Company Quick10K Filing
Marine Products
Price15.31 EPS1
Shares33 P/E21
MCap509 P/FCF18
Net Debt-23 EBIT30
TEV486 TEV/EBIT16
TTM 2019-09-30, in MM, except price, ratios
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8-K 2018-01-02

MPX 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 mpx-20200331xex31d1.htm
EX-31.2 mpx-20200331xex31d2.htm
EX-32.1 mpx-20200331xex32d1.htm

Marine Products Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
12510075502502012201420172020
Assets, Equity
907254361802012201420172020
Rev, G Profit, Net Income
35205-10-25-402012201420172020
Ops, Inv, Fin

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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 March 31, 2020

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 April 24, 2020, Marine Products Corporation had 33,972,476 shares of common stock outstanding.

Table of Contents

Marine Products Corporation

Table of Contents

Page No.

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets – As of March 31, 2020 and December 31, 2019

3

Consolidated Statements of Operations – for the three months ended March 31, 2020 and 2019

4

Consolidated Statements of Comprehensive Income – for the three ended March 31, 2020 and 2019

5

Consolidated Statements of Stockholders’ Equity – for the three months ended March 31, 2020

6

Consolidated Statements of Stockholders’ Equity – for the three months ended March 31, 2019

7

Consolidated Statements of Cash Flows – for the three months ended March 31, 2020 and 2019

8

Notes to Consolidated Financial Statements

9-20

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21-26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

Part II. Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

29

2

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND DECEMBER 31, 2019

(In thousands)

(Unaudited)

    

March 31, 

    

December 31, 

2020

2019

ASSETS

 

 

(Note 1)

Cash and cash equivalents

$

20,064

$

19,804

Accounts receivable, net of allowance for doubtful accounts of $20 in 2020 and 2019

 

9,170

 

6,607

Inventories

 

45,946

 

41,553

Income taxes receivable

 

733

 

907

Prepaid expenses and other current assets

 

1,442

 

2,056

Total current assets

 

77,355

 

70,927

Property, plant and equipment, net of accumulated depreciation of $28,795 in 2020 and $28,258 in 2019

 

14,925

 

14,796

Goodwill

 

3,308

 

3,308

Other intangibles, net

 

465

 

465

Deferred income taxes

 

3,429

 

3,990

Other assets

 

10,343

 

11,278

Total assets

$

109,825

$

104,764

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Accounts payable

$

9,803

$

3,886

Accrued expenses and other liabilities

 

13,708

 

13,155

Total current liabilities

 

23,511

 

17,041

Pension liabilities

 

8,805

 

9,980

Other long-term liabilities

 

523

 

531

Total liabilities

 

32,839

 

27,552

Common stock

 

3,397

 

3,387

Capital in excess of par value

Retained earnings

 

76,218

 

76,573

Accumulated other comprehensive loss

 

(2,629)

 

(2,748)

Total stockholders’ equity

 

76,986

 

77,212

Total liabilities and stockholders’ equity

$

109,825

$

104,764

The accompanying notes are an integral part of these consolidated statements.

3

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(In thousands except per share data)

(Unaudited)

Three months ended March 31, 

    

2020

    

2019

Net sales

$

59,119

$

83,053

Cost of goods sold

 

47,012

 

64,354

Gross profit

 

12,107

 

18,699

Selling, general and administrative expenses

 

7,253

 

9,831

Operating income

 

4,854

 

8,868

Interest income

 

61

 

57

Income before income taxes

 

4,915

 

8,925

Income tax provision

 

707

 

1,456

Net income

$

4,208

$

7,469

Earnings per share

 

  

 

  

Basic

$

0.12

$

0.22

Diluted

$

0.12

$

0.22

Dividends paid per share

$

0.12

$

0.12

The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(In thousands)

(Unaudited)

Three months ended March 31, 

    

2020

    

2019

Net income

$

4,208

$

7,469

Other comprehensive income, net of taxes:

 

  

 

  

Pension adjustment

 

119

 

17

Unrealized gain on securities, net of reclassification adjustments

 

 

7

Comprehensive income

$

4,327

$

7,493

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020

(In thousands)

(Unaudited)

Accumulated

Capital in

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

Income (Loss)

    

Total

Balance, December 31, 2019

 

