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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 MARCH 31, 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 April 15, 2004, Marine Products Corporation had 25,818,765 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 March 31, 2004 and December 31, 2003 3
Consolidated statements of income - for the three months ended
March 31, 2004 and 2003;
4
Consolidated statements of cash flows - for the three months
ended March 31, 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 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 17
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
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 MARCH 31, 2004 AND DECEMBER 31, 2003
(In thousands)
(Unaudited)
MARCH 31, December 31,
2004 2003
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $32,933 $26,244
Marketable securities 3,735 1,402
Accounts receivable, net 8,045 3,970
Inventories 19,678 21,770
Income taxes receivable 65 1,073
Deferred income taxes 2,519 2,265
Prepaid expenses and other current assets 1,136 616
- --------------------------------------------------------------------------------
Total current assets 68,111 57,340
Property, plant and equipment, net 18,197 17,761
Intangibles, net 3,808 3,818
Marketable securities 5,433 5,930
Other assets 2,024 1,465
- --------------------------------------------------------------------------------
TOTAL ASSETS $97,573 $86,314
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $6,883 $2,730
Accrued expenses 11,363 8,626
- --------------------------------------------------------------------------------
Total current liabilities 18,246 11,356
Pension liabilities 2,023 2,233
Deferred taxes 1,091 1,160
Other long-term liabilities 1,579 1,599
- --------------------------------------------------------------------------------
Total liabilities 22,939 16,348
- --------------------------------------------------------------------------------
Common stock 2,579 2,573
Capital in excess of par value 35,711 35,722
Retained earnings 37,023 32,409
Accumulated other comprehensive loss (476) (509)
Deferred compensation (203) (229)
- --------------------------------------------------------------------------------
Total stockholders' equity 74,634 69,966
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $97,573 $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 MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands except per share data)
(Unaudited)
Three months ended March 31,
2004 2003
- ----------------------------------------------------------------------------------------
NET SALES $61,830 $50,107
Cost of goods sold 46,107 38,015
--------------- ---------------
Gross profit 15,723 12,092
Selling, general and administrative expenses 7,159 5,652
--------------- ---------------
Operating income 8,564 6,440
Interest income 122 113
--------------- ---------------
Income before income taxes 8,686 6,553
Income tax provision 3,040 2,359
--------------- ---------------
NET INCOME $5,646 $4,194
=============== ===============
EARNINGS PER SHARE
Basic $0.22 $0.17
=============== ===============
Diluted $0.21 $0.16
=============== ===============
DIVIDENDS PER SHARE $0.040 $0.027
=============== ===============
AVERAGE SHARES OUTSTANDING
Basic 25,493 25,393
=============== ===============
Diluted 27,106 26,836
=============== ===============
The accompanying notes are an integral part of these consolidated statements.
4
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands)
(Unaudited)
Three months ended March 31,
2004 2003
- ----------------------------------------------------------------------------------------
OPERATING ACTIVITES
NET INCOME $5,646 $4,194
Noncash charges (credits) to earnings:
Depreciation and amortization 589 571
Deferred income tax benefit (341) (168)
(Increase) decrease in assets:
Accounts receivable (4,075) (2,738)
Inventories 2,092 2,911
Prepaid expenses and other current assets (520) 357
Income taxes receivable 1,008 -
Other non-current assets (525) (208)
Increase (decrease) in liabilities:
Accounts payable 4,153 551
Income taxes payable - 1,921
Other accrued expenses 2,737 1,602
Other long-term liabilities (230) 96
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,534 9,089
- ----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (989) (1,091)
Net purchase of marketable securities (1,819) (3,281)
- ----------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (2,808) (4,372)
- ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends (1,032) (684)
Cash paid for common stock purchased and retired (169) (812)
Proceeds received upon exercise of stock options 164 146
- ----------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (1,037) (1,350)
- ----------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 6,689 3,367
Cash and cash equivalents at beginning of period 26,244 17,280
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $32,933 $20,647
========================================================================================
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 March 31, 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 each 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.
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 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 ended March 31
-----------------------------------------------------------------------------------
2004 2003
---- ----
Basic 25,493 25,393
Dilutive effect of stock
options and restricted shares 1,613 1,443
----------------------------------------
Diluted 27,106 26,836
========================================
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 132 (revised 2003) ("SFAS
132R"), "Employers' Disclosures about Pensions and Other Post-Retirement
Benefits." SFAS 132R does not change the measurement or recognition
provisions for defined benefit pensions and other post-retirement benefits;
however, it requires additional annual disclosures about assets,
obligations, cash flows and net periodic benefit cost of those plans. SFAS
132R also requires interim disclosure of the elements of net periodic
benefit cost and the total amount of contributions paid or expected to be
paid during the current fiscal year if significantly different from
previous amounts disclosed. The disclosure rules apply to annual financial
statements for fiscal years ending after December 15, 2003 and for interim
periods beginning after December 15, 2003. The Company has adopted the
provisions of SFAS 132R and presented the disclosures in Note 9 to these
consolidated financial statements.
