UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 (I.R.S. Employer Identification Number)
incorporation or organization)
2170 PIEDMONT ROAD, NE, ATLANTA, GEORGIA 30324
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code -- (404) 321-7910
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
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 X No
--- ---
As of September 30, 2003, Marine Products Corporation had 17,150,655 shares of
common stock outstanding.
MARINE PRODUCTS CORPORATION.
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
NO.
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -
September 30, 2003 and December 31, 2002 3
Consolidated statements of income - Three and nine months ended
September 30, 2003 and 2002; 4
Consolidated statements of cash flows - Nine months ended
September 30, 2003 and 2002 5
Notes to consolidated financial statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
2
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(In thousands)
(Unaudited)
SEPTEMBER 30, December 31,
2003 2002
- --------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $21,629 $17,280
Marketable securities 1,689 1,929
Accounts receivable, net 6,784 1,471
Inventories 19,890 20,685
Federal income taxes receivable 1,265 -
Deferred income taxes 1,979 2,419
Prepaid expenses and other current assets 816 1,623
- --------------------------------------------------------------------------------------
Total current assets 54,052 45,407
Property, plant and equipment, net 17,955 16,216
Marketable securities 5,557 4,865
Intangibles, net 3,828 3,858
Other assets 1,366 717
- --------------------------------------------------------------------------------------
TOTAL ASSETS $82,758 $71,063
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 4,534 $ 3,414
Federal income taxes payable - 1,889
Accrued expenses 7,559 6,982
- --------------------------------------------------------------------------------------
Total current liabilities 12,093 12,285
Long-term pension liability 1,277 358
Deferred taxes 2,538 1,437
Other liabilities 150 150
- --------------------------------------------------------------------------------------
Total liabilities 16,058 14,230
- --------------------------------------------------------------------------------------
Common stock 1,715 1,712
Capital in excess of par value 36,574 38,278
Earnings retained 28,637 17,074
Deferred compensation (256) (334)
Accumulated other comprehensive income 30 103
- --------------------------------------------------------------------------------------
Total stockholders' equity 66,700 56,833
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $82,758 $71,063
======================================================================================
The accompanying notes are an integral part of these consolidated statements.
3
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(In thousands except per share data)
(Unaudited)
Three months ended September 30, Nine months ended September 30,
--------------------------------- -----------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------- -----------------------------------
NET SALES $44,903 $41,551 $146,961 $127,068
Cost of goods sold 33,400 31,853 109,815 98,789
- ------------------------------------------------------------------------------- -----------------------------------
Gross profit 11,503 9,698 37,146 28,279
Selling, general and administrative expenses 4,937 4,487 16,611 13,553
- ------------------------------------------------------------------------------- -----------------------------------
Operating income 6,566 5,211 20,535 14,726
Interest income 75 176 410 496
- ------------------------------------------------------------------------------- -----------------------------------
Income before income taxes 6,641 5,387 20,945 15,222
Income tax provision 2,182 2,047 7,331 5,784
- ------------------------------------------------------------------------------- -----------------------------------
NET INCOME $4,459 $3,340 $13,614 $9,438
=============================================================================== ===================================
DIVIDENDS PER SHARE $0.04 $0.02 $0.12 $0.06
=============== ============== ================ ===============
EARNINGS PER SHARE
Basic $0.26 $0.20 $0.81 $0.56
=============================================================================== ===================================
Diluted $0.25 $0.19 $0.76 $0.53
=============================================================================== ===================================
AVERAGE SHARES OUTSTANDING
Basic 16,937 16,975 16,908 16,944
=============================================================================== ===================================
Diluted 17,898 17,968 17,858 17,909
=============================================================================== ===================================
The accompanying notes are an integral part of these consolidated statements.
