the effective rate reflects a provision of
12
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. PENSION AND RETIREMENT PLANS
The multiemployer Retirement Income Plan (“Plan”), a trusteed defined benefit pension plan, sponsored by RPC, Inc. (“RPC”), that the Company participated in was fully terminated in 2023. Amounts related to prior year are disclosed below:
Three months ended | Six months ended | ||||||
June 30, | June 30, | ||||||
(in thousands) |
|
| 2023 |
| 2023 | ||
$ | — | $ | | ||||
| — |
| — | ||||
| — |
| | ||||
| | | |||||
Net periodic cost (1) | $ | | $ | |
(1) Reported as part of Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
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 primarily in mutual funds and company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligation of the SERP that have been classified as trading and are stated at fair value totaling $
The SERP liabilities include participant deferrals net of distributions and are stated at fair value of $
11. FAIR VALUE MEASUREMENTS
The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:
1. | Level 1 – Quoted market prices in active markets for identical assets or liabilities. |
2. | Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
3. | Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use. |
13
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Trading securities are comprised of SERP assets, as described in the note titled Pension and Retirement Plans, and are recorded primarily at their net cash surrender values calculated using their net asset values, which approximate fair value, as provided by the issuing insurance company or investment company. Significant observable inputs, in addition to quoted market prices, are used to value the trading securities. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods.
The carrying amount of other financial instruments reported in the accompanying Consolidated Balance Sheets for current assets and current liabilities approximate their fair values because of the short-term maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether or not it will elect this option for financial instruments it may acquire in the future.
12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss in the prior year quarter consists of pension adjustments as follows:
Six months ended | ||
June 30, | ||
(in thousands) | 2023 | |
Balance at beginning of the period | $ | ( |
Change during the period: |
| |
Before-tax amount |
| |
Tax provision |
| ( |
Pension settlement loss, net of taxes (1) |
| |
Reclassification adjustment, net of taxes: |
| |
Amortization of net loss (1) |
| |
Total activity for the period |
| |
Balance at end of the period | $ | ( |
(1) | Reported as part of Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. |
There was
13. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
| June 30, |
| December 31, | |||
2024 |
| 2023 | ||||
(in thousands) |
|
|
| |||
Accrued payroll and related expenses | $ | | $ | | ||
Accrued sales incentives and discounts |
| |
| | ||
Accrued warranty costs |
| |
| | ||
Deferred revenue |
| |
| | ||
Income taxes payable | | — | ||||
Other |
| |
| | ||
Total accrued expenses and other liabilities | $ | | $ | |
14
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. NOTES PAYABLE TO BANKS
The Company has a revolving credit agreement with Truist Bank which provides a credit facility of $
Effective July 1, 2023, revolving borrowings under the facility accrue interest at a rate equal to Term Secured Overnight Financing Rate (SOFR) plus the applicable percentage, as defined. During the second quarter of 2023, the Company was notified by Truist Bank that SOFR replaced LIBOR for all borrowings under the facility. The new applicable percentage is between
The credit agreement contains certain financial covenants including: (i) a maximum consolidated leverage ratio of
The Company has incurred total loan origination fees and other debt related costs associated with this revolving credit facility in the aggregate of $
Interest expense incurred, which includes facility fees on the unused portion of the revolving credit facility and the amortization of loan costs, on the credit facility was $
15. COMMITMENTS AND CONTINGENCIES
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 no material financial impact associated with repurchases under these contractual agreements during the three and six months ended June 30, 2024 and June 30, 2023.
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.
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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 amount 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 during the prior three month period, or (iii) $
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
Total STCI expense for the reported periods was as follows:
Three months ended June 30, | Six months ended June 30, | ||||||||||||
(in thousands) |
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
STCI expense | $ | | $ | | $ | | $ | |
These amounts are included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
16. SUBSEQUENT EVENT
On
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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 seven to ten days after delivery of the products to the dealers.
