Form 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

 
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 incorporation or organization)
  
(I.R.S. Employer Identification Number)


2801 Buford Highway, Suite 520, Atlanta, Georgia 30329
(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code -- (404) 321-7910

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 ____

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes__ No X

As of April 25, 2007, Marine Products Corporation had 37,995,627 shares of common stock outstanding.


Marine Products Corporation

Table of Contents

 
 
Page No.
 
 
3
         
 
4
         
 
5
         
 
6-12
         
13-19
         
20
         
20
         
 
 
 
 
21
     
21
     
21
     
22
     
22
     
22
     
22
     
24
   

2
 
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
AS OF MARCH 31, 2007 AND DECEMBER 31, 2006
(In thousands)
(Unaudited)
           
           
   
March 31,
  
December 31,
  
   
2007
  
2006
  
ASSETS
              
               
Cash and cash equivalents
  
$
56,235
  
$
54,456
  
Marketable securities
    
864
   
652
 
Accounts receivable, net
   
4,141
   
2,980
 
Inventories
    
31,366
   
29,556
 
Income taxes receivable
    
1,679
   
834
 
Deferred income taxes
    
3,271
   
3,244
 
Prepaid expenses and other current assets
    
925
   
1,873
 
Total current assets
    
98,481
   
93,595
 
Property, plant and equipment, net
    
16,635
   
16,641
 
Goodwill
   
3,308
   
3,308
 
Marketable securities
    
3,232
   
3,715
 
Deferred income taxes
    
1,361
   
1,449
 
Other assets
    
5,997
   
5,471
 
Total assets
  
$
129,014
  
$
124,179
  
               
               
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
Accounts payable
  
$
6,887
  
$
3,455
  
Accrued expenses
    
15,022
   
13,634
 
Total current liabilities
    
21,909
   
17,089
 
Pension liabilities
    
4,941
   
4,670
 
Other long-term liabilities
    
728
   
1,019
 
Total liabilities
    
27,578
   
22,778
 
Common stock
    
3,801
   
3,791
 
Capital in excess of par value
    
11,847
   
13,453
 
Retained earnings
    
86,496
   
84,875
 
Accumulated other comprehensive loss
    
(708
)
  
(718
)
Total stockholders' equity
    
101,436
   
101,401
 
Total liabilities and stockholders' equity
  
$
129,014
  
$
124,179
  
               
The accompanying notes are an integral part of these consolidated statements.
              
 
3
 

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(In thousands except per share data)
(Unaudited)
           
           
   
Three months ended March 31,
  
 
  
2007
  
2006
  
           
Net sales
  
$
64,976
  
$
69,957
  
Cost of goods sold
    
51,012
   
53,139
 
Gross profit
    
13,964
   
16,818
 
Selling, general and administrative expenses
   
8,443
   
8,638
 
Operating income
    
5,521
   
8,180
 
Interest income
    
726
   
446
 
Income before income taxes
    
6,247
   
8,626
 
Income tax provision
    
2,330
   
2,850
 
Net income
  
$
3,917
  
$
5,776
  
               
               
Earnings per share
              
Basic
 
$
0.10
  
$
0.15
  
Diluted
 
$
0.10
  
$
0.15
  
               
               
Dividends per share
  
$
0.06
  
$
0.05
  
               
               
Average shares outstanding
              
Basic
   
37,500
   
37,309
 
Diluted
   
38,819
   
39,091
 
               
The accompanying notes are an integral part of these consolidated statements.
              
