UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
/ / 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 July 15, 2004, Marine Products Corporation had 25,979,161 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 -
As of June 30, 2004 and December 31, 2003 3
Consolidated statements of income - for the three and six months ended
June 30, 2004 and 2003; 4
Consolidated statements of cash flows - for the six months ended
June 30, 2004 and 2003 5
Notes to consolidated financial statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 18
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
2
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
(In thousands)
(Unaudited)
JUNE 30, December 31,
2004 2003
- --------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $34,785 $26,244
Marketable securities 2,319 1,402
Accounts receivable, net 6,354 3,970
Inventories 24,807 21,770
Income taxes receivable 1,696 1,073
Deferred income taxes 2,571 2,265
Prepaid expenses and other current assets 698 616
- --------------------------------------------------------------------------------------------
Total current assets 73,230 57,340
Property, plant and equipment, net 18,079 17,761
Intangibles, net 3,798 3,818
Marketable securities 5,910 5,930
Other assets 2,220 1,465
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $103,237 $86,314
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $7,522 $2,730
Accrued expenses 11,709 8,626
- --------------------------------------------------------------------------------------------
Total current liabilities 19,231 11,356
Pension liabilities 2,157 2,233
Deferred taxes 1,227 1,160
Other long-term liabilities 1,599 1,599
- --------------------------------------------------------------------------------------------
Total liabilities 24,214 16,348
- --------------------------------------------------------------------------------------------
Common stock 2,598 2,573
Capital in excess of par value 36,606 35,722
Retained earnings 42,391 32,409
Accumulated other comprehensive loss (549) (509)
Deferred compensation (2,023) (229)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 79,023 69,966
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,237 $86,314
============================================================================================
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 SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands except per share data)
(Unaudited)
Three months ended June 30, Six months ended June 30,
------------------------------ -------------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------- -------------------------------
NET SALES $64,775 $51,951 $126,605 $102,058
Cost of goods sold 47,804 38,400 93,911 76,415
--------------- ------------- --------------- --------------
Gross profit 16,971 13,551 32,694 25,643
Selling, general and administrative expenses 7,496 6,022 14,655 11,675
--------------- ------------- --------------- --------------
Operating income 9,475 7,529 18,039 13,968
Interest income 114 222 236 335
--------------- ------------- --------------- --------------
Income before income taxes 9,589 7,751 18,275 14,303
Income tax provision 3,193 2,790 6,233 5,149
--------------- ------------- --------------- --------------
NET INCOME $6,396 $4,961 $12,042 $9,154
=============== ============= =============== ==============
EARNINGS PER SHARE
Basic $0.25 $0.20 $0.47 $0.36
=============== ============= =============== ==============
Diluted $0.24 $0.19 $0.44 $0.34
=============== ============= =============== ==============
DIVIDENDS PER SHARE $0.040 $0.027 $0.080 $0.054
=============== ============= =============== ==============
AVERAGE SHARES OUTSTANDING
Basic 25,662 25,282 25,577 25,347
=============== ============= =============== ==============
Diluted 27,216 26,636 27,139 26,748
=============== ============= =============== ==============
The accompanying notes are an integral part of these consolidated statements.
4
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands)
(Unaudited)
Six months ended June 30
-----------------------------
2004 2003
- -------------------------------------------------------------------------------------------------
OPERATING ACTIVITES
NET INCOME $12,042 $9,154
Noncash charges (credits) to earnings:
Depreciation, amortization and other non-cash charges 1,232 1,144
Deferred income tax benefit (217) (653)
(Increase) decrease in assets:
Accounts receivable (2,384) (4,566)
Inventories (3,037) 2,513
Prepaid expenses and other current assets (82) 883
Income taxes receivable 251 -
Other non-current assets (742) (603)
Increase (decrease) in liabilities:
Accounts payable 4,792 23
Income taxes payable - 870
Other accrued expenses 3,083 1,864
Other long-term liabilities (76) (68)
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,862 10,561
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (1,435) (2,873)
Net purchase of marketable securities (973) (1,632)
- -------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (2,408) (4,505)
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends (2,060) (1,366)
Cash paid for common stock purchased and retired (2,612) (2,046)
Proceeds received upon exercise of stock options 759 402
- -------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (3,913) (3,010)
- -------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 8,541 3,046
Cash and cash equivalents at beginning of period 26,244 17,280
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,785 $20,326
=================================================================================================
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 June 30, 2004 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2004.
