Delaware
|
58-2572419
|
(State or other
jurisdiction of incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
Part
I. Financial Information
|
Page
No.
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
Consolidated
Balance Sheets – As of March 31, 2009 and December 31,
2008
|
3
|
|
Consolidated
Statements of Operations – for the three and three months ended March 31,
2009 and 2008
|
4
|
|
Consolidated
Statement of Stockholders’ Equity – for the three months ended March 31,
2009
|
5
|
|
Consolidated
Statements of Cash Flows – for the three months ended March 31, 2009 and
2008
|
6
|
|
Notes
to Consolidated Financial Statements
|
7-18
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
Item
4.
|
Controls
and Procedures
|
27
|
Part
II. Other Information
|
||
Item
1.
|
Legal
Proceedings
|
28
|
Item
1A.
|
Risk
Factors
|
28
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
|
Item
5.
|
Other
Information
|
28
|
Item
6.
|
Exhibits
|
29
|
Signatures
|
30
|
MARINE PRODUCTS CORPORATION AND
SUBSIDIARIES
|
||||||||
PART I. FINANCIAL
INFORMATION
|
||||||||
ITEM 1. FINANCIAL
STATEMENTS
|
||||||||
CONSOLIDATED BALANCE
SHEETS
|
||||||||
AS OF MARCH 31, 2009 AND DECEMBER
31, 2008
|
||||||||
(In
thousands)
|
||||||||
(Unaudited)
|
||||||||
March 31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
(Note 1)
|
|||||||
Cash and cash
equivalents
|
$ | 9,427 | $ | 4,622 | ||||
Marketable
securities
|
19,057 | 8,799 | ||||||
Accounts receivable,
net
|
1,213 | 5,575 | ||||||
Inventories
|
19,408 | 22,453 | ||||||
Income taxes
receivable
|
4,769 | 2,464 | ||||||
Deferred income
taxes
|
913 | 1,116 | ||||||
Prepaid expenses and other current
assets
|
1,218 | 1,681 | ||||||
Total current
assets
|
56,005 | 46,710 | ||||||
Property, plant and equipment,
net
|
14,192 | 14,579 | ||||||
Goodwill
|
3,308 | 3,308 | ||||||
Other intangibles,
net
|
465 | 465 | ||||||
Marketable
securities
|
27,034 | 37,953 | ||||||
Deferred income
taxes
|
2,479 | 2,934 | ||||||
Other
assets
|
4,324 | 4,344 | ||||||
Total
assets
|
$ | 107,807 | $ | 110,293 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
Accounts
payable
|
$ | 1,733 | $ | 1,437 | ||||
Accrued expenses and other
liabilities
|
12,508 | 12,281 | ||||||
Total current
liabilities
|
14,241 | 13,718 | ||||||
Pension
liabilities
|
4,984 | 5,285 | ||||||
Other long-term
liabilities
|
444 | 501 | ||||||
Total
liabilities
|
19,669 | 19,504 | ||||||
Common
stock
|
3,690 | 3,643 | ||||||
Capital in excess of par
value
|
- | - | ||||||
Retained
earnings
|
85,564 | 88,535 | ||||||
Accumulated other comprehensive
loss
|
(1,116 | ) | (1,389 | ) | ||||
Total stockholders'
equity
|
88,138 | 90,789 | ||||||
Total liabilities and
stockholders' equity
|
$ | 107,807 | $ | 110,293 | ||||
The accompanying notes are an
integral part of these consolidated statements.
