MARINE PRODUCTS CORP

Quarterly Report • May 4, 2007

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Table of Contents

UNITED STATES

SECURITIES A ND 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

| Part
I. Financial Information | | Page
No. |
| --- | --- | --- |
| Item
1. | Financial
Statements (Unaudited) | |
| | Consolidated
balance sheets - As of March 31, 2007
and December 31, 2006 | 3 |
| | Consolidated
statements of income - for the three
months ended March 31, 2007 and 2006 | 4 |
| | Consolidated
statements of cash flows - for the
three months ended March 31, 2007 and 2006 | 5 |
| | Notes
to consolidated financial statements | 6-12 |
| Item
2. | Management’s
Discussion and Analysis of Financial Condition
and Results of Operations | 13-19 |
| Item
3. | Quantitative
and Qualitative Disclosures About Market
Risk | 20 |
| Item
4. | Controls
and Procedures | 20 |
| Part
II. Other Information | | |
| Item
1. | Legal
Proceedings | 21 |
| Item
1A. | Risk
Factors | 21 |
| Item
2. | Unregistered
Sales of Equity Securities and Use of Proceeds | 21 |
| Item
3. | Defaults
upon Senior Securities | 22 |
| Item
4. | Submission
of Matters to a Vote of Security
Holders | 22 |
| Item
5. | Other
Information | 22 |
| Item
6. | Exhibits | 22 |
| Signatures | | 24 |

2

| MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES | | | | |
| --- | --- | --- | --- | --- |
| PART
I. FINANCIAL INFORMATION | | | | |
| ITEM
1. FINANCIAL STATEMENTS | | | | |
| CONSOLIDATED
BALANCE SHEETS | | | | |
| 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 | | |
| --- | --- | --- |
| CONSOLIDATED
STATEMENTS OF
INCOME | | |
| 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 | | | | |
| --- | --- | --- | --- | --- |
| CONSOLIDATED
STATEMENTS OF CASH
FLOWS | | | | |
| 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. |
| --- |
| 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 r estricted
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. |
| --- |
| 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

1. 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 | |

1. 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: |

| Outstanding
at January 1, 2007 | 1,951,540 | | Weighted Average Exercise Price — $ 2.82 | 3.3
years | Aggregate Intrinsic Value |
| --- | --- | --- | --- | --- | --- |
| 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: |

| Non-vested
shares at January 1, 2007 | 590,954 | | Weighted Average Grant- Date
Fair Value — $ 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 |
| 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) — Balances
at beginning of year | 2007 — $ 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
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. |
| --- |
| 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. |
| --- |
| 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. T he 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. T he 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.

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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.

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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 — Month

1 January

1, 2007 to January
31, 2007 | 16,420 | (2) | Average
Price Paid Per Share (or Unit) — $ 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 | | |
| ITEM
6. | 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) |

24