The balance sheet at December 31, 2003 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, 2003.
The Board of Directors, at its quarterly meeting on January 27, 2004,
authorized a three-for-two stock split by the issuance on March 10, 2004 of
one additional common share for every two common shares held of record on
February 10, 2004. Accordingly, the par value of additional shares issued
has been adjusted between common stock and capital in excess of par value,
and fractional shares resulting from the stock split were settled in cash.
All share and per share data appearing throughout this Form 10-Q have been
retroactively adjusted to reflect the impact of this stock split.
2. 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. A reconciliation of weighted shares outstanding is as follows:
6
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------
(IN THOUSANDS) Three months Six months ended
ended June 30, June 30,
------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Basic 25,662 25,282 25,577 25,347
Dilutive effect of stock
options and restricted 1,554 1,354 1,562 1,401
SHARES
--------------------------------------------------
Diluted 27,216 26,636 27,139 26,748
===================================================
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 Company
has completed an evaluation of its relationships with various dealerships
that sell its products and has concluded that none of them are variable
interest entities under the provisions of FIN 46. Therefore, the adoption
of the Interpretation did not have a material impact on the financial
position, results of operations or liquidity of the Company.
In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." EITF 03-1 applies to investments
accounted for under SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and SFAS No. 124, "Accounting for Certain
Investments Held by Not-for-Profit Organizations." EITF 03-1 provides a
basic three-step model to evaluate whether the impairment is other than
temporary. This model for evaluating impairment must be applied to all
current and prospective investments beginning in the second quarter of
2004. Qualitative and quantitative disclosures are effective for fiscal
year ending December 31, 2004. The adoption of EITF 03-1 did not have a
material impact on the financial position, results of operations or
liquidity of the Company.
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
7
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------
(IN THOUSANDS) Three months Six months ended
ended June 30, June 30,
------------------------------------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------
Net income as reported $ 6,396 $ 4,961 $ 12,042 $ 9,154
Change in unrealized gain on
marketable securities, net of
taxes (74) (71) (41) (78)
------------------------------------------------------------------------------------------
Comprehensive income $ 6,322 $ 4,890 $ 12,001 $ 9,076
==========================================================================================
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:
------------------------------------------------------------------------------------------
(IN THOUSANDS) Three months Six months ended
ended June 30, June 30,
------------------------------------------------------------------------------------------
2004 2003 2004 2003
--------------------------------------------------
Net income - as reported $ 6,396 $ 4,961 $ 12,042 $ 9,154
Add: Stock-based employee
compensation cost, included in
reported net income, net of related
tax effect 45 17 62 33
Deduct: Stock-based employee compensation
cost, computed using the fair
value method for all awards, net
of related tax effect (127) (101) (225) (195)
------------------------------------------------------------------------------------------
Pro forma net income $ 6,314 $ 4,877 $ 11,879 $ 8,992
==========================================================================================
Earnings per share - as reported
Basic $ 0.25 $ 0.20 $ 0.47 $ 0.36
Diluted 0.24 0.19 0.44 0.34
==========================================================================================
Earnings per share - Pro forma
Basic $ 0.25 $ 0.19 $ 0.46 $ 0.35
Diluted 0.23 0.18 0.44 0.34
==========================================================================================
8
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the quarter ended June 30, 2004, 111,600 shares of restricted stock
vested and were released to the employees. The tax benefit aggregating $874
for compensation tax deductions in excess of compensation expense was
credited to capital in excess of par value and has been excluded from the
consolidated statements of cash flow for the six months ended June 30,
2004.