|
MARINE PRODUCTS CORPORATION AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||
FOR THE THREE MONTHS ENDED MARCH
31, 2009 AND 2008
|
||||||||
(In thousands except per share
data)
|
||||||||
(Unaudited)
|
||||||||
Three months ended March
31,
|
||||||||
2009
|
2008
|
|||||||
Net sales
|
$ | 13,806 | $ | 65,542 | ||||
Cost of goods
sold
|
13,864 | 52,078 | ||||||
Gross (loss)
profit
|
(58 | ) | 13,464 | |||||
Selling, general and
administrative expenses
|
4,699 | 8,259 | ||||||
Operating (loss)
income
|
(4,757 | ) | 5,205 | |||||
Interest
income
|
455 | 563 | ||||||
(Loss) income before income
taxes
|
(4,302 | ) | 5,768 | |||||
Income tax (benefit)
provision
|
(1,816 | ) | 1,636 | |||||
Net (loss)
income
|
$ | (2,486 | ) | $ | 4,132 | |||
(Loss) Earnings per
share
|
||||||||
Basic
|
$ | (0.07 | ) | $ | 0.12 | |||
Diluted
|
$ | (0.07 | ) | $ | 0.11 | |||
Dividends per
share
|
$ | 0.010 | $ | 0.065 | ||||
Average shares
outstanding
|
||||||||
Basic
|
35,981 | 35,728 | ||||||
Diluted
|
35,981 | 36,504 | ||||||
The accompanying notes are an
integral part of these consolidated statements.
|
MARINE PRODUCTS CORPORATION AND
SUBSIDIARIES
|
||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH
31, 2009
|
||||||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||||||
|
|
Capital
in
|
|
|
||||||||||||||||||||||||
Comprehensive
|
Common
Stock
|
Excess
of
|
Retained
|
Accumulated
|
||||||||||||||||||||||||
Income
(Loss)
|
Shares
|
Amount
|
Par
Value
|
Earnings
|
Other
|
Total
|
||||||||||||||||||||||
Balance, December 31,
2008
|
36,425 | $ | 3,643 | $ | - | $ | 88,535 | $ | (1,389 | ) | $ | 90,789 | ||||||||||||||||
Stock issued for stock
incentive
|
||||||||||||||||||||||||||||
plans, net
|
625 | 62 | (131 | ) | — | — | (69 | ) | ||||||||||||||||||||
Stock purchased and
retired
|
(149 | ) | (15 | ) | (527 | ) | (116 | ) | — | (658 | ) | |||||||||||||||||
Net loss
|
$ | (2,486 | ) | — | — | — | (2,486 | ) | — | (2,486 | ) | |||||||||||||||||
Other comprehensive income, net of
tax:
|
||||||||||||||||||||||||||||
Pension
adjustment
|
140 | — | — | — | — | 140 | 140 | |||||||||||||||||||||
Unrealized gain (loss) on
securities,
|
||||||||||||||||||||||||||||
net of reclassification
adjustment
|
133 | — | — | — | — | 133 | 133 | |||||||||||||||||||||
Comprehensive income
(loss)
|
$ | (2,213 | ) | |||||||||||||||||||||||||
Dividends
declared
|
— | — | — | (369 | ) | — | (369 | ) | ||||||||||||||||||||
Stock-based
compensation
|
— | — | 400 | — | — | 400 | ||||||||||||||||||||||
Excess tax benefits for share
-
|
||||||||||||||||||||||||||||
based
payments
|
— | — | 258 | — | — | 258 | ||||||||||||||||||||||
Balance, March 31,
2009
|
36,901 | $ | 3,690 | $ | - | $ | 85,564 | $ | (1,116 | ) | $ | 88,138 | ||||||||||||||||
The accompanying notes are an
integral part of this consolidated statement.
