The discussion on business and financial strategies of the Company set forth under the heading "Overview" in the Company's annual report on Form 10-K for the fiscal year ended
In implementing these strategies and attempting to optimize our financial returns, management closely monitors dealer orders and inventories, the production mix and profitability of its various models, and indications of near term demand such as consumer confidence, interest rates, fuel costs, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions. We also consider trends related to certain key financial and other data, including our market share, unit sales of our products, average selling price per unit, and gross profit margins, among others, as indicators of the success of our strategies.
Our net sales were higher during the first quarter of 2014 compared to the first quarter of 2013 and the fourth quarter of 2013 because of strong dealer demand for our larger Robalo models, our larger Chaparral H2O models, and our large SSX sportsboats introduced for the 2014 model year. In addition, industry indicators such as attendance at the recent winter boat shows, industry reports regarding 2014 retail boat sales, and the increased availability of floorplan financing for our dealers, have given us a favorable outlook for the near-term selling environment for our products. This favorable outlook is tempered by the prolonged winter weather in many markets that we believe have negatively impacted sales.
Operating income increased by 88.0 percent during the first quarter of 2014 compared to the same period in the prior year due to higher gross profit, partially offset by higher selling, general and administrative expenses. Selling, general and administrative expenses increased due to costs that vary with sales and profitability, such as officer incentive compensation, warranty expense and sales commissions. Dealer inventory in units as of
20 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES OUTLOOK
The discussion on the outlook for 2014 is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended
We believe that recreational boating retail demand in many segments of the industry is improving. Attendance and sales during the recent winter boat shows have been moderately higher than the prior season, residential real estate markets and consumer confidence have stabilized, and fuel prices have declined slightly. We also believe that there is improved demand from consumers who have delayed purchasing a boat over the past few years due to economic uncertainty.
Although industry wide retail boat sales remain lower than they were prior to the financial crisis, sales volumes expanded in 2013 and the first three months of 2014, and we expect this to continue for the remainder of 2014. We believe improvements in retail boat sales will be modest due to the lack of strong economic improvement, which tends to discourage consumers from purchasing large discretionary goods such as pleasure boats. Fluctuations in fuel prices can impact our sales, although fuel prices have declined somewhat during the first quarter of 2014, which could encourage consumers to participate in recreational boating. Furthermore, recent improvements within selected housing markets could have positive effects on sales. For a number of years,
Our financial results for the full year of 2014 will depend on a number of factors, including interest rates, consumer confidence, the availability of credit to our dealers and consumers, fuel costs, the continued acceptance of our new products in the recreational boating market, our ability to compete in the competitive pleasure boating industry, and the costs of labor and certain of our raw materials and key components.
21 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Key operating and financial statistics for the three months ended
March 31, 2014and 2013 are as follows: Three months ended March 31, 2014 2013 Total number of boats sold 923 976 Average gross selling price per boat (in thousands) $ 48.3 $ 42.6Net sales (in thousands) $ 47,702 $ 44,283Percentage of cost of goods sold to net sales 81.5 % 83.9 % Gross profit margin percent 18.5 % 16.1 %
Percentage of selling, general and administrative expenses to net sales 12.7 % 12.7 % Operating income (in thousands)
THREE MONTHS ENDED
Net sales for the three months ended
22 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
Cost of goods sold for the three months ended
Selling, general and administrative expenses for the three months ended
Operating income for the three months ended
Interest income was
Income tax provision for the three months ended
23 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at
The following table sets forth the cash flows for the applicable periods:
Three months ended March 31, (in thousands) 2014 2013 Net cash provided by operating activities
$ 9,331 $ 6,718Net cash used for investing activities (4,076 ) (428 ) Net cash used for financing activities $ (1,706 ) $ (1,593 )
Cash provided by operating activities for the three months ended
The major components of the net favorable change in working capital were as follows: a favorable change of
Cash used for investing activities for the three months ended
Cash used for financing activities for the three months ended
24 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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.
The Company currently expects that capital expenditures during 2014 will be approximately
The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. ("RPC"). The Company made a
The Company warrants components of the boat, excluding the engine, against defects in materials and workmanship for a period of one year. Cockpit upholstery is warranted for 2 years. The Company also warrants the structural hull, including its bulkhead and supporting stringer system, against defects in materials and workmanship for as long as the original purchaser owns the boat. The structural deck is warranted for a period of 5 years to the original purchaser. See Note 6 to the Consolidated Financial Statements for a detail of activity in the warranty accruals during the three months ended
25 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 had no material repurchases of inventory during the year ended
Management continues to monitor the risk of 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 16 percent of the amount of the average net receivables financed by the floor plan lender for dealers during the prior 12 month period, which was
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. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of
26 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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
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.
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 been very volatile as a result of the financial crisis of 2008, the ensuing global recession and the subsequent economic recovery. During the first quarter of 2014, the prices of many of these commodities were constant. Although the potential exists for these costs to remain volatile, we beleive that the Company's material costs will remain relatively stable in 2014. In the event that the prices of these commodities increase in the future and result in higher raw materials costs, we cannot be confident that the Company will be able to institute sufficient price increases to its dealers to compensate for these increased materials costs, or that the Company will be able to implement manufacturing strategies that will significantly reduce usage of raw materials that will compensate for any increased materials costs.
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. Should higher inflation and increased interest rates occur, 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 their boat purchases.
27 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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; our favorable outlook for the near-term selling environment for our products; our belief that retail sales will improve during the latter part of the current selling season; our belief that recreational boating retail demand in many segments of the industry is improving; our belief that there is improved demand from consumers who have delayed purchasing a boat over the past few years due to economic uncertainty; our belief that the recent expansion of sales volumes will continue for the remainder of 2014; our belief that improvements in retail boat sales will be modest due to the lack of economic improvement; our belief that the declines in fuel prices and recent improvements within selected housing markets could have positive effects on sales; the Company's belief that the recreational boating industry promotional program has incrementally benefited the industry and
28 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
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
29 MARINE PRODUCTS CORPORATION AND SUBSIDIARIES