MARINE PRODUCTS CORP

Quarterly Report • Nov 6, 2008

10-Q 1 t63962_10q.htm FORM 10-Q t63962_10q.htm Licensed to: tsf Document Created using EDGARizer 4.0.6.1 Copyright 1995 - 2008 EDGARfilings, Ltd., an IEC company. All rights reserved

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 September 30, 2008

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 30, 2008, Marine Products Corporation had 36,430,449 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 September 30, 2008 and December 31,
2007 | 3 |
| | Consolidated
Statements of Income – for the three and nine months ended September 30,
2008 and 2007 | 4 |
| | Consolidated
Statement of Stockholders’ Equity – for the nine months ended September
30, 2008 | 5 |
| | Consolidated
Statements of Cash Flows – for the nine months ended September 30, 2008
and 2007 | 6 |
| | Notes
to Consolidated Financial Statements | 7-18 |
| Item
2. | Management’s
Discussion and Analysis of Financial Condition and Results of
Operations | 19 |
| Item
3. | Quantitative
and Qualitative Disclosures About Market Risk | 27 |
| Item
4. | Controls
and Procedures | 28 |
| Part
II. | Other
Information | |
| Item
1. | Legal
Proceedings | 29 |
| Item
1A. | Risk
Factors | 29 |
| Item
2. | Unregistered
Sales of Equity Securities and Use of Proceeds | 29 |
| Item
3. | Defaults
upon Senior Securities | 29 |
| Item
4. | Submission
of Matters to a Vote of Security Holders | 29 |
| Item
5. | Other
Information | 29 |
| Item
6. | Exhibits | 30 |
| Signatures | | 31 |

2

| MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES | | | |
| --- | --- | --- | --- |
| PART
I. FINANCIAL INFORMATION | | | |
| ITEM
1. FINANCIAL STATEMENTS | | | |
| CONSOLIDATED
BALANCE SHEETS | | | |
| AS
OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007 | | | |
| (In
thousands) | | | |
| (Unaudited) | | | |
| | September
30, | December
31, | |
| | 2008 | 2007 | |
| ASSETS | | (Note
1) | |
| Cash
and cash equivalents | $ 5,045 | $ | 3,233 |
| Marketable
securities | 13,970 | | 8,870 |
| Accounts
receivable, net | 1,400 | | 3,540 |
| Inventories | 24,707 | | 33,159 |
| Income
taxes receivable | 1,635 | | 1,321 |
| Deferred
income taxes | 1,415 | | 2,746 |
| Prepaid
expenses and other current assets | 1,792 | | 2,159 |
| Total
current assets | 49,964 | | 55,028 |
| Property,
plant and equipment, net | 14,933 | | 15,944 |
| Goodwill | 3,308 | | 3,308 |
| Marketable
securities | 38,551 | | 36,087 |
| Deferred
income taxes | 2,628 | | 1,098 |
| Other
assets | 6,923 | | 7,261 |
| Total
assets | $ 116,307 | $ | 118,726 |
| LIABILITIES
AND STOCKHOLDERS' EQUITY | | | |
| Accounts
payable | $ 4,676 | $ | 4,621 |
| Accrued
expenses and other liabilities | 10,644 | | 14,294 |
| Total
current liabilities | 15,320 | | 18,915 |
| Pension
liabilities | 5,333 | | 5,572 |
| Other
long-term liabilities | 497 | | 482 |
| Total
liabilities | 21,150 | | 24,969 |
| Common
stock | 3,643 | | 3,602 |
| Capital
in excess of par value | - | | - |
| Retained
earnings | 91,690 | | 90,105 |
| Accumulated
other comprehensive (loss) income | (176 | ) | 50 |
| Total
stockholders' equity | 95,157 | | 93,757 |
| Total
liabilities and stockholders' equity | $ 116,307 | $ | 118,726 |
| The
accompanying notes are an integral part of these consolidated
statements. | | | |