|
MARINE PRODUCTS CORPORATION AND
SUBSIDIARIES
|
||||||||
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
||||||||
FOR THE THREE MONTHS ENDED MARCH
31, 2009 AND 2008
|
||||||||
(In
thousands)
|
||||||||
(Unaudited)
|
||||||||
Three months ended March
31,
|
||||||||
2009
|
2008
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net (loss)
income
|
$ | (2,486 | ) | $ | 4,132 | |||
Adjustments to
reconcile net (loss) income to net cash
|
||||||||
provided by
operating activities:
|
||||||||
Depreciation
and amortization
|
400 | 451 | ||||||
Stock-based
compensation expense
|
400 | 374 | ||||||
Excess
tax benefits for share-based payments
|
(258 | ) | (582 | ) | ||||
Deferred
income tax provision (benefit)
|
270 | (580 | ) | |||||
(Increase)
decrease in assets:
|
||||||||
Accounts
receivable
|
4,362 | (806 | ) | |||||
Inventories
|
3,045 | 747 | ||||||
Prepaid
expenses and other current assets
|
463 | 234 | ||||||
Income
taxes receivable
|
(2,047 | ) | 1,178 | |||||
Other
non-current assets
|
20 | 149 | ||||||
Increase
(decrease) in liabilities:
|
||||||||
Accounts
payable
|
296 | 2,346 | ||||||
Accrued
expenses and other liabilities
|
227 | 4,484 | ||||||
Other
long-term liabilities
|
(142 | ) | (99 | ) | ||||
Net cash provided by operating
activities
|
4,550 | 12,028 | ||||||
INVESTING
ACTIVITIES
|
||||||||
Capital
expenditures
|
(13 | ) | (129 | ) | ||||
Purchases of marketable
securities
|
(3,829 | ) | (11,647 | ) | ||||
Sales of marketable
securities
|
2,696 | 6,923 | ||||||
Maturities of marketable
securities
|
2,000 | 1,000 | ||||||
Net cash provided by (used for)
investing activities
|
854 | (3,853 | ) | |||||
FINANCING
ACTIVITIES
|
||||||||
Payment of
dividends
|
(369 | ) | (2,339 | ) | ||||
Excess tax benefits for
share-based payments
|
258 | 582 | ||||||
Cash paid for common stock
purchased and retired
|
(500 | ) | (1,558 | ) | ||||
Proceeds received upon exercise of
stock options
|
12 | 37 | ||||||
Net cash used for financing
activities
|
(599 | ) | (3,278 | ) | ||||
Net increase in cash and cash
equivalents
|
4,805 | 4,897 | ||||||
Cash and cash equivalents at
beginning of period
|
4,622 | 3,233 | ||||||
Cash and cash equivalents at end
of period
|
$ | 9,427 | $ | 8,130 | ||||
The accompanying notes are an
integral part of these consolidated statements.
|
1.
|
GENERAL
|
|
The
accompanying unaudited condensed 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 generally accepted accounting principles 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, 2009 are not necessarily indicative of the results that may be
expected for the year ending December 31,
2009.
|
|
The
balance sheet at December 31, 2008 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial
statements.
|
|
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2008.
|
|
A
group that includes the Company’s Chairman of the Board, R. Randall
Rollins and his brother Gary W. Rollins, who is also director of the
Company, and certain companies under their control, controls in excess of
fifty percent of the Company’s voting
power.
|
2.
|
EARNINGS
PER SHARE
|
|
Statement
of Financial Accounting Standard (“SFAS”) 128, “Earnings Per Share,”
requires a basic earnings per share and diluted earnings per share
presentation. The two calculations differ as a result of the dilutive
effect of stock options and time lapse restricted shares and performance
restricted shares included in diluted earnings per share, but excluded
from basic earnings per share. Basic and diluted earnings per share are
computed by dividing net (loss) income by the weighted average number of
shares outstanding during the respective periods. A
reconciliation of weighted average shares outstanding is as
follows:
|
(in
thousands except per share data amounts)
|
Three
months ended
March
31,
|
|||||||
2009
|
2008
|
|||||||
Net
(loss) income
|
$ | (2,486 | ) | $ | 4,132 | |||
(Numerator
for basic and diluted earnings per share)
|
||||||||
Shares
(denominator):
|
||||||||
Weighted
average shares outstanding
|
35,981 | 35,728 | ||||||
(denominator for basic earnings
per share)
|
||||||||
Dilutive
effect of stock options and restricted shares
|
- | 776 | ||||||
Adjusted
weighted average shares outstanding
|
35,981 | 36,504 | ||||||
(denominator for diluted
earnings per share)
|
||||||||
(Loss)
earnings per share:
|
||||||||
Basic
|
$ | (0.07 | ) | $ | 0.12 | |||
Diluted
|
$ | (0.07 | ) | $ | 0.11 |
The
effect of the Company’s stock options and restricted shares as shown below
have been excluded from the computation of diluted (loss) earnings per
share for the following periods, as their effect would have been
anti-dilutive:
|
(in
thousands)
|
Three
months ended March 31,
|
||
2009
|
2008
|
||
Stock
options
|
280
|
47
|
|
Restricted
stock
|
786
|
-
|
|
In
June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” to clarify that all
outstanding unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents, whether paid
or unpaid, are participating securities. An entity must include
participating securities in its calculation of basic and diluted earnings
per share (EPS) pursuant to the two-class method, as described in FASB
Statement 128, Earnings per Share. The Company has periodically issued
share-based payment awards that contain non-forfeitable rights to
dividends. The Company evaluated the impact of FSP EITF
03-6-1 and determined that the impact was not material and determined the
basic and diluted earnings per share amounts as reported are equivalent to
the basic and diluted earnings per share amounts calculated under FSP EITF
03-6-1.