33,870

$

3,387

$

$

76,573

$

(2,748)

$

77,212

Stock issued for stock incentive plans, net

 

175

 

18

 

558

 

 

 

576

Stock purchased and retired

 

(73)

 

(8)

 

(558)

 

(489)

 

 

(1,055)

Net income

 

 

 

 

4,208

 

 

4,208

Pension adjustment, net of taxes

 

 

 

 

 

119

 

119

Dividends paid

 

 

 

 

(4,074)

 

 

(4,074)

Balance, March 31, 2020

 

33,972

$

3,397

$

$

76,218

$

(2,629)

$

76,986

The accompanying notes are an integral part of these consolidated statements.

6

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(In thousands)

(Unaudited)

Accumulated

Capital in

Other

Common Stock

Excess of

Retained

Comprehensive

    

Shares

    

Amount

    

Par Value

    

Earnings

    

Income (Loss)

    

Total

Balance, December 31, 2018

 

34,328

$

3,433

$

$

73,954

$

(2,175)

$

75,212

Adoption of accounting standard

414

(414)

Stock issued for stock incentive plans, net

 

141

 

14

 

524

 

 

 

538

Stock purchased and retired

 

(344)

 

(34)

 

(524)

 

(4,338)

 

 

(4,896)

Net income

 

 

 

 

7,469

 

 

7,469

Pension adjustment, net of taxes

 

 

 

 

 

17

 

17

Unrealized gain on securities, net of taxes and reclassification adjustment

 

 

 

 

 

7

 

7

Dividends paid

 

 

 

 

(4,117)

 

 

(4,117)

Balance, March 31, 2019

 

34,125

$

3,413

$

$

73,382

$

(2,565)

$

74,230

The accompanying notes are an integral part of these consolidated statements.

7

Table of Contents

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(In thousands)

(Unaudited)

Three months ended March 31, 

    

2020

    

2019

OPERATING ACTIVITIES

 

  

 

  

Net income

$

4,208

$

7,469

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

536

 

505

Accretion of discount related to marketable securities, net

 

 

(5)

Stock-based compensation expense

 

576

 

538

Deferred income tax provision/ (benefit)

 

528

 

(109)

(Increase) decrease in assets:

 

  

 

  

Accounts receivable

 

(2,563)

 

(6,022)

Inventories

 

(4,393)

 

(1,054)

Prepaid expenses and other current assets

 

614

 

668

Income taxes receivable

 

174

 

Other non-current assets

 

1,087

 

(651)

Increase (decrease) in liabilities:

 

  

 

  

Accounts payable

 

5,917

 

7,744

Accrued expenses and other liabilities

 

553

 

1,956

Other long-term liabilities

 

(1,183)

 

1,005

Net cash provided by operating activities

 

6,054

 

12,044

INVESTING ACTIVITIES

 

  

 

  

Capital expenditures

 

(665)

 

(1,108)

Purchases of marketable securities

 

 

(299)

Sales of marketable securities

 

 

7,530

Maturities of marketable securities

 

 

448

Net cash (used for) provided by investing activities

 

(665)

 

6,571

FINANCING ACTIVITIES

 

  

 

  

Payment of dividends

 

(4,074)

 

(4,117)

Cash paid for common stock purchased and retired

 

(1,055)

 

(4,896)

Net cash used for financing activities

 

(5,129)

 

(9,013)

Net increase in cash and cash equivalents

 

260

 

9,602

Cash and cash equivalents at beginning of period

 

19,804

 

8,745

Cash and cash equivalents at end of period

$

20,064

$

18,347

Supplemental information:

 

  

 

  

Income tax payments, net

$

$

1,446

The accompanying notes are an integral part of these consolidated statements.

8

Table of Contents

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 three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The consolidated balance sheet at December 31, 2019 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.

During March of 2020, the COVID-19 pandemic resulted in an abrupt and steep decline in economic activity which caused a severe disruption in the 2020 retail recreational boat selling season, and some orders were cancelled. At the end of the quarter, we temporarily suspended our manufacturing operations out of concern for the well-being of our employees and their families, and at the recommendation of local and state authorities. At this time, we are not certain when we will resume production or to what level we will resume production. This decision will be influenced by the recommendations of state and local authorities, our assessment of our production supply chain, our dealers' indications of demand in their particular markets, and the availability of floorplan financing for our dealers and retail financing for consumers. The Company considered the impact of these disruptions on the assumptions and estimates used in preparing the condensed consolidated financial statements. The Company's business, results of operations and financial condition have been and will likely continue to be impacted by future developments related to these disruptions.