The discussion on business and financial strategies of the Company set forth under the heading “Business Strategies” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023 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 demand such as consumer confidence, inflation concerns, 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.
Consolidated net sales of $69.5 million decreased during the second quarter of 2024 in comparison to the second quarter of 2023 due primarily to a 41% decrease in unit sales to dealers. Price/mix was up 1% due primarily to higher gross selling prices. Sales continued to be impacted by dealer efforts to reduce their inventories, due in part to higher floor plan carrying costs, as well as lower consumer demand. The Company believes its year-over-year comparisons will likely remain soft in the near term as the industry continues to normalize following high post-pandemic demand and dealers’ unwinding of channel inventory. Gross profit decreased to $13.2 million during the second quarter of 2024, from $29.0 million during the second quarter of 2023 due to lower sales volumes and associated manufacturing cost inefficiencies, coupled with the impact of reinstituting retail incentive programs. Production schedules and labor costs have been adjusted to more closely align with current demand. Operating income decreased to $5.8 million during the second quarter of 2024, from $16.5 million during the same period of the prior year. Net income decreased to $5.6 million during the second quarter of 2024, from $14.3 million in the same period of the prior year. Diluted earnings per share was $0.14 for the second quarter of 2024, down from $0.42 for the second quarter of 2023.
OUTLOOK
The discussion of the outlook for 2024 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023 at “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outlook.”.
We believe that the strong retail demand for new recreational boats, which began in 2020 with the onset of the COVID-19 pandemic has now normalized. In addition, consumers are returning to pre-pandemic routine lifestyles and rising interest rates are contributing to higher costs of boat ownership. Since some buyers of recreational boats finance their purchases, higher interest rates may discourage them from the purchase of a boat. Furthermore, the softening consumer demand has resulted in generally elevated inventory levels in the dealer channel across brands and categories. This higher level of Chaparral inventory results in higher floorplan financing costs for boat dealers compared to recent years. In light of reduced demand compared to the first half of 2023 and higher interest rates, we have reinstituted certain retail incentives and other allowances to attract more consumers and help reduce channel inventory. We have adjusted production levels to align with expected demand.
During the past three model years, Marine Products has produced a smaller number of boat models than in previous years to increase production efficiency. In addition, the average size of the models the Company is producing has increased in response to evolving retail demand, and this trend is expected to continue. The Company intends to continue its focus on increasing sales of larger boats given this trend, higher associated price points and higher margins.
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Our financial results during the remainder of 2024 will depend on a number of factors, including economic trends, demand for discretionary products, the impact of interest rates on consumer financing options and dealer inventory carrying costs, the effectiveness of the Company’s incentive programs, the success of new model launches, and the Company’s ability to manage manufacturing costs in light of lower production levels compared to early 2023.
RESULTS OF OPERATIONS
Key operating and financial statistics for the three and six months ended June 30, 2024 and 2023 are as follows:
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||||
Total number of boats sold |
| 737 |
| 1,243 |
| 1,507 |
| 2,521 |
| ||||||
Average gross selling price per boat (in thousands) | $ | 85.7 | $ | 82.2 | $ | 83.0 | $ | 82.3 | |||||||
Net sales (in thousands) | $ | 69,547 | $ | 116,158 | $ | 138,887 | $ | 235,072 | |||||||
Percentage of cost of goods sold to net sales |
| 81.1 | % |
| 75.3 | % |
| 80.4 | % |
| 75.5 | % | |||
Gross profit margin percent |
| 18.9 | % |
| 24.7 | % |
| 19.6 | % |
| 24.5 | % | |||
Percentage of selling, general and administrative expenses to net sales | 10.7 | % | 10.5 | % | 11.6 | % | 11.4 | % | |||||||
Operating income (in thousands) | $ | 5,750 | $ | 16,483 | $ | 10,992 | $ | 30,972 | |||||||
Warranty expense (in thousands) | $ | 1,102 | $ | 1,800 | $ | 2,203 | $ | 3,651 |
THREE MONTHS ENDED JUNE 30, 2024 COMPARED TO THREE MONTHS ENDED JUNE 30, 2023
Net sales for the three months ended June 30, 2024 decreased $46.6 million or 40.1% compared to the same period in 2023. The change in net sales during the quarter compared to the prior year was primarily due to a 41% decrease in unit sales volumes. Price/mix was up 1% due primarily to higher gross selling prices. Sales continued to be impacted by dealer efforts to reduce their inventories, due in part to higher floor plan carrying costs, as well as lower consumer demand. The Company believes its year-over-year comparisons will likely remain soft in the near term as the industry continues to normalize following high post-pandemic demand and dealers’ unwinding of channel inventory.