|
3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
|
Recently
Adopted Accounting Pronouncements:
|
Financial Accounting Standards Board Staff Positions and Interpretations | |
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The Company adopted FSP EITF 03-6-1 effective January 1, 2009 and the adoption of this accounting guidance did not have a material effect on its consolidated financial statements or EPS. See Note 2 titled Earnings Per Share for further details. | |
In April 2008, the FASB issued FSP FAS No. 142-3, which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The FSP requires an entity that is estimating the useful life of a recognized intangible asset to consider its historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension that are both consistent with the asset’s highest and best use and adjusted for entity-specific factors under SFAS No. 142. The Company adopted the provisions of this FSP on January 1, 2009 and plans to apply the guidance for determining the useful life of a recognized intangible asset acquired hereafter. | |
Recently Issued Accounting Pronouncements Not Yet Adopted: | |
Financial Accounting Standards Board Staff Positions and Interpretations | |
In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The FASB issued the FSP, which amends FASB Statement 132R, Employers’ Disclosures about Pensions and Other Postretirement Benefits, in order to provide adequate transparency about the types of assets and associated risks in employers’ postretirement plans. Disclosures are designed to provide an understanding of how investment decisions are made: the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs (Level 3 measurements in FASB Statement 157, Fair Value Measurements) on changes in plan assets for the period; and significant concentrations of risk within plan assets. The disclosures about plan assets required by this FSP are required to be provided for fiscal years ending after December 15, 2009, with the provisions of this FSP not required for earlier periods that are presented for comparative purposes, upon initial application. Earlier application of the provisions of this FSP is permitted. The Company is currently in the process of determining the additional disclosures required upon the adoption of this FSP. |
|
In
April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.” FSP SFAS 157-4
affirms that the objective of fair value when the market for an asset is
not active is the price that would be received to sell the asset in an
orderly transaction, and clarifies and includes additional factors for
determining whether there has been a significant decrease in market
activity for an asset when the market for that asset is not active.
FSP SFAS 157-4 requires an entity to base its conclusion about
whether a transaction was not orderly on the weight of the evidence.
FSP SFAS 157-4 also amended SFAS 157, “Fair Value
Measurements,” to expand certain disclosure
requirements. This FSP shall be effective for interim
and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. Adoption of this
FSP SFAS 157-4 is not expected to have a material impact on the
Company’s consolidated financial statements.
|
In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP SFAS 115-2 and SFAS 124-2 (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP SFAS 115-2 and SFAS 124-2, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. This FSP shall be effective for interim and annual reporting periods ending after June 15, 2009. Adoption of this FSP is not expected to have a material impact on the Company’s consolidated financial statements. | |
In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP SFAS 107-1 and APB 28-1 amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require an entity to provide disclosures about fair value of financial instruments in interim financial information and amends Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. Under FSP SFAS 107-1 and APB 28-1, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. This FSP shall be effective for interim reporting periods ending after June 15, 2009. The new interim disclosures required by this FSP will be included in the Company’s interim financial statements beginning with the second quarter of 2009. |
In April 2009, the FASB issued FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP SFAS 141R-1 amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS 5. FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS 141R. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Company acquires in business combinations occurring after January 1, 2009. | |
4.
|
COMPREHENSIVE (LOSS) INCOME
|
|
The
components of comprehensive (loss) income for the applicable periods are
as follows:
|
(in
thousands)
|
Three
months ended
March
31,
|
||||||||
2009
|
2008
|
||||||||
Comprehensive
(loss) income:
|
|||||||||
Net
(loss) income
|
$ | (2,486 | ) | $ | 4,132 | ||||
Other
comprehensive (loss) income, net of taxes:
|
|||||||||
Unrealized
gain on securities available for sale, net of
reclassification
adjustment during the period
|
133 | 186 | |||||||
Pension
adjustment
|
140 | - | |||||||
Total
comprehensive (loss) income
|
$ | (2,213 | ) | $ | 4,318 |
5.