4
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(In thousands)
(Unaudited)
Nine months ended September 30,
----------------------------------
2003 2002
- --------------------------------------------------------------------------------------------
OPERATING ACTIVITES
NET INCOME $13,614 $9,438
Noncash charges to earnings:
Depreciation and amortization 1,741 1,537
Deferred income tax benefit 2,403 30
(Increase) decrease in assets:
Accounts receivable (5,313) (3,024)
Inventories 795 (2,378)
Prepaid expenses and other current assets 807 1,664
Federal income taxes receivable (1,265) -
Other non-current assets (609) (5)
Increase (decrease) in liabilities:
Accounts payable 1,120 (216)
Federal income taxes payable (1,889) 1,203
Other accrued expenses 673 792
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,077 9,041
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (3,372) (1,364)
Net (purchase) sale of marketable securities (603) 5,403
- --------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (3,975) 4,039
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends (2,051) (1,027)
Cash paid for common stock purchased and retired (2,271) (1,100)
Proceeds received from exercise of stock options 569 352
- --------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (3,753) (1,775)
- --------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,349 11,305
Cash and cash equivalents at beginning of period 17,280 4,953
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,629 $16,258
============================================================================================
The accompanying notes are an integral part of these consolidated statements.
5
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the period ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2003.
The balance sheet at December 31, 2002 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, 2002.
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. EARNINGS PER SHARE
Basic and diluted earnings per share are computed by dividing net income by
the respective weighted average number of shares outstanding during the
respective periods. A reconciliation of weighted shares outstanding is as
follows:
Three months ended Nine months ended
------------------ -----------------
(In thousands) September 30 September 30
------------ ------------
2003 2002 2003 2002
---- ---- ---- ----
Basic 16,937 16,975 16,908 16,944
Dilutive effect of stock
options and restricted shares 961 993 950 965
----------------------------------------------------------------------------------------
Diluted 17,898 17,968 17,858 17,909
========================================================================================
6
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation (FIN) No. 46, "Consolidation of Variable Interest
Entities." The Interpretation requires that a variable interest entity be
consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period ending
after December 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when
the variable interest entity was established. The Company has completed an
initial evaluation of its existing relationships with various dealerships
that sell its products and has concluded that none of them need to be
consolidated based on the provisions of FIN 46. In addition, the Company
has not entered into any agreements subject to FIN 46 since January 31,
2003. Therefore, the Company believes the adoption of the Interpretation
will not have a material impact on the financial position, results of
operations or liquidity of the Company.
4. COMPREHENSIVE INCOME
Total comprehensive income for the three months and nine months ended
September 30, 2003 was $4,464 and $13,541, respectively, and was $3,340 and
$9,438 for the three and nine months ended September 30, 2002. The
difference between net income and comprehensive income is due to changes in
unrealized gain on marketable securities.
7
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK-BASED COMPENSATION
Marine Products accounts for its stock incentive plan using the intrinsic
value method prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." If Marine Products had
accounted for the stock incentive plans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" reported net income per share would have been as
follows:
--------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
(IN THOUSANDS)
Net income - as reported $ 4,459 $ 3,340 $ 13,614 $ 9,438
Add: Stock-based employee
compensation cost,
included in reported net
income, net of related tax
effect 17 16 51 124
Deduct: Stock-based employee
compensation cost,
computed using the fair
value method for all
awards, net of related
tax effect (101) (70) (300) (285)
--------------------------------------------------------------------------------------------
Pro forma net income $ 4,375 $ 3,286 $ 13,365 $ 9,277
============================================================================================
Pro forma earnings per share
Basic $ 0.26 $ 0.19 $ 0.79 $ 0.55
Diluted 0.24 0.18 0.75 0.52
8
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. WARRANTY ACCRUALS
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. Activity in the warranty accrual was as
follows:
(IN THOUSANDS)
-----------------------------------------------------------------------
Balance at December 31, 2002 $ 1,944
Less: Payments made during the period (1,827)
Add: Warranties issued during the period 2,158
Changes in warranties issued in prior periods 145
-----------------------------------------------------------------------
Balance at September 30, 2003 $ 2,420
=======================================================================
7. BUSINESS SEGMENT INFORMATION
The Company has only one reportable segment, its powerboat manufacturing
business, therefore the majority of the disclosures required by SFAS No.
131 do not apply to the Company. In addition, the Company's results of
operations and its financial condition are not significantly reliant upon
any single customer or on sales to international customers.