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) 2004 2003
-------------------------------------------------------------------------
Balances at beginning of year $ 2,846 $ 1,944
Less: Payments made during the period (1,957) (1,174)
Add: Warranties issued during the period 1,905 1,501
Changes in estimated expenditures
for warranties issued in prior periods 254 145
-------------------------------------------------------------------------
Balances at June 30 $ 3,048 $ 2,416
=========================================================================
The Company is also a party to certain agreements with third party lenders
that provide financing to the Company's network of dealers. 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 unpaid debt obligation on those boats, up to certain contractually
determined dollar limits. As of June 30, 2004, the maximum repurchase
obligation outstanding under these agreements, which expire in 2004 and
2005, totaled approximately $4,000,000. The Company records the estimated
fair value of the guarantee; at June 30, 2004, this amount was immaterial.
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.
9
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INVENTORIES
Inventories consist of the following:
--------------------------------------------------------------------------
(IN THOUSANDS) JUNE 30, 2004 December 31, 2003
--------------------------------------------------------------------------
Raw materials and supplies $ 13,917 $ 9,485
Work in process 4,797 5,889
Finished goods 6,093 6,396
--------------------------------------------------------------------------
Total inventories $ 24,807 $ 21,770
==========================================================================
9. EMPLOYEE BENEFIT PLAN
The following represents the net periodic defined benefit cost and related
components for the Company's pension plan.
(IN THOUSANDS) Three months ended Six months ended
June 30 June 30
-----------------------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------
Service cost $ - $ - $ - $ -
Interest cost 60 5 120 10
Expected return on plan assets (58) (2) (116) (4)
Amortization of:
Unrecognized net (gains)
and losses 22 - 44 -
-----------------------------------------------------------------------------------
Net periodic benefit cost $ 24 $ 3 $ 48 $ 6
===================================================================================
Marine Products had previously disclosed that it expects to contribute
$700,000 to its defined benefit plan in 2004. As of June 30, 2004, the
Company contributed approximately $630,000 to the pension plan. The Company
does not currently expect to make any additional contribution to the
defined benefit plan in 2004.
10
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
Marine Products Corporation, through its wholly-owned subsidiaries Chaparral and
Robalo, is a leading manufacturer of recreational fiberglass powerboats. The
Company sells its products 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.
The Company operates under a single business segment, its Powerboat
Manufacturing business. Marine Products' mission is to maximize the boating
experience by providing its customers with high-quality, innovative powerboats
and related products and services. 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, competes in the
outboard engine-powered sport fishing boat market, manufacturing boats from 19
to 26 feet in length.
Marine Products' business is impacted by economic conditions, consumer
confidence, interest rates, the weather, and other factors. The Company's
management believes that it has the opportunity to continue to enhance its
customers' boating experience by providing them with high quality, innovative
powerboats, and thereby increase its market share, net sales, and net income.
Marine Products' management is also focused on the competitive nature of the
recreational powerboat manufacturing business and factors that may lead to a
decline in consumer confidence or consumers' discretionary income, both of which
could negatively impact sales of the Company's powerboats.
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, 2003. There have been no significant changes in the critical
accounting policies since year-end.
11
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Key operating and financial statistics for the three and six months ended June
30, 2004 and 2003 follow:
-----------------------------------------------------------------------------------
($ IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-----------------------------------------------------------------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------
Total number of boats sold 1,899 1,681 3,742 3,415
Average sales price per boat $ 34.3 $ 31.1 $ 34.1 $ 30.3
Net sales $ 64,775 $ 51,951 $ 126,605 $102,058
Percentage of cost of goods sold to
net sales 73.8% 73.9% 74.2% 74.9%
Gross profit margin percent 26.2% 26.1% 25.8% 25.1%
Percentage of selling, general and
administrative expense to net sales 11.6% 11.6% 11.6% 11.4%
Operating income $ 9,475 $ 7,529 $ 18,039 $ 13,968
Research and development expense $ 581 $ 378 $ 918 $ 671
Warranty expense $ 1,100 $ 906 $ 2,159 $ 1,646
-----------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
NET SALES for the three months ended June 30, 2004 increased $12,824,000 or 24.7
percent. The increase in net sales was due to a 10.5 percent increase in the
average sales price per boat and a 13.0 percent increase in the number of boats
sold. The increase in average sales price per boat was due to increased sales of
larger cruisers and sportboats, and increased sales of Robalo sport fishing
boats in addition to overall price increases that were implemented for the 2004
model year, which began in July 2003. All four lines experienced an increase in
unit sales.