 
4
 

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(In thousands)
(Unaudited)
           
           
   
Three months ended March 31,
  
   
2007
  
2006
  
OPERATING ACTIVITES
              
Net income
 
$
3,917
  
$
5,776
  
Adjustments to reconcile net income to net cash
              
provided by operating activities:
              
Depreciation and amortization
    
524
   
528
 
Stock-based compensation expense
    
373
   
381
 
Excess tax benefit for share-based payments
    
(371
)
  
(235
)
Deferred income tax provision (benefit)
   
56
   
(133
)
(Increase) decrease in assets:
              
Accounts receivable
   
(1,161
)
  
(2,174
)
Inventories
   
(1,810
)
  
(1,740
)
Prepaid expenses and other current assets
    
948
   
(118
)
Income taxes receivable
    
(474
)
  
1,774
 
Other non-current assets
    
(526
)
  
(209
)
Increase (decrease) in liabilities:
              
Accounts payable
   
3,432
   
4,905
 
Other accrued expenses
   
1,388
   
779
 
Other long-term liabilities
    
(20
)
  
(438
)
Net cash provided by operating activities
   
6,276
   
9,096
 
               
INVESTING ACTIVITIES
              
Capital expenditures
   
(518
)
  
(430
)
Sale (purchase) of marketable securities, net
    
286
   
(45
)
Net cash used for investing activities
    
(232
)
  
(475
)
               
FINANCING ACTIVITIES
              
Payment of dividends
    
(2,296
)
  
(1,864
)
Excess tax benefit for share-based payments
    
371
   
235
 
Cash paid for common stock purchased and retired
    
(2,392
)
  
(275
)
Proceeds received upon exercise of stock options
    
52
   
31
 
Net cash used for financing activities
    
(4,265
)
  
(1,873
)
               
Net increase in cash and cash equivalents
    
1,779
   
6,748
 
Cash and cash equivalents at beginning of period
    
54,456
   
37,602
 
Cash and cash equivalents at end of period
  
$
56,235
  
$
44,350
  
               
               
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 of America 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 (all of which consisted of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
   
 
The balance sheet at December 31, 2006 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, 2006.
   
2.
 EARNINGS PER SHARE
   
 
Statement of Financial Accounting Standard (“SFAS”) 128, “Earnings Per Share,” requires a basic earnings per share and diluted earnings per share presentation. The two calculations differ as a result of the dilutive effect of stock options and time lapse restricted shares and performance restricted shares included in diluted earnings per share, but excluded from basic 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 average shares outstanding is as follows:

 
6
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
(in thousands except per share data amounts)
  
Three months ended March 31
  
   
2007
  
2006
  
           
Net income
 
$
3,917
  
$
5,776
  
(numerator for basic and diluted earnings per share)
              
Shares (denominator):
              
Weighted average shares outstanding
    
37,500
    
37,309
  
(denominator for basic earnings per share)
              
Dilutive effect of stock options and restricted shares
    
1,319
    
1,782
  
Adjusted weighted average shares outstanding
    
38,819
    
39,091
  
(denominator for diluted earnings per share)
              
               
Earnings Per Share:
              
Basic
  
$
0.10
  
$
0.15
  
Diluted
  
$
0.10
  
$
0.15
  

3.
RECENT ACCOUNTING PRONOUNCEMENTS
   
 
The recent accounting pronouncements previously reported on the Company’s Form 10-K for the year ended December 31, 2006 is incorporated herein by reference. As disclosed on the 10-K, the Company adopted the following standards in the first quarter of 2007 with no material impact on the Company’s consolidated results of operation and financial condition:
 
·
SFAS 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”
 
·
SFAS 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140”
 
·
Emerging Issues Task Force (“EITF”) Issue 06-5, “Accounting for Purchases of Life Insurance - Determining the Amount That Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance”
 
The Company will adopt the provisions of SFAS 157, “Fair Value Measurements” in the first quarter of 2008 and believes that the adoption will not have a material impact on the Company’s consolidated results of operation and financial condition.
   
 
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS 159, “The Fair Value Option for Financial Assets and Liabilities - Including an Amendment of FASB Statement No. 115,” to permit an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in SFAS 159 are elective; however the amendment to SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with available-for-sale and trading securities. The fair value option permits all entities to choose to measure eligible items at fair value at specified election dates. The fair value option may be applied on an instrument-by-instrument basis, is irrevocable and is to be applied to entire instruments and not portions thereof. The Company will adopt SFAS 159 in fiscal year 2008. The Company is currently evaluating the impact of applying these provisions.
 