8. INVENTORIES
Inventories consist of the following:
-----------------------------------------------------------------------
SEPTEMBER 30, December 31,
2003 2002
(in thousands)
-----------------------------------------------------------------------
Raw materials and supplies $ 11,852 $ 6,617
Work in process 4,058 3,535
Finished goods 3,980 10,533
-----------------------------------------------------------------------
Total inventories $ 19,890 $ 20,685
=======================================================================
9
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
- --------
Marine Products' mission is to maximize the boating experience by providing its
customers with high-quality, innovative powerboats and related products and
services. Marine Products, through its wholly-owned subsidiary, Chaparral Boats,
Inc. ("Chaparral"), is a leading manufacturer of recreational fiberglass
powerboats. Chaparral competes in the sterndrive and inboard engine-powered
sportboat, deckboat and cruiser markets, manufacturing boats from 18 to 35 feet
in length. The Company's Robalo brand, acquired in September 2001, competes in
the outboard engine-powered sport fishing boat market, manufacturing boats of 19
to 26 feet in length. Robalo represented approximately seven percent of
consolidated net sales in the third quarter of 2003, compared to three percent
in the third quarter of 2002.
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, 2002. There have been no significant changes in the critical
accounting policies since year-end.
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
- --------------------------------------------------------------------
SEPTEMBER 30, 2002
- ------------------
NET SALES for the three months ended September 30, 2003 increased $3,352,000 or
8.1 percent to $44,903,000 compared with $41,551,000 for the three months ended
September 30, 2002. The increase in net sales was due to a 6.6 percent increase
in the average selling price of boats and parts and accessories sales, and a 1.5
percent increase in the number of boats sold. The increase in average selling
prices was due to a favorable model mix and a two percent price increase
implemented in the new model year. The gross profit improvement at Robalo was
also due to an 86.8 percent increase in unit sales compared to the three months
ended September 30, 2002 due to the expansion of the product line resulting in
the availability of more models.
COST OF GOODS SOLD for the three months ended September 30, 2003 was $33,400,000
compared to $31,853,000 for the three months ended September 30, 2002, an
increase of $1,547,000 or 4.9 percent. The increase in cost of goods sold was
due to increases in sales. Cost of goods sold, as a percentage of net sales,
decreased from 76.7 percent in 2002 to 74.4 percent in 2003, due to higher unit
10
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
sales of larger boats, which generate higher profit margins, and improvements in
efficiencies at Robalo due to higher production and sales volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended
September 30, 2003 were $4,937,000 compared to $4,487,000 for the three months
ended September 30, 2002, an increase of $450,000, or 10.0 percent. The increase
in selling, general and administrative expenses was due to incremental costs
that vary with sales and profitability, including advertising and sales
commissions, and warranty expense. Warranty expense has increased recently due
to increased customer service demands, primarily due to the sale of larger
boats, a trend that began in late 2002 which the Company anticipates will
continue. Warranty expense increased by $214,000 to $657,000 during the three
months ended September 30, 2003, or 1.5 percent of net sales, compared to
$443,000, or 1.1 percent of net sales for the three months ended September 30,
2002. Selling, general and administrative expenses were 11.0 percent of net
sales during the three months ended September 30, 2003 and 10.8 percent of net
sales during the three months ended September 30, 2002.
OPERATING INCOME for the three months ended September 30, 2003 was $6,566,000,
an increase of $1,355,000 or 26.0 percent compared to operating income of
$5,211,000 for the comparable period in 2002. Operating income was higher due to
higher net sales, partially offset by higher cost of goods sold and selling,
general and administrative expenses during the period, as discussed above.
INTEREST INCOME was $75,000 during the three months ended September 30, 2003
compared to $176,000 in the prior year period, a decrease of $101,000 or 57.4
percent. This decrease resulted from lower investment returns due to lower
market interest rates during the three months ended September 30, 2003 than the
three months ended September 30, 2002, partially offset by higher investable
average balances of cash and marketable securities. Marine Products generates
interest income from investment of its available cash primarily in overnight and
marketable debt securities.