COST OF GOODS SOLD for the three months ended June 30, 2004 was $47,804,000
compared to $38,400,000 for the three months ended June 30, 2003, an increase of
$9,404,000 or 24.5 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
slightly in 2004 compared to 2003, due to higher unit sales of larger boats,
which generate higher profit margins, and improvements in manufacturing
efficiencies due to higher production and sales volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended June 30,
2004 were $7,496,000 compared to $6,022,000 for the three months ended June 30,
2003, an increase of $1,474,000, or 24.5 percent. The increase in selling,
general and administrative expenses was due to incremental costs that vary with
sales and profitability, such as warranty expense, sales commissions and other
incentive compensation, and increased costs associated with the growth the
Company has experienced in sales and expanded customer service efforts. Warranty
expense for the three months ended June 30, 2004 and June 30, 2003 was 1.7
percent of net sales. Warranty expense tends to be higher for larger sportboats
and cruisers compared to the other lines; however, the Company sold a higher
volume of boats across all four lines in the second quarter of
12
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
2004 compared to the second quarter of 2003 and the increase in the larger
models sold in 2004 was not material compared to 2003.
OPERATING INCOME for the three months ended June 30, 2004 increased $1,946,000
or 25.8 percent compared to operating income for the comparable period in 2003.
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 $114,000 during the three months ended June 30, 2004
compared to $222,000 in the prior year period, a decrease of $108,000 or 48.6
percent. This decrease resulted from lower investment returns due to lower
market interest rates, partially offset by higher investable average balances of
cash and marketable securities during the three months ended June 30, 2004
compared to the three months ended June 30, 2003. 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 June 30, 2004 reflects an
effective tax rate of 33.0 percent, compared to 36.0 percent for the three
months ended June 30, 2003, primarily because of a previously unrecognized tax
refund received during the current quarter. The effective tax rate change
increased net income by $259,000. The income tax provision of $3,193,000 was
$403,000 or 14.4 percent higher than the income tax provision of $2,790,000 for
the three months ended June 30, 2003 as a result of higher operating income,
partially offset by the lower effective tax rate.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
NET SALES for the six months ended June 30, 2004 increased $24,547,000 or 24.1
percent. The increase in net sales was due to a 12.5 percent increase in the
average sales price per boat and a 9.6 percent increase in the number of boats
sold. The increase in average sales price per boat was due to a favorable model
mix, highlighted by volume increases in cruisers, sales of larger sportboats,
and increases in sales of sport fishing boats, in addition to overall price
increases that were implemented for the 2004 model year, which began in July
2003. All four lines experienced an increase in unit sales.
COST OF GOODS SOLD for the six months ended June 30, 2004 was $93,911,000
compared to $76,415,000 for the six months ended June 30, 2003, an increase of
$17,496,000 or 22.9 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
in 2004 compared to 2003, due to higher unit sales of larger boats, which
generate higher profit margins, and improvements in manufacturing efficiencies
due to higher production and sales volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June 30,
2004 were $14,655,000 compared to $11,675,000 for the six months ended June 30,
2003, an increase of $2,980,000, or 25.5 percent. The increase in selling,
general and administrative expenses was due
13
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
to incremental costs that vary with sales and profitability, such as warranty
expense, sales commissions and other incentive compensation, and increased costs
associated with the growth the Company has experienced in sales and expanded
customer service efforts. Warranty expense for the six months ended June 30,
2004 was 1.7 percent of net sales, compared to 1.6 percent of net sales for the
six months ended June 30, 2003. Warranty expenses tend to be higher for larger
sportboats and cruisers compared to smaller models. Although the Company sold a
higher volume of larger boats in the first six months of 2004 as compared to the
similar period of 2003, it did not materially impact the estimated warranty
accruals.
OPERATING INCOME for the six months ended June 30, 2004 increased $4,071,000 or
29.1 percent compared to operating income for the comparable period in 2003.
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 $236,000 during the six months ended June 30, 2004 compared
to $335,000 in the prior year period, a decrease of $99,000 or 29.6 percent.