In the second quarter of 2024, net sales outside of the United States accounted for 6.1% of net sales compared to 7.0% of net sales in the same period of the prior year.
Cost of goods sold for the three months ended June 30, 2024 was $56.4 million compared to $87.5 million for the comparable period in 2023, a decrease of $31.1 million or 35.6%. Cost of goods sold as a percentage of net sales was 81.1% for the three months ended June 30, 2024 compared to 75.3% for the same period in the prior year due to lower sales volumes and associated manufacturing cost inefficiencies, coupled with the impact of reinstituting retail incentive programs. Production schedules and labor costs have been adjusted to more closely align with current demand.
Selling, general and administrative expenses for the three months ended June 30, 2024 were $7.4 million compared to $12.2 million for the comparable period in 2023, a decrease of $4.7 million or 39.0%. This decrease was primarily due to costs that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense in the current quarter in comparison to the same period of the prior year. Selling, general and administrative expenses were 10.7% of net sales in the second quarter of 2024 compared to 10.5% in the second quarter of 2023.
Operating income for the three months ended June 30, 2024 was $5.8 million compared to $16.5 million in the same period in 2023.
Interest income, net for the three months ended June 30, 2024 increased to $879 thousand from $723 thousand in the same period of the prior year due to higher average cash balances and investment yields. Marine Products generates interest income primarily from investments of excess cash in money market funds. Additionally, interest expense is recorded for the revolving credit facility, including fees on the unused portion of the facility and the amortization of loan costs.
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Income tax provision was $1.0 million during the three months ended June 30, 2024 compared to $2.9 million for the same period in 2023. The effective tax rate was 15.7% for the three months ended June 30, 2024 compared to 16.8% for the comparable period in the prior year. The decrease in the effective tax rate is primarily due to the impact of beneficial discrete adjustments.
SIX MONTHS ENDED JUNE 30, 2024 COMPARED TO SIX MONTHS ENDED JUNE 30, 2023
Net sales for the six months ended June 30, 2024 decreased $96.2 million or 40.9% compared to the same period in 2023. The change in net sales during the quarter compared to the prior year was primarily due to a 40% decrease in unit sales volumes. Sales continued to be impacted by dealer efforts to reduce their inventories, due in part to higher floor plan carrying costs, as well as lower consumer demand.
In the six months ended June 30, 2024, net sales outside of the United States accounted for 6.6% of net sales compared to 6.8% of net sales in the same period of the prior year.
Cost of goods sold for the six months ended June 30, 2024 was $111.7 million compared to $177.4 million for the comparable period in 2023, a decrease of $65.7 million or 37.0%. Cost of goods sold as a percentage of net sales was 80.4% for the six months ended June 30, 2024 compared to 75.5% for the same period in the prior year due to lower sales volumes and associated manufacturing cost inefficiencies, coupled with the impact of reinstituting retail incentive programs. Production schedules and labor costs have been adjusted to more closely align with current demand.
Selling, general and administrative expenses for the six months ended June 30, 2024 were $16.2 million compared to $26.7 million for the comparable period in 2023, a decrease of $10.5 million or 39.5%. This decrease was primarily due to costs that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense, as well as a decrease in pension expense in the first quarter of 2024 in comparison to the same period of the prior year. In the six months ended June 30, 2023, selling, general and administrative expenses also included a non-cash pension settlement charge of $2.3 million. Selling, general and administrative expenses were 11.6% of net sales in the six months ended June 30, 2024 compared to 11.4% in the same period of the prior year.