3

| MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES | | | | |
| --- | --- | --- | --- | --- |
| CONSOLIDATED STATEMENTS OF INCOME | | | | |
| FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007 | | | | |
| (In
thousands except per share data) | | | | |
| (Unaudited) | | | | |
| | Three
months ended September 30, | | Nine
months ended September 30, | |
| | 2008 | 2007 | 2008 | 2007 |
| Net
sales | $ 31,582 | $ 52,481 | $ 152,858 | $ 185,326 |
| Cost
of goods sold | 26,478 | 41,215 | 123,263 | 145,162 |
| Gross
profit | 5,104 | 11,266 | 29,595 | 40,164 |
| Selling,
general and administrative expenses | 4,086 | 6,471 | 18,965 | 22,834 |
| Operating
income | 1,018 | 4,795 | 10,630 | 17,330 |
| Interest
income | 623 | 585 | 1,815 | 1,948 |
| Income
before income taxes | 1,641 | 5,380 | 12,445 | 19,278 |
| Income
tax provision | 957 | 2,151 | 3,733 | 6,857 |
| Net
income | $ 684 | $ 3,229 | $ 8,712 | $ 12,421 |
| Earnings
per share | | | | |
| Basic | $ 0.02 | $ 0.09 | $ 0.24 | $ 0.33 |
| Diluted | $ 0.02 | $ 0.08 | $ 0.24 | $ 0.32 |
| Dividends
per share | $ 0.065 | $ 0.060 | $ 0.195 | $ 0.180 |
| Average
shares outstanding | | | | |
| Basic | 35,824 | 37,028 | 35,773 | 37,329 |
| Diluted | 36,476 | 38,154 | 36,465 | 38,501 |
| The
accompanying notes are an integral part of these consolidated
statements. | | | | |

4

| MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY | | | | | | | | | | | | | | |
| FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 | | | | | | | | | | | | | | |
| (In
thousands) | | | | | | | | | | | | | | |
| (Unaudited) | | | | | | | | | | | | | | |
| | Comprehensive | Common
Stock | | | | Capital
in Excess of | | Retained | | Accumulated | | | | |
| | Income | Shares | | Amount | | Par
Value | | Earnings | | Other | | | Total | |
| Balance,
December 31, 2007 | | | 36,018 | $ | 3,602 | $ | — | $ | 90,105 | $ | 50 | | $ 93,757 | |
| Stock
issued for stock incentive | | | | | | | | | | | | | | |
| plans,
net | | | 867 | | 87 | | 1,948 | | — | | — | | 2,035 | |
| Stock
purchased and retired | | | (455 | ) | (46 | ) | (3,672 | ) | (53 | ) | — | | (3,771 | ) |
| Net
income | $ 8,712 | | — | | — | | — | | 8,712 | | — | | 8,712 | |
| Other
comprehensive income, net of tax: | | | | | | | | | | | | | | |
| Unrealized
loss on securities, net of | | | | | | | | | | | | | | |
| reclassification
adjustment | (226 | ) | — | | — | | — | | — | | (226 | ) | (226 | ) |
| Comprehensive
income | $ 8,486 | | | | | | | | | | | | | |
| Dividends
declared | | | — | | — | | — | | (7,074 | ) | — | | (7,074 | ) |
| Stock-based
compensation | | | — | | — | | 1,116 | | — | | — | | 1,116 | |
| Excess
tax benefits for share - | | | | | | | | | | | | | | |
| based
payments | | | — | | — | | 608 | | — | | — | | 608 | |
| Balance,
September 30, 2008 | | | 36,430 | $ | 3,643 | $ | - | $ | 91,690 | $ | (176 | ) | $ 95,157 | |
| The
accompanying notes are an integral part of this consolidated
statement. | | | | | | | | | | | | | | |