INCOME TAX PROVISION for the three months ended September 30, 2003 reflects an
effective tax rate of 32.9 percent, compared to 38 percent for the three months
ended September 30, 2002. The decrease in rate reflects the effect of
implementing tax planning strategies and decreasing the overall estimated
effective rate for the full year from 36 percent to 35 percent in the third
quarter of 2003. The effective rate change increased net income by $342,000 or
$0.02 per diluted share. The income tax provision of $2,182,000 was $135,000 or
6.6 percent higher than the income tax provision of $2,047,000 for the three
months ended September 30, 2002 as a result of higher operating income,
partially offset by the lower effective tax rate.
11
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NET INCOME for the quarter ended September 30, 2003 was $4,459,000 or $0.25
diluted earnings per share compared to $3,340,000 or $0.19 diluted earnings per
share for the quarter ended September 30, 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
- ------------------------------------------------------------------
SEPTEMBER 30, 2002
- ------------------
NET SALES for the nine months ended September 30, 2003 increased $19,893,000 or
15.7 percent to $146,961,000 compared with $127,068,000 for the nine months
ended September 30, 2002. The increase in net sales was due to a 6.4 percent
increase in the average selling price of boats and parts and accessories sales,
and a 9.3 percent increase in the number of boats sold. The increase in unit
sales of boats was primarily due to higher volume of sportboats coupled with an
increase in the sales of Robalo. Contributing to the increase in the sales of
Robalo was the expansion of the product line resulting in the availability of
more models during this nine month period than in the comparable period last
year. The increase in average sales price was primarily due to increases in
sales of higher-priced models in all product lines and price increases
implemented during the third quarter of 2003.
COST OF GOODS SOLD for the nine months ended September 30, 2003 was $109,815,000
compared to $98,789,000 for the nine months ended September 30, 2002, an
increase of $11,026,000 or 11.2 percent. The increase in cost of goods sold was
due to increases in sales. Cost of goods sold, as a percentage of net sales,
decreased from 77.7 percent in 2002 to 74.7 percent in 2003. The decrease in
cost of goods sold as a percentage of net sales was due to efficiencies from
higher overall production volume, increased unit sales of larger boats, which
generate higher profit margins, improvements at Robalo, and various adjustments
to model year end 2003 accruals. The gross profit improvement at Robalo was also
due to a 68.5 percent increase in unit sales compared to the nine months ended
September 30, 2002 due to the expansion of the product line resulting in the
availability of more models.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the nine months ended September
30, 2003 were $16,611,000 compared to $13,553,000 for the nine months ended
September 30, 2002, an increase of $3,058,000, or 22.6 percent. The increase in
selling, general and administrative expenses was due to incremental costs that
vary with sales and profitability, including incentive compensation, advertising
and sales commissions and warranty expense. Warranty expense has increased
recently due to increased customer service demands, primarily due to the sale of
larger boats, a trend that began in late 2002 which the Company anticipates will
continue. Warranty expense increased by $1,005,000 to $2,303,000 during the nine
months ended September 30, 2003, or 1.6 percent of net sales, compared to
$1,298,000, or 1.0 percent of net sales for the nine months ended September 30,
2002. Selling, general and administrative expenses were 11.3 percent of net
sales during the nine months ended September 30, 2003 and 10.7 percent of net
sales during the nine months ended September 30, 2002.
12
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
OPERATING INCOME for the nine months ended September 30, 2003 was $20,535,000,
an increase of $5,809,000 or 39.4 percent compared to operating income of
$14,726,000 for the comparable period in 2002. Operating income was higher due
to higher net sales, partially offset by higher cost of goods sold and selling,
general and administrative expenses during the period, as discussed above.
INTEREST INCOME was $410,000 during the nine months ended September 30, 2003
compared to $496,000 in the prior year period, a decrease of $86,000, or 17.3
percent. This decrease resulted from lower investment returns due to lower
market interest rates during the nine months ended September 30, 2003 than
during the nine months ended September 30, 2002, partially offset by higher
average investable balances of cash and marketable securities. Marine Products
generates interest income from investment of its available cash primarily in
overnight and marketable debt securities.