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, 2019.

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:

ASU No. 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The ASU introduced a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for recognition. The expected credit losses are adjusted each period for changes in expected lifetime. The Company adopted the provisions of the standard in the first quarter of 2020 and the adoption did not have a material impact on its consolidated financial statements.

ASU No. 2017-04 —Intangibles —Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted these provisions in the first quarter of 2020, on a prospective basis.

ASU No. 2018-15 — Intangibles —Goodwill and Other —Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments reduce the complexity for the accounting for costs of implementing a cloud computing service arrangement and align the requirements for capitalizing implementation costs that are incurred in a hosting arrangement that is a service contract with the costs incurred to develop or obtain internal-use software. The Company adopted these provisions in the first quarter of 2020 and the adoption did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted:

ASU No. 2019-12 — Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing the exceptions to the incremental approach for intra-period tax allocation in certain situations, requirement to recognize a deferred tax liability for a change in the status of a foreign investment, and the general methodology for computing income taxes in an interim period when year-to date loss exceeds the anticipated loss for the year. The amendments also simplify the accounting for income taxes with regard to franchise tax, evaluation of step up in the tax basis of goodwill in certain business combinations, allocating current and deferred tax expense to legal entities that are not subject to tax and enacted change in tax laws or rates. The amendments are effective beginning in the first quarter of 2021 and the Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.

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.

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:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

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)
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 (in thousands):

Three months ended

(in thousands)

    

March 31, 2020

    

March 31, 2019

Boats and accessories

$

58,222

$

82,065

Parts

 

897

 

988

Net sales

$

59,119

$

83,053

The following table disaggregates our revenues between domestic and international (in thousands):

Three months ended

(in thousands)

    

March 31, 2020

    

March 31, 2019

Domestic

$

55,732

$

76,940

International

 

3,387

 

6,113

Net sales

$

59,119

$

83,053

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Timing of revenue recognition for each of the periods presented is shown below:

Three months ended

(in thousands)

    

March 31, 2020

    

March 31, 2019

Products transferred at a point in time

$

59,119

$

83,053

Products transferred over time

 

 

Net sales

$

59,119

$

83,053

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.

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

(in thousands)

2020

2019

2019

2018

Deferred revenue

$

213

$

295

$

612

$

496

Substantially all of the amounts of deferred revenue disclosed above were recognized as sales during the immediately following quarters, respectively, when control transferred.

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

March 31, 

(In thousands)

    

2020

    

2019

Net income available for stockholders:

$

4,208

$

7,469

Less: Adjustments for earnings attributable to participating securities

 

(93)

 

(183)

Net income used in calculating earnings per share

$

4,115

$

7,286

Weighted average shares outstanding (including participating securities)

 

33,940

 

34,243

Adjustment for participating securities

 

(775)

 

(872)

Shares used in calculating basic and diluted earnings per share

 

33,165

 

33,371

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 March 31, 2020, there were approximately 1,567,400 shares available for grant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock-based compensation for the three months ended March 31, 2020 and 2019 were as follows:

Restricted Stock

Three months ended March 31, 

(in thousands)

    

2020

    

2019

Pre – tax cost

$

576

$

538

After tax cost

$

449

$

420

The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2020:

Weighted

Average

Grant-Date

    

Shares

    

Fair Value

Non-vested shares at December 31, 2019

 

815,540

$

11.29

Granted

 

179,000

 

4.59

Vested

 

(223,270)

 

9.05

Forfeited

 

(3,500)

 

8.61

Non-vested shares at March 31, 2020

 

767,770

$

11.77

The total fair value of shares vested was approximately $3,234,000 during the three months ended March 31, 2020 and approximately $3,701,000 during the three months ended March 31, 2019.

Other Information

As of March 31, 2020, total unrecognized compensation cost related to non-vested restricted shares was approximately $9,496,000. This cost is expected to be recognized over a weighted-average period of 3.7 years.

For the three months ended March 31, 2020, approximately $287,000 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 $418,000 for the three months ended March 31, 2019.