 
7
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     
 
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” ( “ FIN 48 ” ), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in federal, state and foreign filing jurisdictions where it is required to file income tax returns, as well as all open years in those jurisdictions. As a result of the implementation of FIN 48, the Company did not recognize a material adjustment in the liability for unrecognized income tax benefits. As of the adoption date the Company had gross tax affected unrecognized tax benefits of $659,000, all of which, if recognized, would affect the Company’s effective tax rate. There have been no material changes to these amounts during the quarter ended March 31, 2007.
   
 
The Company and its subsidiaries are subject to U.S. federal and state income tax in multiple jurisdictions. In many cases our uncertain tax positions are related to tax years that remain open and subject to examination by the relevant taxing authorities. The Company’s 2003 through 2006 tax years remain open to examination.
   
 
It is reasonably possible that the amount of the unrecognized benefits with respect to our unrecognized tax positions will increase or decrease in the next 12 months. These changes may be the result of, among other things, state tax settlements under Voluntary Disclosure Agreements. However, quantification of an estimated range cannot be made at this time.
   
 
The Company’s policy is to record interest and penalties related to income tax matters as income tax expense. Accrued interest and penalties were immaterial as of January 1, 2007 and March 31, 2007. 
 
8
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
4.
COMPREHENSIVE INCOME
   
 
The components of comprehensive income are as follows:
   
       
(in thousands)
 
Three months ended March 31
  
   
2007
  
2006
  
           
Net income as reported
 
$
3,917
  
$
5,776
  
Change in unrealized gain (loss) on marketable securities, net of taxes and reclassification adjustments
    
10
    
(2
)
Comprehensive income
  
$
3,927
  
$
5,774
  

5.
STOCK-BASED COMPENSATION
   
 
Pre-tax cost of stock-based employee compensation was $373,000 ($263,000 after tax effect) for the three months ended March 31, 2007.
   
 
Stock Options
   
 
Transactions involving Marine Products stock options for the three months ended March 31, 2007 were as follows:
                   
   
Shares
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual Life
  
Aggregate
Intrinsic
Value
  
                   
Outstanding at January 1, 2007
    
1,951,540
  
$
2.82
    
3.3 years
        
Granted
    
-
    
-
    
N/A
        
Exercised
    
(246,943
)
$
1.33
    
N/A
        
Forfeited
    
-
    
-
    
N/A
        
Expired
    
-
    
-
    
N/A
        
Outstanding at March 31, 2007
    
1,704,597
  
$
3.03
    
3.9 years
  
$
11,148,071
  
Exercisable at March 31, 2007
    
1,480,349
  
$
2.84
    
3.7 years
  
$
9,962,749
  

9
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
 
The total intrinsic value of share options exercised was approximately $2,083,000 during the three months ended March 31, 2007 and approximately $2,300,000 during the three months ended March 31, 2006. There were no tax benefits associated with the exercise of stock options during the three months ended March 31, 2007 and 2006, since all of the options exercised were incentive stock options which do not generate tax deductions for the Company.
   
 
Restricted Stock
   
 
The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2007:
   
           
   
Shares
  
Weighted
Average
Grant-
Date Fair
Value
  
Non-vested shares at January 1, 2007
    
590,954
  
$
9.79
  
Granted
    
136,000
  
$
9.54
  
Vested
    
(165,454
)
$
4.72
  
Forfeited
    
(1,500
)
$
9.54
  
Non-vested shares at March 31, 2007
    
560,000
  
$
11.23
  
 
 
The total fair value of shares vested was approximately $1,829,000 during the three months ended March 31, 2007 and $679,000 during the three months ended March 31, 2006. The tax benefit for compensation tax deductions in excess of compensation expense aggregating $371,000 was credited to capital in excess of par value during the three months ended March 31, 2007 and $235,000 during the three months ended March 31, 2006. This excess tax deduction is classified as a financing cash flow during the three months ended March 31, 2007 in accordance with SFAS123R.
   
