Marine Products Corp. (MPX, Financial) filed Quarterly Report for the period ended 2012-09-30.
Marine Products Corporation has a market cap of $223.6 million; its shares were traded at around $5.93 with a P/E ratio of 29.6 and P/S ratio of 2.1. The dividend yield of Marine Products Corporation stocks is 1.4%.
Selling, general and administrative expenses for the third quarter ended September 30, 2012 were $4.6 million compared to $3.1 million for the third quarter in 2011, an increase of $1.5 million or 46.5 percent. This increase was due to expenses that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense coupled with increased advertising costs. Selling, general and administrative expenses, as a percentage of net sales, decreased primarily due to leverage of fixed costs over higher net sales. Warranty expense was 1.6 percent of net sales for the three months ended September 30, 2012 compared to .06 percent in the prior year quarter. This is primarily due to a favorable adjustment to the warranty accrual in the third quarter of last year, due to positive claims experience.
Cost of goods sold for the nine months ended September 30, 2012 was $93.1 million compared to $64.5 million for the nine months ended September 30, 2011, an increase of $28.6 million or 44.4 percent. Cost of goods sold, as a percentage of net sales, decreased primarily due to production efficiencies related to higher production volumes during the first nine months of 2012 compared to the prior period.
Selling, general and administrative expenses for the nine months ended September 30, 2012 were $14.1 million compared to $10.7 million for the nine months ended September 30, 2011, an increase of $3.4 million or 31.8 percent. This increase was due to expenses that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense coupled with increased advertising costs. Selling, general and administrative expenses, as a percentage of net sales, decreased primarily due to leverage of fixed costs over higher net sales. Warranty expense was 1.6 percent of net sales for the nine months ended September 30, 2012 compared to 1.3 percent in the prior year.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES Cash provided by operating activities for the nine months ended September 30, 2012 increased approximately $3.6 million compared to the comparable period in 2011. This increase is primarily due to a significant increase in net income during the first nine months of 2012 partially offset by higher working capital requirements during 2012 consistent with increased production volumes and the timing of adding critical manufacturing components into inventory. Cash used for investing activities for the nine months ended September 30, 2012 decreased approximately $8.5 million compared to the comparable period in 2011 due to higher sales of marketable securities in the current period partially offset by increased purchases coupled with lower maturities of marketable securities. Cash used for financing activities for the nine months ended September 30, 2012 increased approximately $2.4 million primarily due to the reinstatement of a cash dividend to commons stockholders and higher cost of stock repurchases. Financial Condition and Liquidity The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization and cash generated by operations will provide sufficient capital to meet the Company s requirements for at least the next twelve months. The Company s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations. Cash Requirements The Company currently expects that capital expenditures during 2012 will be approximately $435 thousand, of which $273 thousand has been spent through September 30, 2012. The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). During the nine months ended September 30, 2012, the Company made a contribution of $684 thousand to this plan in order to achieve the Company s funding objective and plans to make no further cash contribution to this plan during the remainder of 2012. As of September 30, 2012, the Company has purchased an aggregate total of 4,981,773 shares in the open market under the Company stock repurchase program and there are 3,268,227 shares that remain available for repurchase. The Company repurchased 1,781 shares under this program during the quarter ended September 30, 2012, increasing the total shares repurchased for the first nine months of 2012 to 56,616 shares. The Company may repurchase additional outstanding common shares periodically based on market conditions. The stock buyback program does not have a predetermined expiration date. On October 24, 2012, the Board of Directors approved a $0.02 per share cash dividend in addition to a special dividend of $0.55 per common share, both payable December 10, 2012 to stockholders of record at the close of business November 9, 2012. This special dividend which is estimated to be $20.1 million will be funded in part by liquidating a portion of our marketable securities investment portfolio. The Company s balance sheet will remain strong and liquid following payment of this dividend and continue to support sales growth and allow it to pursue strategic opportunities to enhance shareholder value over the long term. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 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 accruals during the nine months ended September 30, 2012 and 2011. 22 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES OFF BALANCE SHEET ARRANGEMENTS To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various third-party floor plan lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender. The agreements provide for the return of all repossessed boats to the Company in a new and unused condition as defined, in exchange for the Company s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits which vary by lender. The Company became contractually obligated to repurchase inventory of approximately $0.8 million during the year ended December 31, 2011 all of which were redistributed among existing and replacement dealers. There was no material repurchases of inventory under contractual agreements during the nine months ended September 30, 2012. Management continues to monitor the risk of additional defaults and resulting repurchase obligations based in part on information provided by the third-party floor plan lenders and will adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time. The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is to not exceed 15 percent of the amount of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $6.0 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all financing institutions of approximately $10.8 million as of September 30, 2012. RELATED PARTY TRANSACTIONS In conjunction with its spin-off from RPC in 2001, the Company and RPC entered into various agreements that define their relationship after the spin-off. A detailed discussion of the various agreements in effect is contained in the Company s annual report on Form 10-K for the year ended December 31, 2011. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $383 thousand in the nine months ended September 30, 2012 and $500 thousand in the nine months ended September 30, 2011. 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, 2011. There have been no significant changes in the critical accounting policies since year-end. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition. SEASONALITY Marine Products quarterly operating results are affected by weather and general economic conditions. 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. 23 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES INFLATION The market prices of certain material and component costs used in manufacturing the Company s products, especially resins that are made with hydrocarbon feedstocks, copper and stainless steel, have historically experienced volatility. The prices of these commodities fell dramatically due to the global recession and financial crisis in late 2008. During 2009, these commodity prices began to rise, and continued to rise throughout 2011. By the end of 2011, the prices of some of these commodities, such as copper, were higher than the peak market prices reached during 2008. Prices of these commodities, while still volatile, have moderated during the second and third quarters of 2012 and have not adversely affected our financial results during 2012. We institute price increases to our dealers to compensate for these cost increases when they occur, but these price increases historically have not been enough to compensate fully for the increases in commodity costs. Due to the intense competition in our business, we do not believe that we will be able to institute sufficient price increases to our dealers to compensate for these increased materials costs. It is likely that any continued increases in commodity costs would negatively impact the Company s operating results. New boat buyers typically finance their purchases. Higher inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Prospective buyers may choose to forego or delay their purchases or buy a less expensive boat in the event that interest rates rise or credit is not available to finance boat purchase. FORWARD-LOOKING STATEMENTS Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, the expected effect of recent accounting pronouncements on the Company s consolidated financial statements; the Company s estimate for warranty accruals; enhance the Company s belief that there exists a favorable outlook for the near-term selling environment for our products; management s belief that net sales will increase in 2012 compared to 2011; the Company s belief that sales of the Company s new models will increase consolidated net sales, gross profit, operating income and net income during the remainder of 2012, by increasing unit sales and spreading our fixed production costs over higher production volume; the Company s belief that retail boat sales have started to increase over the past several quarters; the Company s belief that this increase in retail sales will be modest; our belief that a slow recovery from the recession, continued high unemployment, depressed real estate values and continued weak consumer confidence will tend to discourage consumers from purchasing large discretionary goods such as pleasure boats; the lower expected returns on financial assets may have long term effects on consumer behavior with regard to pleasure boating; the Company s belief that the recreational boating industry promotional program have incrementally benefited the industry and Marine Products; our plans to enhance the value-priced Chaparral and Robalo models we initially introduced in 2012 as well as developing new Chaparral and Robalo models which we believe will appeal to our target markets; our belief that the value-priced models introduced last year and the new models being developed will continue to enhance the achievement of our objectives related to improved manufacturing cost efficiencies, meeting dealer requests for entry-level models and increasing the retail market share; the Company s belief that its liquidity, 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 s expectations about capital expenditures during 2012; the Company s expectation about contributions to its pension plan in 2012; the Company s belief that it may repurchase additional outstanding common shares periodically based on market conditions; the Company s expectation to continue to pay cash dividends to common stockholders subject to earnings and financial condition of the Company and other relevant factors; the Company s belief that it will not be able to institute sufficient price increases to compensate for these increased material costs; the Company s belief that it is likely that these increased prices will negatively impact the Company s operating results; the Company s expectation regarding market risk of its investment portfolio; and the Company s expectations about the effect of litigation on the Company s financial position or results of operations. 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 the following: economic conditions, unavailability of credit and possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, competition from other boat manufacturers and dealers, and insurance companies that insure a number of Marine Products marketable securities have been downgraded, which may cause volatility in the market price of Marine Products marketable securities. Additional discussion of factors that could cause the actual results to differ materially from management s projections, forecasts, estimates and expectations is contained in Marine Products Form 10-K, filed with the Securities and Exchange Commission for the year ended December 31, 2011. The Company does not undertake to update its forward-looking statements. 24 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES ITEM 3.
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Marine Products Corporation has a market cap of $223.6 million; its shares were traded at around $5.93 with a P/E ratio of 29.6 and P/S ratio of 2.1. The dividend yield of Marine Products Corporation stocks is 1.4%.