5

| MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES | | | | |
| --- | --- | --- | --- | --- |
| CONSOLIDATED
STATEMENTS OF CASH FLOWS | | | | |
| FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 | | | | |
| (In
thousands) | | | | |
| (Unaudited) | | | | |
| | Nine
months ended September 30, | | | |
| | 2008 | 2007 | | |
| OPERATING
ACTIVITIES | | | | |
| Net
income | $ 8,712 | $ | 12,421 | |
| Adjustments
to reconcile net income to net cash | | | | |
| provided
by operating activities: | | | | |
| Depreciation
and amortization | 1,300 | | 1,503 | |
| Gain
on sale of equipment and property | (14 | ) | - | |
| Stock-based
compensation expense | 1,116 | | 1,122 | |
| Excess
tax benefits for share-based payments | (608 | ) | (335 | ) |
| Deferred
income tax (benefit) provision | (228 | ) | 816 | |
| (Increase)
decrease in assets: | | | | |
| Accounts
receivable | 2,140 | | (2,636 | ) |
| Inventories | 8,452 | | (3,481 | ) |
| Prepaid
expenses and other current assets | 367 | | 242 | |
| Income
taxes receivable | 294 | | (291 | ) |
| Other
non-current assets | 338 | | (850 | ) |
| Increase
(decrease) in liabilities: | | | | |
| Accounts
payable | 55 | | 4,491 | |
| Accrued
expenses and other liabilities | (3,650 | ) | (284 | ) |
| Other
long-term liabilities | (224 | ) | 220 | |
| Net
cash provided by operating activities | 18,050 | | 12,938 | |
| INVESTING
ACTIVITIES | | | | |
| Capital
expenditures | (289 | ) | (1,123 | ) |
| Proceeds
from sale of property and equipment | 14 | | - | |
| Purchases
of marketable securities | (46,302 | ) | (61,483 | ) |
| Sales
of marketable securities | 37,387 | | 15,657 | |
| Maturities
of marketable securities | 1,000 | | - | |
| Net
cash used for investing activities | (8,190 | ) | (46,949 | ) |
| FINANCING
ACTIVITIES | | | | |
| Payment
of dividends | (7,074 | ) | (6,793 | ) |
| Excess
tax benefits for share-based payments | 608 | | 335 | |
| Cash
paid for common stock purchased and retired | (1,619 | ) | (7,840 | ) |
| Proceeds
received upon exercise of stock options | 37 | | 103 | |
| Net
cash used for financing activities | (8,048 | ) | (14,195 | ) |
| Net
increase (decrease) in cash and cash equivalents | 1,812 | | (48,206 | ) |
| Cash
and cash equivalents at beginning of period | 3,233 | | 54,456 | |
| Cash
and cash equivalents at end of period | $ 5,045 | $ | 6,250 | |
| The
accompanying notes are an integral part of these consolidated
statements. | | | | |

6

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 nine months ended September
30, 2008 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2008.
	The
balance sheet at December 31, 2007 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, 2007.
	A
group that includes the Company’s Chairman of the Board, R. Randall
Rollins and his brother Gary W. Rollins, who is also director of the
Company, and certain companies under their control, controls in excess of
fifty percent of the Company’s voting power.
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:

7

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| (in
thousands except per share data amounts) | Three
months ended September
30, — 2008 | 2007 | Nine
months ended September
30, — 2008 | 2007 |
| --- | --- | --- | --- | --- |
| Net
income | $ 684 | $ 3,229 | $ 8,712 | $ 12,421 |
| (numerator
for basic and diluted earnings per share) | | | | |
| Shares
(denominator): | | | | |
| Weighted
average shares outstanding | 35,824 | 37,028 | 35,773 | 37,329 |
| (denominator
for basic earnings per share) | | | | |
| Dilutive
effect of stock options and restricted shares | 652 | 1,126 | 692 | 1,172 |
| Adjusted
weighted average shares outstanding | 36,476 | 38,154 | 36,465 | 38,501 |
| (denominator
for diluted earnings per share) | | | | |
| Earnings
Per Share: | | | | |
| Basic | $ 0.02 | $ 0.09 | $ 0.24 | $ 0.33 |
| Diluted | $ 0.02 | $ 0.08 | $ 0.24 | $ 0.32 |