6.    MARKETABLE SECURITIES

During the first quarter of 2019, the Company changed its investment strategy and as of March 31, 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. 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. There were no available-for sale securities as of March 31, 2020 and December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The net realized gains (losses) and the reclassification of net realized gains (losses) from other comprehensive income are as follows:

Three months ended

March 31, 

(in thousands)

    

2020

    

2019

Net realized gain

$

$

4

Reclassification of net realized gains from other comprehensive income

$

$

4

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 three months ended March 31, 2020 and 2019 is as follows:

(in thousands)

    

2020

    

2019

Balance at beginning of period

$

5,410

$

5,607

Less: Payments made during the period

 

(767)

 

(950)

Add: Warranty provision for the period

 

721

 

1,044

Changes to warranty provision for prior periods

 

50

 

65

Balance at March 31

$

5,414

$

5,766

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 no material repurchases during the three months ended March 31, 2020 and 2019.

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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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 a specified percentage of the amount of the average net receivables financed by the floor plan lender for our dealers less repurchases during the prior 12 month period, which was a net $12.8 million as of March 31, 2020. 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 $20.0 million as of March 31, 2020.

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:

    

March 31, 

    

December 31, 

(in thousands)

2020

2019

Raw materials and supplies

$

28,276

$

24,993

Work in process

 

7,998

 

7,731

Finished goods

 

9,672

 

8,829

Total inventories

$

45,946

$

41,553

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 first quarter of 2020 reflects an effective tax rate of 14.4 percent, compared to an effective tax rate of 16.3 percent for the comparable period in the prior year. The decrease in effective rate is primarily due to the effect of permanent differences and discrete adjustments on lower pretax income for the first quarter of 2020 compared to the same period in 2019. The effective rate in both periods includes the effect of beneficial permanent differences including discrete adjustments related to restricted stock dividends.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted into law on March 27, 2020, has been evaluated in the Company's tax provision and there is no impact to the tax provision at this time. The impact of the CARES Act will continue to be evaluated throughout 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

Three months ended

(in thousands)

March 31, 

    

2020

    

2019

Interest cost

$

58

$

64

Expected return on plan assets

 

(73)

 

(117)

Amortization of net losses

 

24

 

22

Net periodic benefit

$

9

$

(31)

The Company did not contribute to this plan during the three months ended March 31, 2020.

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 $5,637,000 as of March 31, 2020 and $6,716,000 as of December 31, 2019. 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 losses related to the SERP assets totaled approximately $1,078,000 during the three months ended March 31, 2020, compared to trading gains of approximately $590,000 during the three months ended March 31, 2019.

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:

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis on the balance sheet as of March 31, 2020 and December 31, 2019:

 

Fair Value Measurements at March 31, 2020 with: 

 

Quoted prices in

Significant

active markets

other

Significant

for

observable

unobservable

(in thousands)

    

Total

    

identical assets

    

inputs

    

inputs

(Level 1)

(Level 2)

(Level 3)

Assets:

Investments measured at Net Asset Value - Trading securities

$

5,637

$

$

$

Fair Value Measurements at December 31, 2019 with:

Quoted prices in

Significant

active markets

other

Significant

for

observable

unobservable

(in thousands)

    

Total

    

identical assets

    

inputs

    

inputs

 

(Level 1)

(Level 2)

(Level 3)

Assets:

 

  

 

  

 

  

 

  

Investments measured at Net Asset Value - Trading securities

$

6,716

$

$

$

The trading securities are comprised of SERP assets, as described in Note 11, 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. 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.

13.  ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss consists of the following:

    

    

Pension

(in thousands)

Adjustment

Total

Balance at December 31, 2019

$

(2,748)

$

(2,748)

Change during the period ended March 31, 2020:

 

 

Before-tax amount

 

128

 

128

Tax provision

 

(28)

 

(28)

Reclassification adjustment, net of taxes

 

 

Amortization of net loss (1)

 

19

 

19

Total activity for the period

 

119

 

119

Balance at March 31, 2020

$

(2,629)

$

(2,629)

(1)Reported as part of selling, general and administrative expenses.
(2)Reported as part of interest income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

    

    

Unrealized

    

Pension

Loss On

(in thousands)