This decrease resulted from lower investment returns due to lower market
interest rates, partially offset by higher investable average balances of cash
and marketable securities during the six months ended June 30, 2004 compared to
the six months ended June 30, 2003. Marine Products generates interest income
from investment of its available cash primarily in overnight and marketable debt
securities.
INCOME TAX PROVISION for the six months ended June 30, 2004 reflects an
effective tax rate of 34.1 percent, compared to 36.0 percent for the six months
ended June 30, 2003. The decrease in the effective tax rate reflects the effect
of implementing tax planning strategies and a previously unrecognized tax refund
received during the second quarter of 2004. The effective rate change increased
net income by $346,000. The income tax provision of $6,233,000 was $1,084,000 or
21.1 percent higher than the income tax provision of $5,149,000 for the six
months ended June 30, 2003 as a result of higher operating income, partially
offset by the lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------------
Net cash provided by operating activities $ 14,862 $ 10,561
Net cash used for investing activities (2,408) (4,505)
Net cash used for financing activities $ (3,913) $ (3,010)
--------------------------------------------------------------------------------
14
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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 six months ended June
30, 2004, cash and cash equivalents increased by $8,541,000.
Cash provided by operating activities for the six months ended June 30, 2004
increased $4,301,000 compared to the six months ended June 30, 2003. The
increase resulted primarily from higher net income coupled with increases in
accounts payable, increases in other accrued expenses and smaller increases in
accounts receivable, all due to timing differences. These increases in cash were
partially offset by higher inventories correlated with higher sales and related
manufacturing activities.
Cash used for investing activities for the six months ended June 30, 2004
decreased $2,097,000 compared to the six months ended June 30, 2003. The
decrease in cash used resulted from lower investments in marketable securities
and lower capital expenditures in 2004 compared to the prior year. The Company
currently expects that capital expenditures during 2004 will be approximately
$4,000,000, of which $1,435,000 has been spent through June 30, 2004.
Cash used for financing activities for the six months ended June 30, 2004
increased $903,000. The increase in cash used was due to a higher cost of share
repurchases, primarily due to higher prices paid per share in 2004 compared to
2003, and an increase in dividend payments resulting from the Company's decision
during the first quarter of 2004 to increase its quarterly dividend by 50
percent to $0.04 per share. Details regarding the shares repurchased during the
quarter have been disclosed in Part II, Item 2 of this document.
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 participates in a multiple employer Retirement Income Plan,
sponsored by RPC, Inc. The Company contributed approximately $630,000 to the
multiple employer pension plan in the first quarter of 2004. The Company does
not currently expect to make any additional contribution to the defined benefit
plan in 2004.
The Company has an immaterial amount of obligations and commitments that require
future payments. See the section titled Off Balance Sheet Arrangements for
details regarding agreements that the Company has with third-party dealer floor
plan lenders.
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 these Consolidated Financial Statements for a detail of
activity in the warranty accrual account during the six months ended June 30,
2004 and 2003.
15
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
OFF BALANCE SHEET ARRANGEMENTS
GUARANTEES. To assist dealers in obtaining financing for the purchase of its
boats, the Company has entered into agreements with various dealers and
financing institutions to guarantee varying amounts of qualifying dealers' debt
obligations related to inventory purchases. The Company's obligation under these
guarantees becomes effective in the case of default by the dealer. The
agreements provide for the return of all repossessed boats in "like new"
condition to the Company, in exchange for the Company's assumption of specified
percentages of the unpaid debt obligation on those boats. As of June 30, 2004,
the maximum repurchase obligation outstanding under these agreements, which
expire in 2004 and 2005 totaled approximately $4,000,000. The Company records
the estimated fair value of the guarantee; at June 30, 2004, this amount is
immaterial. The Company has no other off balance sheet arrangements as defined
in the SEC rules.