Operating income for the six months ended June 30, 2024 was $11.0 million compared to $31.0 million in the same period in 2023.
Interest income, net for the six months ended June 30, 2024 increased to $1.7 million from $1.2 million in the same period of the prior year due to higher average cash balances and investment yields. Marine Products generates interest income primarily from investments of excess cash in money market funds. Additionally, interest expense is recorded for the revolving credit facility, including fees on the unused portion of the facility and the amortization of loan costs.
Income tax provision was $2.5 million during the six months ended June 30, 2024 compared to $6.3 million for the same period in 2023. The effective provision rate was 20.0% for the six months ended June 30, 2024 compared to a 19.6% effective provision rate for the six months ended June 30, 2023. The effective tax rate increased primarily due to a stronger impact of the adjustments related to permanent and discrete adjustments on a decreased pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company’s cash and cash equivalents at June 30, 2024 were $55.1 million compared to $72.0 million at December 31, 2023. The following table sets forth the cash flows for the applicable periods:
Six months ended June 30, | |||||||
(in thousands) |
| 2024 |
| 2023 |
| ||
Net cash provided by operating activities | $ | 19,737 | $ | 40,785 | |||
Net cash used for investing activities |
| (1,661) |
| (7,194) | |||
Net cash used for financing activities | (34,897) | (10,547) |
Cash provided by operating activities for the six months ended June 30, 2024, decreased by $21.0 million compared to the six months ended June 30, 2023, primarily due to the decrease in net income. In addition, working capital was a source of cash of $6.8 million in the six months ended June 30, 2024 compared to $10.3 million in the same period of the prior year. Working capital was a source of
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cash in the current period due to a net favorable change of $8.5 million in inventory partially offset by a net unfavorable change in other components of working capital. The net favorable change in inventory during the current period was due primarily to the decrease in production. The changes in the other components of working capital were consistent with the decrease in net sales and lower production levels as well as the timing of payments and receipts.
Cash used for investing activities for the six months ended June 30, 2024 decreased $5.5 million in comparison to the same period in the prior year due to lower capital expenditures during the six months ended June 30, 2024.
Cash used for financing activities for the six months ended June 30, 2024 increased $24.4 million in comparison to the six months ended June 30, 2023 due to higher dividends paid to common shareholders, including a special dividend of $0.70 per share paid during the second quarter of 2024.
Financial Condition and Liquidity
The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization, cash generated by operations and the Company’s revolving credit facility 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 2024 will be approximately $5.0 million, of which $1.7 million has been spent through June 30, 2024.
The Company participated in a multiple employer Retirement Income Plan (“Plan”), sponsored by RPC, Inc. (“RPC”). During 2023, the Plan was fully terminated through a liquidation of the assets held in trust.
The Company has repurchased an aggregate total of 6,679,572 shares in the open market under the Company stock repurchase program, which was initially adopted in 2001. As of June 30, 2024, there were 1,570,428 shares that remained available for repurchase under the current authorization. There were no shares repurchased under this program during the six months ended June 30, 2024 and June 30, 2023.
Effective October 1, 2023, the Company began recording short-term cash incentive compensation expense to selected employees in an annual amount equal to nine percent 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.
On July 23, 2024, the Board of Directors declared a regular quarterly dividend of $0.14 per share payable September 10, 2024 to common stockholders of record at the close of business August 9, 2024. The Company expects to continue to pay cash dividends to common stockholders, subject to industry conditions and Marine Products’ 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 no material financial impact associated with repurchases under these contractual agreements during the six months ended June 30, 2024 and June 30, 2023.
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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 based on the highest of the following criteria: (i) a specified percentage of the amount 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 during the prior three month period, 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 $20.5 million as of June 30, 2024. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of $6.8 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all floor plan financing institutions of $27.3 million as of June 30, 2024.