Adjustment

Securities

Total

Balance at December 31, 2018

$

(2,178)

3

$

(2,175)

Change during the period ended March 31, 2019:

 

 

 

Before-tax amount

 

 

13

 

13

Tax provision

 

 

(3)

 

(3)

Adoption of account standard (Note 2)

(404)

(10)

(414)

Reclassification adjustment, net of taxes

 

 

 

Amortization of net loss (1)

 

17

 

 

17

Net realized gain (2)

 

 

(3)

 

(3)

Total activity for the period

 

(387)

 

(3)

 

(390)

Balance at March 31, 2019

$

(2,565)

$

(2,565)

(1)Reported as part of selling, general and administrative expenses.
(2)Reported as part of interest income.

14.  LEASES

The Company recognizes leases with duration greater than 12 months on the balance sheet by recording the related Right-Of-Use (ROU) asset and liability at the present value of lease payments over the term. Leases that include rental escalation clauses or 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 March 31, 2020, the Company had no operating leases that had not yet commenced.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Lease position:

The table below presents the assets and liabilities related to operating leases recorded on the balance sheet:

    

Classification on the Consolidated

    

(in thousands)

Balance Sheet

March 31, 2020

Assets:

 

  

 

  

Operating lease right-of-use assets

 

Other assets

$

147

Liabilities:

 

  

 

Current maturities of operating leases

 

Accrued expenses and other liabilities

$

48

Long-term operating lease liabilities

 

Other long-term liabilities

 

97

Total lease liabilities

$

145

Lease Costs:

Operating and short-term lease costs totaling $14 thousand for the three months ended March 31, 2020 and 2019 are included in selling, general and administrative expenses in the consolidated statements of operations.

Other information:

Cash paid for amounts included in the measurement of lease liabilities –operating leases (in thousands)

    

$

12

Weighted average remaining lease term –operating leases

 

3.0

years

Weighted average discount rate – operating leases

 

3.68

%  

Lease Commitments:

Future minimum lease payments at March 31, 2020 were as follows:

Maturity of lease liabilities

(in thousands)

    

Operating Leases

2020 (excluding the three months ended March 31)

$

39

2021

 

52

2022

 

52

2023

 

10

Total lease payments

 

153

Less: Amounts representing interest

 

(8)

Present value of lease liabilities

$

145

The company currently has 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 March 31, 2020, projected future lease income on this lease totaled $471,000 scheduled to be received as follows: 2020 – $176,625, 2021 - $235,500 and 2022 - $58,875. During the quarter ended March 31, 2020, the company recorded rental income of $59 thousand that is classified as part of selling, general and administrative expenses on the consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

15.  SUBSEQUENT EVENT

On April 28, 2020, the Board of Directors declared a reduction in the quarterly cash dividend from $0.12 per share to $0.08 per share payable June 10, 2020 to common stockholders of record at the close of business May 11, 2020.

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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 “Overview” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 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.

During March of 2020, the COVID-19 pandemic resulted in an abrupt and steep decline in economic activity which caused a severe disruption in the 2020 retail recreational boat selling season, and some orders were cancelled. At the end of the quarter, we temporarily suspended our manufacturing operations out of concern for the well-being of our employees and their families, and at the recommendation of local and state authorities. We are closely monitoring our dealers' activities and are frequently communicating with their floorplan lenders. Since the complete collapse in economic activity that occurred at the beginning of the boating retail selling season, we are managing our operations to balance the tremendous decline in overall demand against the needs of our dealers whose customers want to purchase a boat during the retail selling season. At this time, we are not certain when we will resume production or to what level we will resume production. This decision will be influenced by the recommendations of state and local authorities, our assessment of our production supply chain, our dealers' indications of demand in their particular markets, and the availability of floorplan financing for our dealers.

Our net sales of $59.1 million were 28.8 percent lower during the first quarter of 2020 compared to the first quarter of 2019 primarily due to a 28.9 percent decrease in number of units sold. Unit sales declined in every product category with the exception of our Chaparral OSX Luxury Sportboats.

Operating income of $4.9 million decreased 45.3 percent during the first quarter of 2020 compared to the same period in the prior year primarily due to lower gross profit. Selling, general and administrative expenses decreased 26.2 percent during the first quarter of 2020 as compared to the same period in the prior year primarily due to costs that vary with lower sales and profitability, such as incentive compensation and warranty expense. Dealer inventory in units as of March 31, 2020 was higher than at the end of the fourth quarter of 2019 but lower than at the end of the first quarter of 2019.

