MARINE PRODUCTS is the third-largest distributor of sterndrive powerboats in the U.S. The company designs manufactures and distributes premium-branded Chaparral sterndrive pleasure boats and Robalo outboard offshore fishing boats and continues to diversify its product line through product innovation and strategic acquisition. With premium brands and a solid capital structure Marine Products Corporation is prepared to capitalize on opportunities to increase its market share and to generate superior financial performance to build long-term shareholder value. Marine Products Corp. has a market cap of $166 million; its shares were traded at around $4.5 with a P/E ratio of 150 and P/S ratio of 0.9.
Highlight of Business Operations:Net sales for the three months ended March 31, 2009 decreased $51.7 million or 78.9 percent compared to the comparable period in 2008. The change in net sales was due primarily to a 77.9 percent decrease in the number of boats sold and the recognition of additional costs for our winter retail incentive program during the quarter. As a result of selling more boats from dealer field inventory under this program than estimated, first quarter s net sales include additional incentive costs of approximately $1.1 million making the total program cost for units in dealer inventory approximately $2.0 million. Unit sales among all models declined significantly compared to the prior year, although average gross selling price per boat remained relatively unchanged. In the first quarter of 2009, sales outside of the United States accounted for 35.1 percent of net sales compared to 32.3 percent of net sales in the prior year.
Cost of goods sold for the three months ended March 31, 2009 was $13.9 million compared to $52.1 million for the comparable period in 2008, a decrease of $38.2 million or 73.4 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of significant manufacturing cost inefficiencies due to very low production volumes and lower net sales as discussed above.
Selling, general and administrative expenses for the three months ended March 31, 2009 were $4.7 million compared to $8.3 million for the comparable period in 2008, a decrease of $3.6 million or 43.1 percent. The decrease in selling, general and administrative expenses was primarily due to the variable nature of many of these expenses, including incentive compensation, which declined as a percentage of sales consistent with lower sales and profitability, and warranty expense. Also, salary, research and development and advertising expenses were lower due to cost control measures instituted in the past year. Warranty expense was 4.7 percent of net sales for the three months ended March 31, 2009 compared to 1.9 percent in the prior year due primarily to approximately $0.4 million in additional warranty expense recognized during the quarter relating to boats sold in prior years. This prior year adjustment was primarily as a result of an increase in claims filed for 2007 model year boats. Additionally, costs incurred during the first quarter of 2009 in connection with boat repurchase obligations totaled approximately $0.6 million.
Income tax (benefit) provision for the three months ended March 31, 2009 of $(1.8) million was $3.4 million lower than the income tax provision of $1.6 million for the comparable period in 2008. The income tax benefit for the three months ended March 31, 2009 reflects a beneficial effective tax rate of 42.2 percent, compared to an effective rate of 28.4 percent for the comparable period in the prior year. The change in the effective rate was due primarily to the relationship of our pretax income (loss) to permanent differences.
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 in “like new” condition to the Company, in exchange for the Company s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits which vary by lender. As a result of dealer defaults, the Company became contractually obligated to repurchase dealer inventory of approximately $3.6 million during the first quarter of 2009. As of March 31, 2009, the Company has an aggregate remaining repurchase obligation to lenders of $1.8 million. The Company s remaining obligation relating to a maximum of $1.4 million of this obligation expires one year after the July 1, 2008 effective date of this agreement. Our obligation related to the remaining $0.4 million of this total as of March 31, 2009 varies based on dealer floor plan debt outstanding, declines over time based on the age of the inventory, and remains in force for periods ranging up to 24 months from the end of the first quarter of 2009.
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, 2008. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.2 million in the three months ended March 31, 2009 and approximately $0.3 million in the three months ended March 31, 2008.
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