|
STOCK-BASED
COMPENSATION
|
The Company reserved 5,250,000 shares of common stock under the 2001 and 2004 Stock Incentive Plans each of which expires ten years from the date of approval. These plans provide for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock. As of March 31, 2009, there were approximately 1,437,000 shares available for grants. | |
Stock-based compensation for the three months ended March 31, 2009 and 2008 were as follows: |
(in
thousands)
|
Three
months ended
March
31,
|
||||||||
2009
|
2008
|
||||||||
Pre
– tax cost
|
$ | 400 | $ | 374 | |||||
After
tax cost
|
$ | 266 | $ | 253 |
|
Stock
Options
|
Transactions involving Marine Products stock options for the three months ended March 31, 2009 were as follows: |
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
||
Outstanding
at January 1, 2009
|
990,172
|
$2.88
|
2.5
years
|
||
Granted
|
-
|
-
|
N/A
|
||
Exercised
|
(277,155)
|
0.61
|
N/A
|
||
Forfeited
|
(675)
|
1.71
|
N/A
|
||
Expired
|
-
|
-
|
N/A
|
||
Outstanding
at March 31, 2009
|
712,342
|
$3.76
|
3.19
years
|
$341,900
|
|
Exercisable
at March 31, 2009
|
703,192
|
$3.65
|
3.16
years
|
$414,900
|
The total intrinsic value of share options exercised was approximately $975,000 during the three months ended March 31, 2009 and approximately $3,496,000 during the three months ended March 31, 2008. Tax benefits associated with the exercise of non-qualified stock options during the three months ended March 31, 2009 were approximately $196,000 and were approximately $561,000 during the three months ended March 31, 2008. |
Restricted Stock | |||||
The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2009: |
Shares
|
Weighted
Average
Grant-Date
Fair
Value
|
||||
Non-vested
shares at January 1, 2009
|
600,700
|
$9.93
|
|||
Granted
|
353,500
|
4.26
|
|||
Vested
|
(106,800)
|
9.84
|
|||
Forfeited
|
(5,600)
|
10.63
|
|||
Non-vested
shares at March 31, 2009
|
841,800
|
$7.55
|
The total fair value of shares vested was approximately $1,051,000 during the three months ended March 31, 2009 and $651,000 during the three months ended March 31, 2008. For the three months ended March 31, 2009, tax benefits for compensation tax deductions in excess of compensation expense totaling approximately $62,000 were credited to capital in excess of par value and are classified as financing cash flows in accordance with SFAS 123R. | |
Other Information | |
As of March 31, 2009, total unrecognized compensation cost related to non-vested restricted shares was approximately $5,536,000. This cost is expected to be recognized over a weighted-average period of 4.5 years. As of March 31, 2009, total unrecognized compensation cost related to non-vested stock options was immaterial. | |
6.
|
MARKETABLE
SECURITIES
|
Marine Products maintains investments held with a large, well-capitalized financial institution. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designations as of each balance sheet date. Debt securities are classified as available-for-sale because the Company does not have the intent to hold the securities to maturity. Available-for-sale securities are 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 is 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 securities are included in interest income. The fair value and the unrealized gains (losses) of the available-for-sale securities are as follows: |
(in
thousands)
|
March 31,
2009
|
December 31, 2008
|
|||||||||||||||
Type of
Securities
|
Fair Value
|
Unrealized
Gain (Loss)
|
Fair Value
|
Unrealized
Gain (Loss)
|
|||||||||||||
Municipal
Obligations
|
$ | 46,091 | $ | 466 | $ | 46,752 | $ | 260 |
Investments with remaining maturities of less than 12 months are considered to be current marketable securities. Investments with remaining maturities greater than 12 months are considered to be non-current marketable securities. | |
7.
|
WARRANTY
COSTS AND OTHER CONTINGENCIES
|
Warranty
Costs
The
Company warrants the entire boat, excluding the engine, against defects in
materials and workmanship for a period of one year. The Company
also warrants the entire deck and hull, including its bulkhead and
supporting stringer system, against defects in materials and workmanship
for periods ranging from five to ten years.