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, 2019.

We believe that retail demand for new recreational boats during 2020 will be lower than demand in 2019. While attendance and sales at the 2020 winter boat shows were approximately equal to attendance and sales at the 2019 winter boat shows, and sales during the first two months of the first quarter of 2020 were strong, retail sales in March declined dramatically because of the abrupt economic shutdown resulting from the COVID-19 pandemic. Since this abrupt economic disruption and decline in consumer confidence occurred at the height of the retail selling season, the Company believes that overall retail demand will be lower in 2020 than in 2019. In addition, the Company suspended its manufacturing operations near the end of the first quarter of 2020. The Company anticipates

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

that it will resume manufacturing operations during the second quarter, but the timing and level of such resumption are uncertain, and will depend upon the guidance of Federal, state and local authorities, availability of components used in the manufacture of the Company's products, availability of dealer and retail financing, and consumer demand.

Despite the clear near-term weakness in demand for the Company’s products and the complexities of conducting manufacturing operations, the Company believes that recreational boating continues to appeal to U.S. consumers. For example, the Company noted that retail sales among several of its dealers improved significantly at the end of the first quarter. The Company believes that this sales increase was caused by consumers leaving urban areas to spend time in vacation homes near recreational bodies of water. Consumers who have temporarily moved to such areas may view recreational boating as a safe activity in the current environment. In addition, consumer confidence, employment and real estate values were strong prior to the COVID-19 pandemic, and these conditions may return following the pandemic’s resolution. Furthermore, the price of oil has declined significantly, which should lead to lower retail fuel prices during the near term, which is a positive catalyst for recreational boating.

Although industry wide retail boat sales remain lower than they were prior to the 2008 financial crisis, retail boat sales increased each year between 2012 and 2018, though they declined slightly in 2019. Fluctuations in fuel prices can impact our industry, although they were relatively stable in 2019 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 comprised approximately 33 percent of the Company’s unit sales in 2020. The higher cost of boat ownership can discourage 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 Chaparral OSX Sport Luxury outboards. 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 health and economic recover from the pandemic, 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  months ended March 31, 2020 and 2019 are as follows:

    

Three months ended March 31,

 

2020

 

2019

Total number of boats sold

 

982

 

1,382

Average gross selling price per boat (in thousands)

$

51.6

$

52.6

Net sales (in thousands)

$

59,119

$

83,053

Percentage of cost of goods sold to net sales

 

79.5

%  

 

77.5

%  

Gross profit margin percent

 

20.5

%  

 

22.5

%  

Percentage of selling, general and administrative expenses to net sales

 

12.3

%  

 

11.8

%  

Operating income (in thousands)

$

4,854

$

8,868

Warranty expense (in thousands)

$

771

$

1,109

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THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED MARCH 31, 2019

Net sales for the three months ended March 31, 2020 decreased $23.9 million or 28.8 percent compared to the same period in 2019. The change in net sales during the quarter compared to the prior year was due primarily to a 28.9 percent decrease in the number of units sold coupled with a 1.9 percent decrease in the average gross selling price per boat. The decrease in unit sales was primarily due to a decline in every product category with the exception of our Chaparral OSX Luxury Sportboats. Net unit sales for the first quarter of 2020 were also negatively impacted by the abrupt economic shutdown caused by the COVID-19 pandemic. In the first quarter of 2020, net sales outside of the United States accounted for 5.7 percent of net sales compared to 7.4 percent of net sales in the first quarter of 2019. International sales remained low primarily due to COVID-19 related stay-in-place restrictions as well as continued tariffs imposed on boat imports into Mexico and the European Union. Domestic net sales decreased 27.6 percent to $55.7 million and international sales of $3.4 million decreased 44.6 percent compared to the first quarter of the prior year.

Cost of goods sold for the three months ended March 31, 2020 was $47.0 million compared to $64.4 million for the comparable period in 2019, a decrease of $17.3 million or 26.9 percent. Cost of goods sold as a percentage of net sales increased to 79.5 percent for the three months ended March 31, 2020 from 77.5 percent for the comparable period in 2019, primarily due to manufacturing cost inefficiencies caused by lower production in the current period.