In December 2002, the 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 evaluation of its existing
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. In addition, the Company has not entered into any
agreements subject to FIN 46 since January 31, 2003. Therefore, the
adoption of the Interpretation 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 ended March 31
---------------------------------------------------------------------------
2004 2003
---------------------------------
Net income as reported $ 5,646 $ 4,194
Change in unrealized gain on
marketable securities, net of
taxes of $18 and ($10) 33 (18)
--------------- --------------
Comprehensive income $ 5,679 $ 4,176
=============== ==============
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 ended March 31
--------------------------------------------------------------------------------------
2004 2003
---- ----
Net income - as reported $ 5,646 $ 4,194
Add: Stock-based employee
compensation cost, included in
reported net income, net of related
tax effect 17 16
Deduct: Stock-based employee compensation
cost, computed using the fair value
method for all awards, net of related
tax effect (98) (96)
--------------------------------------------------------------------------------------
Pro forma net income $ 5,565 $ 4,114
======================================================================================
Earnings per share - as reported
Basic $ 0.22 $ 0.17
Diluted 0.21 0.16
======================================================================================
Earnings per share - Pro forma
Basic $ 0.22 $ 0.16
Diluted 0.21 0.15
======================================================================================
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) 2004 2003
---------------------------------------------------------------------------
Balances at beginning of year $ 2,846 $ 1,944
Less: Payments made during the period (940) (699)
Add: Warranties issued during the period 934 617
Changes in estimated expenditures
for warranties issued in prior periods 125 123
---------------------------------------------------------------------------
Balances at March 31 $ 2,965 $ 1,985
===========================================================================
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 March 31, 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 March 31, 2004, this amount is 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.
8. INVENTORIES
Inventories consist of the following:
9
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------
(IN THOUSANDS) MARCH 31, 2004 December 31, 2003
----------------------------------------------------------------------------------------
Raw materials and supplies $ 10,184 $ 9,485
Work in process 4,285 5,889
Finished goods 5,209 6,396
----------------------------------------------------------------------------------------
Total inventories $ 19,678 $ 21,770
========================================================================================
9. EMPLOYEE BENEFIT PLAN
The following represents the net periodic defined benefit cost and related
components in accordance with SFAS 132R described in Note 3.
(IN THOUSANDS) Three months ended March 31
------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------
Service cost $ - $ -
Interest cost 60 5
Expected return on plan assets (58) (2)
Amortization of:
Prior Service Cost - -
Unrecognized net
(gains) and losses 22 -
------------------------------------------------------------------------
Net periodic benefit cost $ 24 $ 3
========================================================================
Marine Products had previously disclosed that it expects to contribute
$700,000 to its defined benefit plan in 2004. As of March 31, 2004, the
Company contributed approximately $630,000 to the pension plan. The Company
is currently evaluating its funding obligations for the remainder of 2004
under the Pension Funding Equity Act of 2004 that was passed in April 2004
and will then determine the level of additional funding for the remainder
of the year.
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, acquired in June
2001, competes in the outboard engine-powered sport fishing boat market,
manufacturing boats of 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 which 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
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
- -------------------------------------------------------------------------------
----------------------------------------------------------------------------
($'S IN THOUSANDS) THREE MONTHS ENDED MARCH 31
----------------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------------
Total number of boats sold 1,843 1,734
Average selling price per boat $ 33.9 $ 29.5
Net sales $ 61,830 $ 50,107
Percentage of cost of goods sold to
net sales 74.6% 75.9%
Gross profit margin percent 25.4% 24.1%
Percentage of selling, general and
administrative expense to net sales 11.6% 11.3%
Operating income $ 8,564 $ 6,440
Research and development expense $ 337 $ 293
Warranty expense $ 1,059 $ 740
----------------------------------------------------------------------------
NET SALES for the three months ended March 31, 2004 increased $11,723,000 or
23.4 percent. The increase in net sales was due to a 15.1 percent increase in
the average sales price per boat, a 6.3 percent increase in the number of boats
sold, and an increase in parts and accessories sales. 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.
COST OF GOODS SOLD for the three months ended March 31, 2004 was $46,107,000
compared to $38,015,000 for the three months ended March 31, 2003, an increase
of $8,092,000 or 21.3 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 three months ended March
31, 2004 were $7,159,000 compared to $5,652,000 for the three months ended March
31, 2003, an increase of $1,507,000, or 26.7 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 March 31, 2004 was 1.7 percent of net sales,
compared to 1.5 percent of net sales for the three months ended March 31, 2003.
Warranty expenses tend to be higher for larger sportboats and cruisers compared
to the other brands and the Company sold a higher volume of its larger boats in
the first quarter of 2004 as compared to the first quarter of 2003.