The effect of certain stock options as shown below were excluded in the computation of weighted average shares outstanding because the effect of their inclusion would be anti-dilutive to earnings per share:

| (in
thousands) — 2008 | 2007 | 2008 | 2007 | |
| --- | --- | --- | --- | --- |
| Stock
options | 47 | 48 | 47 | 48 |

| 3. |
| --- |
| In
October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active.” FSP 157-3 clarifies the application
of SFAS No. 157, “Fair Value Measurements,” in a market that is not active
and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial
asset is not active. Certain key existing principles of SFAS
157 illustrated in the example include the following: determining fair
value in a dislocated market depends on the facts and circumstances and
may require the use of significant judgment when evaluating the various
sources of the fair value measurement including individual transactions or
broker quotes. In addition, FSP FAS 157-3 states that if an
entity uses its own assumptions to determine fair value, it must include
appropriate risk adjustments that market participants would make for
nonperformance and liquidity risks. FSP FAS 157-3 is effective
upon issuance, including prior periods for which financial statements have
not been issued. The Company adopted FSP FAS 157-3 in the third
quarter of 2008 and has concluded that it does not have a material effect
on its consolidated financial
statements. |

8

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4,
“Disclosures about Credit Derivatives and Certain Guarantees – An
Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No.
161.” This FSP amends FASB Statement No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” to require disclosures
by sellers of credit derivatives, including credit derivatives embedded in
a hybrid instrument. This FSP also amends FASB Interpretation
No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to
require an additional disclosure about the current status of the
payment/performance risk of a guarantee. Further this FSP
clarifies the Board’s intent about the effective date of FASB Statement
No. 161, “Disclosures about Derivative Instruments and Hedging
Activities.” The provisions of this FSP that amend SFAS 161 and
FIN 45 are effective for reporting periods ending after November 15, 2008
and the clarification of the effective date of SFAS 161 is effective upon
issuance of this FSP. The Company is currently in the process
of determining the additional disclosures required upon the adoption of
this FSP. |
| --- |
| In
June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,” to clarify that all outstanding unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities. An
entity must include participating securities in its calculation of basic
and diluted earnings per share (EPS) pursuant to the two-class method, as
described in FASB Statement 128, Earnings per Share. FSP EITF 03-6-1 is
effective for fiscal years beginning after December 15, 2008 and interim
periods within those fiscal years. The Company intends to adopt FSP EITF
03-6-1 effective January 1, 2009 and apply its provisions retrospectively
to all prior-period EPS data presented in its financial statements. The
Company has periodically issued share-based payment awards that contain
non-forfeitable rights to dividends and is in the process of evaluating
the impact that the adoption of FSP EITF 03-6-1 will have on its financial
statements. |
| In
April 2008, the FASB issued FSP FAS No. 142-3, which amends the
factors that must be considered in developing renewal or extension
assumptions used to determine the useful life over which to amortize the
cost of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets.” The FSP requires an entity that is
estimating the useful life of a recognized intangible asset to consider
its historical experience in renewing or extending similar arrangements
or, in the absence of historical experience, must consider assumptions
that market participants would use about renewal or extension that are
both consistent with the asset’s highest and best use and adjusted for
entity-specific factors under SFAS No. 142. The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset
must be applied prospectively to intangible assets acquired after the
effective date. The Company does not expect the adoption of FSP FAS
No. 142-3 to have a material effect on its consolidated financial
statements. |

9

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| In
May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in financial statements
that are presented in conformity with U.S. generally accepted accounting
principles for nongovernmental entities. SFAS 162 is effective
60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles. The adoption of SFAS 162 is not expected to have a
significant impact on the Company’s consolidated financial
statements. | |
| --- | --- |
| In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement 133.”
SFAS 161 requires enhanced disclosures regarding how: (a) an entity uses
derivative instruments; (b) derivative instruments and related hedged
items are accounted for under FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities; and (c) derivative
instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. Statement 161 is
effective for fiscal years and interim periods beginning after November
15, 2008 with early application being encouraged. The Company
does not have any derivative instruments nor is currently involved in
hedging activities and therefore adoption of SFAS 161 is not expected to
have a material impact on the Company’s consolidated financial
statements. | |
| In
February 2008, the FASB issued FSP FAS 157-1, “Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements that Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13,” and FSP FAS 157-2,
“Effective Date of FASB Statement No. 157.” These FSPs: | |
| ● | Exclude
certain leasing transactions accounted for under FASB Statement No. 13,
Accounting for Leases, from the scope of Statement 157. The exclusion does
not apply to fair value measurements of assets and liabilities recorded as
a result of a lease transaction but measured pursuant to other
pronouncements within the scope of Statement 157. |
| ● | Defer
the effective date in FASB Statement No. 157, Fair Value Measurements, for
one year for certain nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least
annually). |