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, estimated pension contributions, the impact of SFAS 132R
and EITF 03-1 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
16
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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, 2003 and the following: Marine Products'
dependence on its network of independent boat dealers, which may affect its
growth plans and net sales, weather 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 June 30, 2004, did not hold derivative financial instruments that could
expose the Company to significant market risk. Also, as of June 30, 2004, the
Company's investment portfolio totaling approximately $8.2 million, 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
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - The Company maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in its Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms, and that such information is accumulated and communicated to
its management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of the end of the period covered by this report, June 30, 2004 (the
"Evaluation Date"), the Company carried out an evaluation, under the supervision
and with the participation of its management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures. Based upon this evaluation,
the Chief Executive Officer and the Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective at the reasonable
assurance level as of the Evaluation Date.
17
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING - There were no changes in
the Company's internal control over financial reporting that occurred during the
Company's most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Marine Products is involved in litigation from time to time in the ordinary
course of its business. Marine Products does not believe that the 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, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SHARE REPURCHASES
Shares repurchased during the three months ended June 30, 2004 were as follows:
18
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
Period Total Number of Average Price Paid Total number of Maximum Number (or
Shares (or Units) Per Share (or Unit) Shares (or Units) Approximate Dollar
Purchased Purchased as Part Value) of Shares
of Publicly (or Units) that
Announced Plans or May Yet Be
Programs Purchased Under
the Plans or
Programs
- ------------------------------------------------------------------------------------------------------------------
Month #1 1,649 (1) $ 17.90 (1) 0 1,043,549
April 1, 2004 to
April 30, 2004
Month #2 103,816 (2) $ 14.55 (2) 103,600 939,949
May 1, 2004 to
May 31, 2004
Month #3 0 $ 0 0 939,949
June 1, 2004 to
June 30, 2004
- ------------------------------------------------------------------------------------------------------------------
Totals 105,465 $ 14.60 103,600 939,949
==================================================================================================================
(1) Represents shares tendered in connection with option exercises
(2) Includes 216 shares tendered at an average price of $17.85 per share in
connection with option exercises
The Company's Board of Directors announced a stock buyback program in April 2001
authorizing the repurchase of 1,500,000 shares in the open market. Currently the
program does not have a predetermined expiration date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 27, 2004. At the
meeting, the stockholders, i.) re-elected three Class III directors to the Board
of Directors for the terms expiring in 2007 and ii) approved the Marine Products
Corporation 2004 Stock Incentive Plan.
The following table sets forth the votes cast with respect to each of these
proposals:
19
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
BROKER
PROPOSAL FOR AGAINST NON-VOTES WITHHELD ABSTAIN
--------------------------------------------------------------------------------------------------------
Re-election of Wilton Looney 16,547,437 N/A N/A 211,325 0
Re-election of Gary W. Rollins 16,327,794 N/A N/A 430,968 0
Re-election of James A. Lane, Jr. 16,327,311 N/A N/A 431,451 0
Marine Products Corporation
2004 Stock Incentive Plan 13,055,528 3,106,329 565,117 N/A 31,788
Messrs. R. Randall Rollins, Henry B. Tippie, James B. Williams, Richard A.
Hubbell and Ms. Linda H. Graham were not up for re-election and have continued
as directors.
ITEM 5. OTHER INFORMATION
None
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 Quarterly Report on Form
10-Q filed on May 5, 2004).
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).
10.1 2004 Stock Incentive Plan (incorporated herein
by reference to Appendix B to the Registrant's
definitive Proxy Statement filed on March 24,
2004).
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
20
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
(b) Reports on Form 8-K during the quarter ended June 30, 2004
- ---------------------------------------------------------------------------------------------------------------
Date of earliest event
Date Filed reported Description of event
- ---------------------------------------------------------------------------------------------------------------
April 20, 2004 April 19, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation to Announce First
Quarter 2004 Results and Host a Conference Call on April
28, 2004"
April 20, 2004 April 19, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation Announces Stock
Repurchased in the First Quarter of 2004"
April 28, 2004 April 28, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation Reports Record First
Quarter Results"
April 28, 2004 April 28, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation Announces First
Quarter Cash Dividend"
May 7, 2004 May 7, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Chaparral Wins Powerboat Magazine "Boat of the
Year" Award"
21
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: August 4, 2004 Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ben M. Palmer
----------------------
Date: August 4, 2004 Ben M. Palmer
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting
Officer)
22