|
|
An
analysis of the warranty accruals for the three months ended March 31,
2009 and 2008 is as follows:
|
(in
thousands)
|
2009
|
2008
|
|||||||
Balances
at beginning of year
|
$ | 3,567 | $ | 4,768 | |||||
Less:
Payments made during the period
|
(956 | ) | (1,194 | ) | |||||
Add: Warranty
provision for the period
|
280 | 1,255 | |||||||
Changes
to warranty provision for prior years
|
367 | (11 | ) | ||||||
Balances
at March 31
|
$ | 3,258 | $ | 4,818 |
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 in “like new” condition to the Company, 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 lender. |
As a result of dealer defaults, MPC became contractually obligated to repurchase inventory of approximately $2.6 million during the fourth quarter of 2008 and approximately $3.6 million during the first quarter of 2009. At March 31, 2009, there is $2.5 million payable to floor plan lenders that is classified as accrued expenses. The payable to floor plan lenders at December 31, 2008 was $2.4 million. During the first quarter of 2009, the Company redistributed approximately $3.3 million of these boats among existing and replacement dealers. Repurchased boats included in inventory as of March 31, 2009 are recorded at an estimated net realizable value of $2.1 million. The Company recorded costs during the first quarter of 2009 in selling, general and administrative expenses associated with these repurchases of approximately $0.7 million. As of March 31, 2009, the Company has an aggregate remaining repurchase obligation to lenders of $1.8 million. | |
The Company re-evaluated the fair value of the remaining guarantee liability and reduced the liability from $227 thousand to $50 thousand as of March 31, 2009. Management continues to monitor the risk of additional defaults and resulting repurchase obligation 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. | |
Historically, and during most of 2008, there were at least two major marine dealer floor plan financing institutions. At the end of 2008, one of these institutions announced that it would cease floor plan lending to all unaffiliated dealers including those in the marine industry. During the first quarter of 2009, one lender approached Marine Products with a request to raise the contractual repurchase limit. During 2008 this lender imposed additional borrowing costs not covered in the current contractual arrangement. Marine Products is negotiating with this lender regarding these and other issues regarding contract provisions which expire at the end of the 2009 model year and contract provisions for the 2010 model year. | |
8.
|
BUSINESS
SEGMENT INFORMATION
|
|
The
Company has only one reportable segment, its powerboat manufacturing
business; therefore, the majority of the disclosures required by SFAS 131
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: |
(in
thousands)
|
March
31, 2009
|
December
31, 2008
|
|||||||
Raw
materials and supplies
|
$ | 10,187 | $ | 11,052 | |||||
Work
in process
|
3,199 | 5,095 | |||||||
Finished
goods
|
6,022 | 6,306 | |||||||
Total
inventories
|
$ | 19,408 | $ | 22,453 |
10.
|
INCOME
TAXES
|
The Company determines its periodic income tax (benefit) provision based upon the current period income and the annual estimated tax rate for the Company adjusted for any change 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. | |
For the first quarter of 2009, the income tax provision reflects a beneficial effective tax rate of 42.2 percent, compared to an effective rate of 28.4 percent for the comparable period in the prior year. The increase in the effective rate was due primarily to the relationship of our pretax income (loss) to permanent differences. |
11.
|
EMPLOYEE
BENEFIT PLAN
|
The Company participates in a multiple employer pension plan. The following represents the net periodic benefit credit and related components for the plan: |
(in
thousands)
|
Three months
ended
March
31,
|
||||||||
2009
|
2008
|
||||||||
Service
cost
|
$ | - | $ | - | |||||
Interest
cost
|
70 | 70 | |||||||
Expected
return on plan assets
|
(66 | ) | (109 | ) | |||||
Amortization
of net losses
|
59 | - | |||||||
Net
periodic benefit expense (credit)
|
$ | 63 | $ | (39 | ) |
|
The
Company does not currently expect to make any contributions to this plan
in 2009.
|
12.