10

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| | FSP
FAS 157-1 is effective upon the initial adoption of Statement
157. FSP FAS 157-2 is effective February 12,
2008. The Company has adopted the provisions of FSP 157-1 and
157-2 in the first quarter of 2008. See Note 12 – “Fair Value
Measurements” for details regarding the impact of
adoption. |
| --- | --- |
| 4. | COMPREHENSIVE
INCOME |
| | The
components of comprehensive income for the applicable period are as
follows: |

| (in
thousands) | Three
months ended September
30, — 2008 | 2007 | | Nine
months ended September
30, — 2008 | 2007 | |
| --- | --- | --- | --- | --- | --- | --- |
| Comprehensive
income: | | | | | | |
| Net
income | $ 684 | $ | 3,229 | $ 8,712 | $ | 12,421 |
| Other
comprehensive loss, net of taxes: | | | | | | |
| Unrealized
(loss) gain on securities available for sale, net of reclassification
adjustment during the period | (94 | ) | 185 | (226 | ) | 181 |
| Total
comprehensive income | $ 590 | $ | 3,414 | $ 8,486 | $ | 12,602 |

| 5. |
| --- |
| The
Company reserved 5,250,000 shares of common stock under the 2001 and 2004
Stock Incentive Plans each of which expires ten years from the date of
approval. These plans provide for the issuance of various forms
of stock incentives, including, among others, incentive and non-qualified
stock options and restricted stock. As of September 30, 2008,
there were approximately 1,778,000 shares available for
grants. |

11

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation for the three months and nine months ended September 30, 2008 and 2007 were as follows:

| (in
thousands) | Three
months ended September
30, — 2008 | 2007 | Nine
months ended September
30, — 2008 | 2007 |
| --- | --- | --- | --- | --- |
| Pre
– tax cost | $ 371 | $ 374 | $ 1,116 | $ 1,122 |
| After
tax cost | $ 247 | $ 269 | $ 747 | $ 791 |

| Stock
Options |
| --- |
| Transactions
involving Marine Products stock options for the nine months ended
September 30, 2008 were as follows: |

| Outstanding
at January 1, 2008 | 1,670,124 | $ | 3.03 | Weighted Average Remaining Contractual Life — 3.1
years | Aggregate Intrinsic Value |
| --- | --- | --- | --- | --- | --- |
| Granted | - | | - | N/A | |
| Exercised | (675,227 | ) | 3.22 | N/A | |
| Forfeited | (2,550 | ) | 6.77 | N/A | |
| Expired | - | | - | N/A | |
| Outstanding
at September 30, 2008 | 992,347 | $ | 2.89 | 2.8
years | $ 5,369,000 |
| Exercisable
at September 30, 2008 | 982,897 | $ | 2.80 | 2.7
years | $ 5,406,000 |

The total intrinsic value of share options exercised was approximately $3,537,000 during the nine months ended September 30, 2008 and approximately $2,151,000 during the nine months ended September 30, 2007. Tax benefits associated with the exercise of non-qualified stock options during the nine months ended September 30, 2008 were approximately $561,000. There were no recognized excess tax benefits associated with the exercise of stock options during the nine months ended September 30, 2007, since all of the options exercised were incentive stock options which do not generate tax deductions for the Company.

12

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| Restricted
Stock |
| --- |
| The
following is a summary of the changes in non-vested restricted shares for
the nine months ended September 30,
2008: |

| Non-vested
shares at January 1, 2008 | 525,350 | | Weighted Average Grant-Date Fair
Value — $ 11.15 |
| --- | --- | --- | --- |
| Granted | 194,000 | | $ 7.08 |
| Vested | (107,450 | ) | $ 10.50 |
| Forfeited | (6,200 | ) | $ 10.80 |
| Non-vested
shares at September 30, 2008 | 605,700 | | $ 9.90 |