OPERATING INCOME for the three months ended March 31, 2004 increased $2,124,000
or 33.0 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.
12
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
INTEREST INCOME was $122,000 during the three months ended March 31, 2004
compared to $113,000 in the prior year period, an increase of $9,000 or 8.0
percent. This increase resulted from higher investable average balances of cash
and marketable securities during the three months ended March 31, 2004 compared
to the three months ended March 31, 2003, partially offset by lower investment
returns due to lower market interest rates. 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 March 31, 2004 reflects an
effective tax rate of 35.0 percent, compared to 36.0 percent for the three
months ended March 31, 2003. The decrease in rate reflects the effect of
implementing tax planning strategies. The effective rate change increased net
income by $87,000. The income tax provision of $3,040,000 was $681,000 or 28.9
percent higher than the income tax provision of $2,359,000 for the three months
ended March 31, 2003 as a result of higher operating income, partially offset by
the lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
----------------------------------------------------------------------------
(IN THOUSANDS) Three months ended March 31
----------------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------------
Net cash provided by operating activities $ 10,534 $ 9,089
Net cash used for investing activities (2,808) (4,372)
Net cash used for financing activities $ (1,037) $ (1,350)
----------------------------------------------------------------------------
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 three months ended March
31, 2004, cash and cash equivalents increased by $6,689,000 and marketable
securities increased by $1,836,000.
Cash provided by operating activities for the three months ended March 31, 2004
increased $1,445,000 compared to the three months ended March 31, 2003. The
increase resulted primarily from increased net income partially offset by higher
working capital needs in the three months of 2004 as compared to the three
months in 2003, due to increases in accounts receivable and inventories
correlated with higher sales and related manufacturing activities, in
conjunction with increases (reductions) in net income taxes receivable
(payable), offset by increases in accounts payable and other accruals that were
due to timing differences.
Cash used for investing activities for the three months ended March 31, 2004
decreased $1,564,000 compared to the three months ended March 31, 2003. The
decrease in cash used resulted from lower investments in marketable securities
in 2004 compared to the investments in the prior year. The Company currently
expects that capital expenditures during 2004 will be approximately $4,000,000,
of which $989,000 has been spent through March 31, 2004.
Cash used for financing activities for the three months ended March 31, 2004
decreased $313,000. The decrease was due to a lower cost of share repurchases in
the open market compared to 2003,
13
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
partially offset by 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 on the split number of shares. 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 is
currently evaluating its funding obligations for the remainder of 2004 under the
Pension Funding Equity Act of 2004 that was passed in April 2004 and will then
determine the level of additional funding for the remainder of the year.
The Company has an insignificant 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 the Consolidated Financial Statements for a detail of
activity in the warranty accrual account during the three months ended March 31,
2004.
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 March 31, 2004,
the maximum repurchase obligation
14
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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 March 31, 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 and the impact of SFAS
132R 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
15
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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 March 31, 2004, did not hold derivative financial instruments that could
expose the Company to significant market risk. Also, as of March 31, 2004, 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
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, March 31, 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.
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.
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, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Share Repurchases
- -----------------
Shares repurchased during the three months ended March 31, 2004 were as follows:
---------------------------------------------------------------------------------------------------------------
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 of Value) of Shares (or
Publicly Announced Units) that May Yet
Plans or Programs Be Purchased Under
the Plans or Programs
---------------------------------------------------------------------------------------------------------------
Month #1 0 $ 0 0 1,052,649
Jan 1, 2004 to
Jan 31, 2004
Month #2 0 $ 0 0 1,052,649
Feb 1, 2004 to
Feb 28, 2004
Month #3 9,100 $ 13.02 9,100 1,043,549
Mar 1, 2004 to
Mar 31, 2004
---------------------------------------------------------------------------------------------------------------
Totals 9,100 $ 13.02 9,100 1,043,549
===============================================================================================================
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.
17
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
18
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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
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 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
(b) Reports on Form 8-K during the quarter ended March 31, 2004
- ----------------------------------------------------------------------------------------------------------
Date of earliest event
Date Filed reported Description of event
- ----------------------------------------------------------------------------------------------------------
January 20, 2004 January 20, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation to Announce Year End
2003 Results and Host a Conference Call on February 17,
2004"
January 28, 2004 January 28, 2004 Item 5 and Item 7: Registrant issued a press release
titled "Marine Products Corporation Announces Stock Split
and Increased Dividend"
February 17, 2004 February 17, 2004 Item 12 and Item 7: Registrant issued a press release
titled "Marine Products Corporation Reports Record 2003
Fourth Quarter and Full Year Results"
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: May 4, 2004 Richard A. Hubbell
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ben M. Palmer
-----------------------------------------------------
Date: May 4, 2004 Ben M. Palmer
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
20