 
Other Information
   
 
As of March 31, 2007, total unrecognized compensation cost related to non-vested restricted shares was approximately $5,284,000. This cost is expected to be recognized over a weighted-average period of 4.2 years. As of March 31, 2007, total unrecognized compensation cost related to non-vested stock options was approximately $389,000 and is expected to be recognized over a weighted average period of approximately one year.
 
 
10
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
6.
WARRANTY COSTS AND OTHER CONTINGENCIES
   
 
Warranty Costs
 
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. 
   
 
An analysis of the warranty accruals for the three months ended March 31, 2007 and 2006 is as follows: 
           
(in thousands)
  
2007
  
2006
  
Balances at beginning of year
 
$
5,337
  
$
4,272
  
Less: Payments made during the period
    
(1,724
)
  
(2,068
)
Add: Warranty provision for the period
    
1,243
    
897
  
   Changes to warranty provision for prior years
    
120
    
352
  
Balances at March 31
  
$
4,976
  
$
3,453
  
 
 
Repurchase Obligations
 
The Company is 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, 2007, the maximum contractual obligation and the amounts outstanding under these agreements, which expire in 2007 and 2008, totaled approximately $3.5 million. The Company records the estimated fair value of the guarantee; at March 31, 2007, this amount was immaterial.
   
7.
BUSINESS SEGMENT INFORMATION
   
 
The Company has only one reportable segment, its powerboat manufacturing business; therefore, the majority of the disclosures required by SFAS 131 are not relevant 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.

 
11
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
8.
INVENTORIES
   
 
Inventories consist of the following:
           
(in thousands)
  
March 31, 2007
  
December 31, 2006
  
Raw materials and supplies
  
$
16,852
  
$
13,319
  
Work in process
    
7,015
    
9,383
  
Finished goods
    
7,499
    
6,854
  
Total inventories
  
$
31,366
  
$
29,556
  

9.
INCOME TAXES
   
 
The Company determines its periodic income tax expense based upon the current period income and the annual estimated tax rate for the Company adjusted for any change to prior year estimates. The estimated tax rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company's current annual estimated tax rate.
   
10.
EMPLOYEE BENEFIT PLAN
   
 
The Company participates in a multiple employer pension plan. The following represents the net periodic benefit cost and related components for the plan:
       
(in thousands)
  
Three months ended March 31
  
   
2007
  
2006
 
Service cost
  
$
-
   $ -  
Interest cost
    
64
    
61
  
Expected return on plan assets
    
(96
)
  
(85
)
Amortization of:
              
Actuarial net (gains) and losses
    
20
    
27
  
Net periodic benefit cost  
$
(12
)
 $ 3  
 
 
During the quarter ended March 31, 2007, the Company contributed $250,000 to the multiple employer pension plan to achieve its funding objectives. The Company does not currently expect to make any additional contributions to this plan in 2007.


12
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Marine Products Corporation, through our wholly-owned subsidiaries Chaparral and Robalo, is a leading manufacturer of recreational fiberglass powerboats. Our sales and profits are generated by selling the products that we manufacture 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. A majority of these dealers finance their inventory through third-party floorplan lenders, who pay Marine Products generally within seven to 10 days after delivery of the products to the dealers.

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 December 31, 2006 is incorporated herein by reference. There have been no significant changes in the strategies since year-end.

In implementing these strategies and attempting to optimize our financial returns, management closely monitors dealer orders and inventories, the production mix 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. Marine Products' financial results are affected by consumer confidence — because pleasure boating is a discretionary expenditure, interest rates — because many retail customers finance the purchase of their boats, and other socioeconomic and environmental factors such as availability of leisure time, consumer preferences, demographics and the weather.