INCOME TAX PROVISION for the nine months ended September 30, 2003 reflects an
effective tax rate of 35 percent, compared to 38 percent for the nine months
ended September 30, 2002. The decrease in rate reflects the effect of
implementing tax planning strategies. The effective rate change increased net
income by $628,000 or $0.04 per diluted share. The income tax provision of
$7,331,000 was $1,547,000 or 26.7 percent higher than the income tax provision
of $5,784,000 for the nine months ended September 30, 2002 as a result of higher
income before income taxes, partially offset by the lower effective tax rate.
NET INCOME for the quarter ended September 30, 2003 was $13,614,000 or $0.76 per
diluted share compared to $9,438,000 or $0.53 per diluted share for the quarter
ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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. During the nine months ended
September 30, 2003, cash and cash equivalents and marketable securities
increased by $4,801,000.
Cash provided by operating activities for the nine months ended September 30,
2003 was $12,077,000 compared to $9,041,000 for the nine months ended September
30, 2002, an increase of $3,036,000. The increase resulted primarily from
increased net income partially offset by higher working capital needs in the
nine months of 2003 as compared to the nine months in 2002.
13
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
Cash (used for) provided by investing activities for the nine months ended
September 30, 2003 was net cash used of $3,975,000 for investing activities
compared to net cash provided by investing activities of $4,039,000 for the nine
months ended September 30, 2002. The $8,014,000 increase in cash used resulted
from higher capital expenditures during 2003 for the construction of an
administrative office building, addition of miscellaneous manufacturing assets
and investments in marketable securities in 2003 compared to sales of marketable
securities in the prior year. The construction of this administrative office
building was completed in the second quarter of 2003. The Company currently
expects that capital expenditures during 2003 will be approximately $5,000,000,
of which $3,372,000 has been spent through September 30, 2003.
Cash used for financing activities for the nine months ended September 30, 2003
was $3,753,000 compared to $1,775,000 for the nine months ended September 30,
2002, an increase in cash used of $1,978,000. The increase relates to cash used
to purchase the Company's common stock in the open market, and an increase in
dividend payments resulting from the Company's decision during the first quarter
of 2003 to increase its quarterly dividend from $0.02 per share to $0.04 per
share. During the three months ended September 30, 2003, the Company repurchased
6,200 shares in the open market. The Company has purchased a total of 298,000
shares in the open market under a plan authorized by its Board of Directors, and
can purchase up to 702,000 additional shares under this plan.
The Company believes that the liquidity provided by existing cash, cash
equivalents and marketable securities, its overall strong capitalization, and
cash expected to be generated from operations, will provide sufficient capital
to meet the Company's requirements for at least the next twelve months. The
Company believes that the liquidity will allow it the ability to continue to
grow and provide the opportunity to take advantage of business opportunities
that may arise.
The Company has an insignificant amount of obligations and commitments that
require future payments. Consistent with customary industry practices, the
Company has agreements with third-party dealer floor plan lenders to repurchase
up to a specified limit any of its boats that are repossessed by the lenders.
The Company's obligation under its guarantee becomes effective in the case of
default in payments by the dealer. The agreements provide for the return of all
repossessed boats to the Company in new condition, in exchange for the Company's
assumption of specified percentages of the unpaid debt obligation on those
boats. As of September 30, 2003, the maximum exposure by the Company under these
agreements was approximately $4,016,000.
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. See Note 6 to the Consolidated Financial Statements for a detail of
activity in the warranty accrual account during the nine months ended September
30, 2003.
14
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
SEASONALITY
- -----------
Marine Products' quarterly operating results are affected by weather and the
general economic conditions in the United States. Quarterly operating results
for the second quarter historically have reflected the highest quarterly sales
volume during the year with the first quarter being the next highest sales
quarter. However, the results for any quarter are not necessarily indicative of
results to be expected in any future period.
INFLATION
- ---------
Inflation has not had a material effect on Marine Products' operations. If
inflation increases, Marine Products will attempt to increase its prices to
offset its increased costs. No assurance can be given, however, that the Company
will be able to adequately increase its prices in response to inflation.