CERTAIN RELATED PARTY TRANSACTIONS
In conjunction with its spin-off from RPC, Inc. 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 $590 thousand for the six months ended June 30, 2024 and $526 thousand for the six months ended June 30, 2023.
Marine Products and RPC own 50% each of a limited liability company called 255 RC, LLC that was created for the joint purchase and ownership of a corporate aircraft. Marine Products recorded certain net operating costs comprised of rent and an allocable share of fixed costs of $82 thousand for the six months ended June 30, 2024 and $80 thousand for the six months ended June 30, 2023.
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, 2023. There have been no significant changes in the critical accounting policies since year-end.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
See note titled Recent Accounting Standards in the Notes 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 second quarter have historically recorded the highest sales volume for the year because this corresponds with the highest retail sales volume period. For similar reasons, quarterly operating results for the fourth quarter often record the lowest sales volume for the year. The results for any quarter are not necessarily indicative of results to be expected in any future period.
INFLATION
New boat buyers typically finance their purchases. The Company believes that the recent increase in interest rates (which is generally linked to higher inflation) has reduced retail demand for smaller boats, since purchasers of smaller boats are typically more sensitive to increases in the cost of boat ownership and typically finance their purchases. Higher interest rates also impact our dealers, as their boat purchases are financed and they bear much of the carrying costs of holding inventories. Lastly, the Company incurs higher costs from rising interest rates because we often pay a portion of dealer floor plan interest costs as part of our dealer sales incentive programs, which are described in more detail in our Form 10-K for the fiscal year ended December 31, 2023.
During 2021 and 2022, inflation in the general economy had increased to its highest level in more than 40 years due to economic growth following the COVID-19 pandemic, labor shortages, supply chain constraints, and U.S. fiscal policy. As a result, the market prices of the raw materials and components used by the Company’s manufacturing processes increased during these periods. In
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response to historically high consumer demand as well as higher raw materials and components costs, the Company increased the prices for its products. During 2023, prices of many raw materials used in the Company’s manufacturing processes began to decline, and transportation became more available and less expensive, thus easing the Company’s cost pressures. However, the Company believes the cost of boat ownership has risen enough to impact retail demand. Therefore, it may be more difficult to raise prices in the future to compensate for increased costs of raw materials and components, which could impact the Company’s sales and profit margins.
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. 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 forward-looking statements may include, without limitation: our attempts to optimize financial returns by closely monitoring dealer orders and inventories, the production mix of various models, and indications of demand such as consumer confidence, inflation concerns, interest rates, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions; our plans to 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 plans to continue to monitor retail demand among the various segments in the recreational boat market, the actions of our competitors, dealer inventory levels and the availability of dealer and consumer financing for the purchase of our products and our plans to adjust our production levels as deemed appropriate; our belief that the strong retail demand for new recreational boats has subsided and has now normalized; our belief that consumers are returning to more pre-pandemic routine lifestyles and rising interest rates are contributing to higher costs of boat ownership; statements that since many recreational boat purchasers finance their purchases, higher interest rates may discourage them from the purchase of a boat; our belief that 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 expectation that the reduction in anticipated incentive compensation to be paid to selected non-executive employees will favorably impact selling, general and administrative expenses for future periods; our belief that our financial results during the remainder of 2024 will depend on a number of factors, including economic trends, demand for discretionary products, the impact of interest rates on consumer financing options and dealer inventory carrying costs, the effectiveness of our incentive programs, the success of new model launches, and our ability to manage manufacturing costs in light of lower production levels compared to early 2023; our belief that the liquidity provided by existing cash, cash equivalents and marketable securities, our overall strong capitalization and cash generated by operations and our revolving credit facility will provide sufficient capital to meet our requirements for at least the next twelve months; our belief that our decisions about the amount of cash to be used for investing and financing purposes will be influenced by our capital position and the expected amount of cash to be provided by operations; our expectations that capital expenditures in 2024 will be approximately $5.0 million; our expectation to continue to pay cash dividends to common stockholders, subject to industry conditions and our earnings, financial condition, and other relevant factors; our plans to continue to monitor the risk of defaults and