We reduced our production levels during the fourth quarter of 2006 in response to our concerns about dealer and consumer demand for products in our industry, which resulted from higher fuel prices and declining consumer sentiment regarding the attractiveness of recreational boating. In the first quarter of 2007, our production levels were slightly lower than the levels during the first quarter of 2006. The impact of this decrease was compounded by a decrease in average selling prices due to the change in model mix to more of the smaller models. Gross profit margin as a percentage of net sales decreased approximately 2.5 basis points compared to the first quarter of 2006. This decline was primarily due to higher raw material costs, specifically petroleum based products such as resin, vinyl and foam, and higher component costs such as engines coupled with manufacturing inefficiencies at lower production levels. At the end of the quarter, our unit backlog was lower than at this time last year due to declining consumer demand.
 
13
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
OUTLOOK

The discussion on the outlook for 2007 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2006.

Marine Products experienced a weaker than expected winter boat show season, and the demand for many of our larger 2007 models has been weaker than in the past. As we operate in the height of the retail selling season and prepare to introduce our 2008 models, we will continue to monitor dealer inventories and backlog, as well as any signs of declining consumer confidence due to high fuel prices or other factors. We continue to attempt to manage the rising cost of raw materials, which have negatively impacted our margins, through effective management of our purchasing processes.

RESULTS OF OPERATIONS

Key operating and financial statistics for the three months ended March 31, 2007 and 2006 follow:

($ in thousands)
  
Three months ended
March 31
  
   
2007
  
2006
  
           
Total number of boats sold
    
1,536
    
1,654
  
Average gross selling price per boat
  
$
41.0
  
$
41.8
  
Net sales
 
$
64,976
  
$
69,957
  
Percentage of cost of goods sold to  net sales
    
78.5
%
  
76.0
%
Gross profit margin percent
    
21.5
%
  
24.0
%
Percentage of selling, general and  administrative expense to net sales
    
13.0
%
  
12.3
%
Operating income
  
$
5,521
  
$
8,180
  
Warranty expense
  
$
1,360
  
$
1,249
  

 
14
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006

Net sales for the three months ended March 31, 2007 decreased $5.0 million or 7.1 percent compared to the comparable period in 2006. The change in net sales was comprised of a 1.8 percent decrease in average gross selling price per boat, a decrease in parts and accessories sales and a 7.1 percent decrease in the number of boats sold. The decrease in average selling price per boat was due to increased unit sales of SSi Sportboats and SSX Sportdecks, which realize lower average sales prices than Signature Cruisers and Robalo offshore sport fishing boats.

Cost of goods sold for the three months ended March 31, 2007 was $51.0 million compared to $53.1 million for the comparable period in 2006, a decrease of $2.1 million or 4.0 percent. Cost of goods sold, as a percentage of net sales, increased primarily the result of cost inefficiencies due to lower production volumes, as well as higher raw material costs compared to the prior year.

Selling, general and administrative expenses for the three months ended March 31, 2007 were $8.4 million compared to $8.6 million for the comparable period in 2006, a decrease of $0.2 million or 2.3 percent. The decrease in selling, general and administrative expenses was primarily due to lower incentive compensation expense consistent with lower profitability. Warranty expense was 2.1 percent of net sales for the three months ended March 31, 2007 compared to 1.8 percent in the prior year.

Operating income for the three months ended March 31, 2007 decreased $2.7 million or 32.5 percent compared to the comparable period in 2006. Operating income was lower due to lower sales and gross profit margin percent.

Interest income was $0.7 million during the three months ended March 31, 2007 compared to $0.4 million for the comparable period in 2006. This increase resulted primarily from higher returns on our short term maturities due to rising interest rates during the period on the overnight and marketable securities in which Marine Products invests its available cash balances compared to the first quarter of 2006, and an increase in investable balances in the first quarter of 2007.