|
FAIR
VALUE MEASUREMENTS
|
The Company adopted SFAS 157, “Fair Value Measurements,” and FSP 157-2, “Effective Date of FASB Statement No. 157,” in the first quarter of 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about items measured at fair value. SFAS 157 does not require any new fair value measurements. It applies to accounting pronouncements that already require or permit fair value measures. As a result, the Company will not be required to recognize any new assets or liabilities at fair value. FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. | |
SFAS 157 establishes a fair value 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: | |
Level
1 – Quoted market prices in active markets for identical assets or
liabilities
|
|
Level
2 – Inputs other than level 1 that are either directly or indirectly
observable
|
|
Level
3 – Unobservable inputs developed using the Company’s estimates and
assumptions, which reflect those that market participants would
use.
|
|
Securities:
The
Company determines the fair value of marketable securities that are
available for sale and of investments in the non-qualified plan that are
trading using quoted market prices. The adoption of SFAS 157
had no effect on the Company’s valuation of these marketable securities or
investments.
|
|
The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheet as of March 31, 2009: |
Fair
value Measurements at March 31, 2009 with
|
|||||||||||||
(in
thousands)
|
Quoted
prices in
active
markets for
identical
assets
(Level
1)
|
Significant
other
observable
inputs
(Level
2)
|
Significant
unobservable
inputs
(Level
3)
|
||||||||||
Assets:
|
|||||||||||||
Trading
securities
|
$ | 3,719 | $ | - | $ | - | |||||||
Available
for sale
securities
|
$ | 46,091 | $ | - | $ | - |
|
The carrying amount of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short term maturity of these instruments. |
|
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, including interim periods within that fiscal year. The Company did not elect the fair value option for any of its existing financial instruments and the Company has not determined whether or not it will elect this option for financial instruments it may acquire in the future. |
($
in thousands)
|
Three
months ended
March
31
|
|||||||||
2009
|
2008
|
|||||||||
Total
number of boats sold
|
310 | 1,402 | ||||||||
Average
gross selling price per boat
|
$ | 45.2 | $ | 44.7 | ||||||
Net
sales
|
$ | 13,806 | $ | 65,542 | ||||||
Percentage
of cost of goods sold to net sales
|
100.4 | % | 79.5 | % | ||||||
Gross
profit (loss) margin percent
|
(0.4 | )% | 20.5 | % | ||||||
Percentage
of selling, general and
administrative
expenses to net sales
|
34.0 | % | 12.6 | % | ||||||
Operating
(loss) income
|
$ | (4,757 | ) | $ | 5,205 | |||||
Warranty
expense
|
$ | 647 | $ | 1,244 |
(in
thousands)
|
Three
months ended March 31,
|
||||||||
2009
|
2008
|
||||||||
Net
cash provided by operating activities
|
$ | 4,550 | $ | 12,028 | |||||
Net
cash provided by (used for) investing activities
|
854 | (3,853 | ) | ||||||
Net
cash used for financing activities
|
$ | (599 | ) | $ | (3,278 | ) |
ITEM 6. | Exhibits | |
Exhibit Number | Description | |
3.1(a)
|
Marine
Products Corporation Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Registrant’s Registration Statement on
Form 10 filed on February 13, 2001).
|
|
3.1(b) |
Certificate
of Amendment of Certificate of Incorporation of Marine Products
Corporation executed on June 8, 2005 (incorporated herein by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed June 9,
2005).
|
|
3.2
|
Amended
and Restated By-laws of Marine Products Corporation (incorporated herein
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on October 25, 2008).
|
|
4 |
Restated
Form of Stock Certificate (incorporated herein by reference to Exhibit 4.1
to the Registrant’s Registration Statement on Form 10 filed on February
13, 2001).
|
|
31.1 |
Section
302 certification for Chief Executive Officer
|
|
31.2 |
Section
302 certification for Chief Financial Officer
|
|
32.1 |
Section
906 certifications for Chief Executive Officer and Chief Financial
Officer
|
MARINE PRODUCTS CORPORATION | |||
Date:
May 5, 2009
|
By:
|
/s/ Richard A. Hubbell | |
Richard A. Hubbell | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date:
May 5, 2009
|
By:
|
/s/ Ben M. Palmer | |
Ben M. Palmer | |||
Vice President, Chief Financial Officer and Treasurer | |||
(Principal Financial and Accounting Officer) |