resulting repurchase obligations based in part on information provided by third-party floor plan lenders and our plans to adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time; our belief that the cost of boat ownership has risen enough to impact retail demand, and as a result, it will be more difficult to raise prices in the future to compensate for increased costs of raw materials and components, which could impact the Company’s sales and profit margins; our belief that the recent increase in interest rates has reduced retail demand for smaller boats, since purchasers of smaller boats are typically more sensitive to increases in the cost of boat ownership and typically finance their purchases; statements regarding our assessments of market risk exposures and that we do not expect any material changes in market risk exposures or how those risks are managed; 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 effect on our financial position, results of operations or liquidity; our belief that year-over-year comparisons will likely remain soft in the near term as the industry continues to experience lower demand and dealers’ unwinding of channel inventory; statements discussing our reinstitution of certain retail incentives and other allowances to attract more consumers, address channel inventory and lower demand; statements that production schedules and labor costs have been adjusted to more closely align with demand; statements regarding our strategy to increase the average size of the models the Company is producing in response to evolving retail demand and that this trend will continue and that, given this trend, the Company intends to continue its focus on increasing sales of larger boats, which will be accompanied by higher price points and higher margins; and statements regarding the agreements or contracts the Company has entered into with vendors, customers, lenders, and other third-parties and the anticipated benefits or obligations arising therefrom.
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Such forward-looking 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: our manufacturing operations are conducted in a single location, and to support our operations, several of our suppliers have also established facilities close to our manufacturing facility to provide timely delivery of fabricated components to us; as a result, catastrophic weather, civil unrest or other unanticipated events beyond our control may disrupt both our and our suppliers’ ability to conduct manufacturing operations or transport our finished boats to our dealer network, and we do not own or have access to alternate manufacturing locations; 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, increased fuel costs, 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, or in our relationships with them; boat dealer defaults; our ability to insulate financial results against increasing commodity prices; competition from other boat manufacturers and dealers; continued lowering of consumer demand whether due to further increases to interest rates, overall impairment to the national and global economies, or because our designs fail to match evolving customer tastes and needs; the possibility that our strategy to increase the size of our product in response to changing market conditions may not achieve the success we anticipate; our ability to further raise prices in the future may be limited; disruptions in supplier relationships or the inability to continue to purchase construction materials in sufficient quantities and of sufficient quality at acceptable prices to meet production schedules; 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 environmental, social and governance practices; the loss or interruption of the services of any senior management personnel or our ability to find qualified employees; our dependence on digital technologies and services and the risk of cyber-attacks, both from internal and external threats; the higher prices of materials, 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 which could cause prospective buyers to choose to forego or delay boat purchases; 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; and our cash and cash equivalents are held primarily at a single financial institution. 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, 2023, and in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk exposure through borrowings on its credit facility. As of June 30, 2024, there were no outstanding interest-bearing advances on our credit facility, which bear interest at a floating rate.
Marine Products holds no derivative financial instruments which could expose the Company to significant market risk. Marine Products maintains investments primarily in money market funds which are not subject to interest rate risk exposure. Marine Products does not expect any material changes in market risk exposures or how those risks are managed.
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, 2024 (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
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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 — There were no changes in the Company’s internal control over financial reporting during the second quarter of 2024 which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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 effect on the financial position, results of operations or liquidity of Marine Products.
Item 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2024, no director or officer, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, of the Company
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ITEM 6. Exhibits
Exhibit Number |
| Description |
3.1(a) | ||
3.1(b) | ||
3.2 | ||
4 | ||
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | Section 906 certifications for Chief Executive Officer and Chief Financial Officer. | |
101.INS | Inline XBRL Instance Document |