Highlight of Business Operations:
Cost of goods sold for the third quarter ended September 30, 2012 was $31.1 million compared to $17.6 million for the third quarter in 2011, an increase of $13.5 million or 76.6 percent. Cost of goods sold, as a percentage of net sales increased primarily due to increased sales of the smaller models which carry lower margins partially offset by increased production efficiencies due to higher production levels.Selling, general and administrative expenses for the third quarter ended September 30, 2012 were $4.6 million compared to $3.1 million for the third quarter in 2011, an increase of $1.5 million or 46.5 percent. This increase was due to expenses that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense coupled with increased advertising costs. Selling, general and administrative expenses, as a percentage of net sales, decreased primarily due to leverage of fixed costs over higher net sales. Warranty expense was 1.6 percent of net sales for the three months ended September 30, 2012 compared to .06 percent in the prior year quarter. This is primarily due to a favorable adjustment to the warranty accrual in the third quarter of last year, due to positive claims experience.
Cost of goods sold for the nine months ended September 30, 2012 was $93.1 million compared to $64.5 million for the nine months ended September 30, 2011, an increase of $28.6 million or 44.4 percent. Cost of goods sold, as a percentage of net sales, decreased primarily due to production efficiencies related to higher production volumes during the first nine months of 2012 compared to the prior period.
Selling, general and administrative expenses for the nine months ended September 30, 2012 were $14.1 million compared to $10.7 million for the nine months ended September 30, 2011, an increase of $3.4 million or 31.8 percent. This increase was due to expenses that vary with sales and profitability, such as incentive compensation, sales commissions and warranty expense coupled with increased advertising costs. Selling, general and administrative expenses, as a percentage of net sales, decreased primarily due to leverage of fixed costs over higher net sales. Warranty expense was 1.6 percent of net sales for the nine months ended September 30, 2012 compared to 1.3 percent in the prior year.
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES Cash provided by operating activities for the nine months ended September 30, 2012 increased approximately $3.6 million compared to the comparable period in 2011. This increase is primarily due to a significant increase in net income during the first nine months of 2012 partially offset by higher working capital requirements during 2012 consistent with increased production volumes and the timing of adding critical manufacturing components into inventory. Cash used for investing activities for the nine months ended September 30, 2012 decreased approximately $8.5 million compared to the comparable period in 2011 due to higher sales of marketable securities in the current period partially offset by increased purchases coupled with lower maturities of marketable securities. Cash used for financing activities for the nine months ended September 30, 2012 increased approximately $2.4 million primarily due to the reinstatement of a cash dividend to commons stockholders and higher cost of stock repurchases. Financial Condition and Liquidity The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization and cash generated by operations will provide sufficient capital to meet the Company s requirements for at least the next twelve months. The Company s decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations. Cash Requirements The Company currently expects that capital expenditures during 2012 will be approximately $435 thousand, of which $273 thousand has been spent through September 30, 2012. The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). During the nine months ended September 30, 2012, the Company made a contribution of $684 thousand to this plan in order to achieve the Company s funding objective and plans to make no further cash contribution to this plan during the remainder of 2012. As of September 30, 2012, the Company has purchased an aggregate total of 4,981,773 shares in the open market under the Company stock repurchase program and there are 3,268,227 shares that remain available for repurchase. The Company repurchased 1,781 shares under this program during the quarter ended September 30, 2012, increasing the total shares repurchased for the first nine months of 2012 to 56,616 shares. The Company may repurchase additional outstanding common shares periodically based on market conditions. The stock buyback program does not have a predetermined expiration date. On October 24, 2012, the Board of Directors approved a $0.02 per share cash dividend in addition to a special dividend of $0.55 per common share, both payable December 10, 2012 to stockholders of record at the close of business November 9, 2012. This special dividend which is estimated to be $20.1 million will be funded in part by liquidating a portion of our marketable securities investment portfolio. The Company s balance sheet will remain strong and liquid following payment of this dividend and continue to support sales growth and allow it to pursue strategic opportunities to enhance shareholder value over the long term. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. 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 accruals during the nine months ended September 30, 2012 and 2011. 22 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES OFF BALANCE SHEET ARRANGEMENTS To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various third-party floor plan lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender. The agreements provide for the return of all repossessed boats to the Company in a new and unused condition as defined, in exchange for the Company s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits which vary by lender. The Company became contractually obligated to repurchase inventory of approximately $0.8 million during the year ended December 31, 2011 all of which were redistributed among existing and replacement dealers. There was no material repurchases of inventory under contractual agreements during the nine months ended September 30, 2012. Management continues to monitor the risk of additional defaults and resulting repurchase obligations based in part on information provided by the third-party floor plan lenders and will adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time. The Company currently has an agreement with one of the floor plan lenders whereby the contractual repurchase limit is to not exceed 15 percent of the amount of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period. The Company has contractual repurchase agreements with additional lenders with an aggregate maximum repurchase obligation of approximately $6.0 million with various expiration and cancellation terms of less than one year, for an aggregate repurchase obligation with all financing institutions of approximately $10.8 million as of September 30, 2012. RELATED PARTY TRANSACTIONS In conjunction with its spin-off from RPC in 2001, the Company and RPC entered into various agreements that define their relationship after the spin-off. A detailed discussion of the various agreements in effect is contained in the Company s annual report on Form 10-K for the year ended December 31, 2011. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $383 thousand in the nine months ended September 30, 2012 and $500 thousand in the nine months ended September 30, 2011. 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, 2011. There have been no significant changes in the critical accounting policies since year-end. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition. SEASONALITY Marine Products quarterly operating results are affected by weather and general economic conditions. 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. 23 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES INFLATION The market prices of certain material and component costs used in manufacturing the Company s products, especially resins that are made with hydrocarbon feedstocks, copper and stainless steel, have historically experienced volatility. The prices of these commodities fell dramatically due to the global recession and financial crisis in late 2008. During 2009, these commodity prices began to rise, and continued to rise throughout 2011. By the end of 2011, the prices of some of these commodities, such as copper, were higher than the peak market prices reached during 2008. Prices of these commodities, while still volatile, have moderated during the second and third quarters of 2012 and have not adversely affected our financial results during 2012. We institute price increases to our dealers to compensate for these cost increases when they occur, but these price increases historically have not been enough to compensate fully for the increases in commodity costs. Due to the intense competition in our business, we do not believe that we will be able to institute sufficient price increases to our dealers to compensate for these increased materials costs. It is likely that any continued increases in commodity costs would negatively impact the Company s operating results. New boat buyers typically finance their purchases. Higher inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Prospective buyers may choose to forego or delay their purchases or buy a less expensive boat in the event that interest rates rise or credit is not available to finance boat purchase. FORWARD-LOOKING STATEMENTS Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, the expected effect of recent accounting pronouncements on the Company s consolidated financial statements; the Company s estimate for warranty accruals; enhance the Company s belief that there exists a favorable outlook for the near-term selling environment for our products; management s belief that net sales will increase in 2012 compared to 2011; the Company s belief that sales of the Company s new models will increase consolidated net sales, gross profit, operating income and net income during the remainder of 2012, by increasing unit sales and spreading our fixed production costs over higher production volume; the Company s belief that retail boat sales have started to increase over the past several quarters; the Company s belief that this increase in retail sales will be modest; our belief that a slow recovery from the recession, continued high unemployment, depressed real estate values and continued weak consumer confidence will tend to discourage consumers from purchasing large discretionary goods such as pleasure boats; the lower expected returns on financial assets may have long term effects on consumer behavior with regard to pleasure boating; the Company s belief that the recreational boating industry promotional program have incrementally benefited the industry and Marine Products; our plans to enhance the value-priced Chaparral and Robalo models we initially introduced in 2012 as well as developing new Chaparral and Robalo models which we believe will appeal to our target markets; our belief that the value-priced models introduced last year and the new models being developed will continue to enhance the achievement of our objectives related to improved manufacturing cost efficiencies, meeting dealer requests for entry-level models and increasing the retail market share; the Company s belief that its liquidity, 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 s expectations about capital expenditures during 2012; the Company s expectation about contributions to its pension plan in 2012; the Company s belief that it may repurchase additional outstanding common shares periodically based on market conditions; the Company s expectation to continue to pay cash dividends to common stockholders subject to earnings and financial condition of the Company and other relevant factors; the Company s belief that it will not be able to institute sufficient price increases to compensate for these increased material costs; the Company s belief that it is likely that these increased prices will negatively impact the Company s operating results; the Company s expectation regarding market risk of its investment portfolio; and the Company s expectations about the effect of litigation on the Company s financial position or results of operations. 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 the following: economic conditions, unavailability of credit and possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, competition from other boat manufacturers and dealers, and insurance companies that insure a number of Marine Products marketable securities have been downgraded, which may cause volatility in the market price of Marine Products marketable securities. Additional discussion of factors that could cause the actual results to differ materially from management s projections, forecasts, estimates and expectations is contained in Marine Products Form 10-K, filed with the Securities and Exchange Commission for the year ended December 31, 2011. The Company does not undertake to update its forward-looking statements. 24 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES ITEM 3.
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