Selling, general and administrative expenses for the three months ended March 31, 2020 were $7.3 million compared to $9.8 million for the comparable period in 2019, a decrease of $2.6 million or 26.2 percent. This decrease was primarily due to costs that vary with sales and profitability, such as incentive compensation and warranty expense during the first quarter on 2020 as compared to the same period in the prior year. Selling, general and administrative expenses as a percentage of net sales increased to 12.3 percent in the first quarter of 2020 from 11.8 percent in the first quarter of 2019.

Operating income for the three months ended March 31, 2020 decreased $4.0 million or 45.3 percent compared to the same period in 2019 primarily due to a decrease in gross profit partially offset by a decrease in selling, general and administrative expenses.

Interest income for the three months ended March 31, 2020 increased $4 thousand or 7.0 percent compared to the prior year. Marine Products generates interest income primarily from investments in money market funds. The increase was primarily due to a higher average balance of cash and cash equivalents partially offset by a lower percentage yield.

Income tax provision for the first quarter of 2020 reflects an effective tax rate of 14.4 percent compared to an effective tax rate of 16.3 percent for the comparable period in the prior year. The decrease in effective rate is primarily due to the effect of permanent differences and discrete adjustments on a lower pretax income for the first quarter of 2020 compared to the same period in 2019. 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 March 31, 2020 were $ 20.1 million compared to $19.8 million at December 31, 2019.

The following table sets forth the cash flows for the applicable periods:

    

Three months ended March 31,

(in thousands)

    

2020

    

2019

Net cash provided by operating activities

$

6,054

$

12,044

Net cash (used for) provided by investing activities

 

(665)

 

6,571

Net cash used for financing activities

$

(5,129)

$

(9,013)

Cash provided by operating activities for the three months ended March 31, 2020 decreased $6.0 million compared to the same period in 2019. This decrease is primarily due to a decrease in net income coupled with an unfavorable change in working capital.

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The major components of the net unfavorable change in working capital were as follows: an unfavorable change of $3.3 million in inventories primarily due to the timing of shipments of finished boats and receipts of raw materials and key components; a $1.8 million unfavorable change in accounts payable due to the timing of payments; an unfavorable change in other accrued expenses; partially offset by a favorable change of $3.5 million in accounts receivable due to the timing of receipts in comparison to the prior year.

Cash used for investing activities for the three months ended March 31, 2020 was approximately $0.7 million compared to $6.6 million provided by investing activities for the same period in 2019. The unfavorable change in cash used for investing activities is primarily due to net sales of marketable securities during the first quarter of 2019 resulting from a change in investment strategy, partially offset by a decrease in capital expenditures during the current quarter in comparison to the same period in the prior year.

Cash used for financing activities for the three months ended March 31, 2020 decreased approximately $3.9 million compared to the three months ended March 31, 2019 primarily due to a decrease in open market share repurchases in 2020 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 2020 will be approximately $3.4 million, of which $0.7 million has been spent through March 31, 2020.

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 first quarter of 2020 and does not expect to make any additional contributions for the remainder of 2020.

As of March 31, 2020, the Company has repurchased a total of 6,581,632 shares in the open market under the Company stock repurchase program, which began in 2002. There are 1,668,368 shares that remain available for repurchase under the current authorization. There were no shares repurchased under this program during the three months ended March 31, 2020.

On April 28, 2020, the Board of Directors declared a reduction in the quarterly cash dividend from $0.12 per share to $0.08 per share payable June 10, 2020 to common stockholders of record at the close of business May 11, 2020. In light of the uncertainty in the economy and our business by the impact of COVID-19, we believe this reduced dividend is prudent at this time. 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 no material repurchases of dealer inventory during the three months ended March 31, 2020 and 2019.

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.

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The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is based on a specified percentage of the amount of the average net receivables financed by the floor plan lender for our dealers less repurchases during the prior 12 month period, which was a net $12.8 million as of March 31, 2020. 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 $20.0 million as of March 31, 2020.

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 $217 thousand for the three months ended March 31, 2020 and approximately $219 thousand for the three months ended March 31, 2019.

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, 2019. There have been no significant changes in the critical accounting policies since year-end.