Income tax provision for the three months ended March 31, 2007 reflects an effective tax rate of 37.3 percent, compared to 33.0 percent for the comparable period in the prior year. The increase in the effective rate was due to discrete adjustments from prior years, as well as the elimination of the Extraterritorial Income Exclusion (ETI) benefit, partially offset by an increase in the domestic production activities deduction. The income tax provision of $2.3 million was $0.6 million or 18.2 percent lower than the income tax provision of $2.9 million for the comparable period in 2006. The decrease in the provision was primarily due to lower pre-tax income as compared to the comparable period in the prior year.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company’s cash and cash equivalents at March 31, 2007 were $56.2 million. The following table sets forth the historical cash flows for:

(in thousands)
  
Three months ended March 31,
 
     
2007
    
2006
  
               
Net cash provided by operating activities
  
$
6,276
  
$
9,096
  
Net cash used for investing activities
    
(232
)
  
(475
)
Net cash used for financing activities
  
$
(4,265
)
$
(1,873
)

Cash provided by operating activities for the three months ended March 31, 2007 decreased approximately $2.8 million compared to the comparable period in 2006. This decrease is mainly the result of lower net income in the first three months of 2007 compared to the comparable period in 2006.

Cash used for investing activities for the three months ended March 31, 2007 decreased approximately $0.2 million compared to the comparable period in 2006, resulting primarily from increased sales of non-current marketable securities.

Cash used for financing activities for the three months ended March 31, 2007 increased approximately $2.4 million primarily due to an increase in the cash paid for repurchases of common stock.

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 expected to be generated from operations, will provide sufficient capital to meet the Company’s requirements for the next twelve months. The Company believes that the liquidity will allow it the ability to fund any growth and provide the opportunity to take advantage of business opportunities that may arise.

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 2007 will be approximately $3.0 million, of which $0.5 million has been spent through March 31, 2007.

The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). The Company contributed $0.3 million to the multiple employer pension plan in the first quarter of 2007 to achieve its funding objectives. The Company had disclosed an expected contribution of $0.3 million in the Form 10-K for the year ended December 31, 2006. The Company does not currently expect to make any additional contributions to this plan in 2007.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
On April 24, 2007, the Board of Directors approved a quarterly cash dividend per common share of $0.06. 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 has purchased a total of 2,835,757 shares in the open market pursuant to April 2001 and September 2005 resolutions of the Board of Directors that authorized in the aggregate the repurchase of up to 5,250,000 shares. As of March 31, 2007, the Company can purchase 2,414,243 additional shares under these programs. Details regarding the shares repurchased during the first quarter of 2007 have been disclosed in Part II, Item 2 of this document.

The Company has an immaterial amount of obligations and commitments that require future payments. See the section below 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 accruals during the three months ended March 31, 2007 and 2006.

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 dealers and selected third-party lenders to guarantee varying amounts of qualifying dealers’ debt obligations. 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 dealers’ unpaid debt obligation on those boats capped at the lender level. As of March 31, 2007, the maximum contractual obligation to the lenders and the amount outstanding under these agreements, which expire in 2007 and 2008, totaled approximately $3.5 million. The Company has recorded the estimated fair value of this guarantee; at March 31, 2007, this amount is immaterial and did not change from the prior year.

17
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

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, 2006. The Company reimbursed RPC for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.3 million in the three months ended March 31, 2007 and approximately $0.2 million in the three months ended March 31, 2006.

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, 2006. There have been no significant changes in the critical accounting policies since year-end.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 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 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

Recently, the Company has experienced an increase in certain material and component costs. The Company responded to this increase in costs by instituting price increases effective during 2006, and in early 2007. These price increases did not fully absorb the increased material costs for the quarter ended March 31, 2007 and therefore negatively impacted the gross margin percent. We anticipate, with continued high commodity prices, energy prices and petroleum based product prices, that the price of materials will continue to increase. If the prices of these raw materials and components continue to increase, or the prices of other factors of production increase, Marine Products will attempt to increase its product prices to offset its increased costs. No assurance can be given, however, that the Company will be able to adequately increase its product prices in response to inflation or estimate the impact on future sales of increasing product prices.
 