Inflation can also impact Marine Products' sales and profitability. New boat
buyers typically finance their purchases. Higher inflation typically results in
higher interest rates that could translate into increased cost of boat
ownership. Prospective buyers may choose to delay their purchases or buy a less
expensive boat.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements made in this report that are not historical facts are
"forward-looking statements" under Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may include, without limitation, statements that
relate to the Company's business strategy, plans and objectives, market risk
exposure, adequacy of capital resources and funds, opportunity for continued
growth, ability to effect future price increases, estimates regarding boat
repurchase obligations, and the impact of FIN 46 and the Company's beliefs and
expectations regarding future demand for the Company's products and services and
other events and conditions that may influence the Company's performance in the
future.
The words "may," "should," "will," "expect," "believe," "anticipate," "intend,"
"plan," "believe," "seek," "project," "estimate," and similar expressions used
in this document that do not relate to historical facts are intended to identify
forward-looking statements. Such statements are based on certain assumptions and
analyses made by our management in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. We caution you that such statements are
only predictions and not guarantees of future performance and that actual
results, developments and business decisions may differ from those envisioned by
the forward-looking statements. Risk factors that could cause such future events
not to occur as expected include those described in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 and the following:
Marine Products' dependence on its network of independent boat dealers, which
may affect its growth plans and net sales, weather
15
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
conditions, personal injury or property damage claims, inability to obtain
adequate raw materials, inability to continue to increase the production of the
Robalo product line, realization of repurchase obligations under agreements with
third-party dealer floor plan lenders, the effects of the economy on the demand
for power boats, competitive nature of the recreational boat industry, inability
to complete acquisitions, loss of key personnel, or ability to attract and
retain qualified personnel.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marine Products does not utilize financial instruments for trading purposes and,
as of September 30, 2003, did not hold derivative financial instruments which
could expose the Company to significant market risk. Also, as of September 30,
2003, the Company's investment portfolio, comprised of United States Government,
corporate and municipal debt securities, is subject to interest rate risk
exposure. This risk is managed through conservative policies to invest in
high-quality obligations. Marine Products does not expect any material changes
in market risk exposures or how those risks are managed.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operations of our disclosure
controls and procedures, as defined in rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of September 30, 2003. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective such that
the material information required to be included in our Securities and Exchange
Commission ("SEC") reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms relating to Marine
Products Corporation, including our consolidated subsidiaries, and was made
known to them by others within those entities, particularly during the period
when this report was being prepared.
In addition, there were no significant changes in our internal control over
financial reporting during the quarter that could significantly affect these
controls. We have not identified any significant deficiency or material
weaknesses in our internal controls, and therefore there were no corrective
actions taken.
16
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Marine Products is involved in litigation from time to time in the ordinary
course of its business. Marine Products does not believe that the outcomes of
such litigation will have a material adverse effect on the financial position or
results of operations of Marine Products.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
17
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
3.1 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).
3.2 By-laws of Marine Products Corporation (incorporated
herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form 10 filed
on February 13, 2001).
4 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 Certification of Chief Executive Officer pursuant to
Item 601(b)(31) of Regulation S-K.
31.2 Certification of Chief Financial Officer pursuant to
Item 601(b)(31) of Regulation S-K.
32.1 Certification of Chief Executive Officer pursuant to
Item 601(b)(32) of Regulation S-K.
32.2 Certification of Chief Financial Officer pursuant to
Item 601(b)(32) of Regulation S-K.
18
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(b) Reports on Form 8-K during the quarter ended September 30, 2003
- --------------------------------------------------------------------------------
Date of earliest
Date Filed event reported Description of event
- --------------------------------------------------------------------------------
July 10, 2003 July 10, 2003 Item 5 and Item 7: Registrant issued a
press release titled "Marine Products
Corporation Reports Stock Buyback"
July 23, 2003 July 23, 2003 Item 5 and Item 7: Registrant issued a
press release titled "Marine Products
Corporation Reports 2003 Second Quarter
Results"
July 23, 2003 July 23, 2003 Item 5 and Item 7: Registrant issued a
press release titled "Marine Products
Corporation Announces Second Quarter
Cash Dividend"
19
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARINE PRODUCTS CORPORATION
/s/ Richard A. Hubbell
----------------------
Date: October 31, 2003 Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ben M. Palmer
-----------------
Date: October 31, 2003 Ben M. Palmer
Vice President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
20