18
MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
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, the expected effect of recent accounting pronouncements on the Company’s consolidated results of operation and financial condition, statements that relate to the Company’s business strategy, plans and objectives, the Company’s plan and ability to effect future price increases, expectations for future warranty expense, the Company’s outlook for 2007, the Company’s schedule and plan for new model introductions, adequacy of capital resources and funds, opportunity for continued growth, estimated capital expenditures, estimated pension contributions, future dividends, estimates regarding boat purchase obligations, market risk exposure, effect of litigation on our financial position and results of operations, and the Company's beliefs and expectations regarding future demand for the Company's products and services. 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:  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 identify, complete or successfully integrate acquisitions, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, and competition from other boat manufacturers and dealers. 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, 2006. The Company does not undertake to update its forward-looking statements.
 
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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Marine Products does not utilize financial instruments for trading purposes and, as of March 31, 2007, did not hold derivative financial instruments that could expose the Company to significant market risk. Also, as of March 31, 2007, the Company’s investment portfolio, totaling approximately $60.3 million and comprised of United States Government, corporate backed obligations, asset backed securities and municipal debt securities, is subject to interest rate risk exposure. This risk is managed through conservative policies to invest in high-quality obligations that are both short-term and long-term in nature. Marine Products has not experienced any material changes in market risk exposures or how those risks are managed since the end of fiscal year 2006, and currently expects no such changes through the end of the year.
 
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, 2007 (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 a reasonable assurance level as of the Evaluation Date.

Changes in internal control over financial reporting - Management’s evaluation of changes in internal control did not identify any 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.
 
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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 outcome of such litigation will have a material adverse effect on the financial position or results of operations of Marine Products.

Item 1A. RISK FACTORS

See the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Shares repurchased by Marine Products during the three months ended March 31, 2007 were as follows:
                   
Period
  
Total Number of Shares
(or Units) Purchased
  
Average Price Paid Per Share (or Unit)
  
Total number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
  
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
  
                   
Month #1
January 1, 2007 to
January 31, 2007
    
16,420
(2)
 $ 9.82    
-
    
2,599,643
  
                           
Month #2
February 1, 2007 to February 28, 2007
    
146,284
(3)
 $ 9.59    
72,800
   
2,526,843
  
                           
Month #3
March 1, 2007 to
March 31, 2007
    
112,600
   $ 9.76    
112,600
    
2,414,243
  
                           
Totals
    
275,304
   $ 9.70    
-
    
2,414,243
  

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
 
(1)
The Company’s Board of Directors announced a stock buyback program on April 25, 2001 authorizing the repurchase of 2,250,000 shares in the open market and another on September 14, 2005 authorizing the repurchase of an additional 3,000,000 shares. A total of 2,835,757 shares have been repurchased through March 31, 2007. The programs do not have predetermined expiration dates.
 
(2)
Represents shares tendered at an average price of $9.82 per share in connection with the exercise of stock options.
 
(3)
Includes 12,032 shares tendered at an average price of $9.66 per share in connection with the exercise of stock options and 61,452 shares tendered at an average price of $9.65 for withholding taxes related to the release of restricted shares.
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
     
None    
     
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     
None    
     
ITEM 5.
OTHER INFORMATION
     
None    
     
EXHIBITS  
     
 
Exhibit Number
Description
     
 
3.1(a)
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).
     
 
3.1 (b)
Certificate of Amendment of Certificate of Incorporation of Marine Products Corporation executed on June 8, 2005 (incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed June 9, 2005).
     
 
3.2
By-laws of Marine Products Corporation (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 6, 2004).
 
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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
 
 
4
Restated Form of Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10 filed on February 13, 2001).
     
 
10.1
Summary of At-Will with Compensation Arrangements with Executive Officers as of February 28, 2007 (incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
     
 
10.2
Summary of Compensation Arrangements with Non-Employee Directors as of February 28, 2007 (incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
     
 
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
 
 

 
23
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, 2007
  
Richard A. Hubbell
   
President and Chief Executive Officer
   
(Principal Executive Officer)
     
     
     
    /s/ Ben M. Palmer
Date: May 4, 2007
  
Ben M. Palmer
   
Vice President, Chief Financial Officer and Treasurer
   
(Principal Financial and Accounting Officer)




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