| | The
total fair value of shares vested was approximately $1,239,000 during the
nine months ended September 30, 2008 and $2,094,000 during the nine months
ended September 30, 2007. For the nine months ended September
30, 2008, tax benefits for compensation tax deductions in excess of
compensation expense totaling approximately $33,000 were credited to
capital in excess of par value and are classified as financing cash flows
in accordance with SFAS 123R. |
| --- | --- |
| | Other
Information |
| | As
of September 30, 2008, total unrecognized compensation cost related to
non-vested restricted shares was approximately $4,711,000. This
cost is expected to be recognized over a weighted-average period of 3.8
years. As of September 30, 2008, total unrecognized
compensation cost related to non-vested stock options was approximately
$50,000 and is expected to be recognized over a weighted average period of
approximately one year. |
| 6. | MARKETABLE
SECURITIES |
| | Marine
Products maintains investments held with a large, well-capitalized
financial institution. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designations as of each balance sheet date. Debt
securities are classified as available-for-sale because the Company does
not have the intent to hold the securities to
maturity. Available-for-sale securities are stated at their
fair values, with the unrealized gains and losses, net of tax, reported as
a separate component of stockholders’ equity. The cost of
securities sold is based on the specific identification
method. Realized gains and losses, declines in value judged to
be other than temporary, interest and dividends on available-for-sale
securities are included in interest income. The fair value and
the unrealized gains (losses) of the available-for-sale securities are as
follows: |

13

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| (in
thousands) — Type
of Securities | September
30, 2008 — Fair Value | Unrealized
Gain (Loss) | December
31, 2007 — Fair Value | Unrealized
Gain (Loss) |
| --- | --- | --- | --- | --- |
| Municipal Obligations | $ 52,521 | $ 55 | $ 44,957 | $ 405 |

| | Investments
with remaining maturities of less than 12 months are considered to be
current marketable securities. Investments with remaining
maturities greater than 12 months are considered to be non-current
marketable securities. |
| --- | --- |
| 7. | 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 nine months ended September 30,
2008 and 2007 is as follows: |

| (in
thousands) — Balances
at beginning of year | 2008 — $ 4,768 | $ | 5,337 | |
| --- | --- | --- | --- | --- |
| Less:
Payments made during the period | (3,419 | ) | (4,152 | ) |
| Add: Warranty
provision for the period | 2,901 | | 3,574 | |
| Changes
to warranty provision for prior years | (182 | ) | 219 | |
| Balances
at September 30 | $ 4,068 | $ | 4,978 | |

| Repurchase
Obligations |
| --- |
| The
Company is a party to various agreements with third party lenders that
provide floor plan financing to qualifying dealers whereby the Company
guarantees varying amounts of debt on boats in dealer
inventory. The Company’s obligation under these guarantees
becomes effective in the case of a default under the financing arrangement
between the dealer and the third party lender. The agreements provide for
the return of repossessed boats in “like new” condition to the Company, in
exchange for the Company’s assumption of specified percentages of the debt
obligation on those boats, up to certain contractually determined dollar
limits by lender. |
| Based
on amounts outstanding as of September 30, 2008, the maximum contractual
obligation to these lenders totaled approximately $6.7
million. Our obligation relating to a maximum of $4.0 million
of this total expire one year after the July 1, 2008 effective date of
these agreements and reset to the same maximum for one additional year
thereafter. Our obligation related to the remaining $2.7
million of this total varies based on dealer floor plan debt outstanding,
decline over time based on the age of the inventory, and remain in force
for periods ranging up to 24 months from the end of the third quarter of
2008. The Company records the fair value of the guarantee
liability as of the end of each reporting period. See Note 13 –
“Subsequent Event” for additional information regarding repurchase
obligations. |

14

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 8. | 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 product model. |
| 9. | INVENTORIES |
| | Inventories
consist of the following: |

| (in
thousands ) | September
30, 2008 | December
31, 2007 |
| --- | --- | --- |
| Raw
materials and supplies | $ 12,392 | $ 14,001 |
| Work
in process | 5,431 | 10,830 |
| Finished
goods | 6,884 | 8,328 |
| Total
inventories | $ 24,707 | $ 33,159 |

| 10. |
| --- |
| 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. |

15

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| As
of January 1, 2007, the Company adopted the provisions of 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. As of December 31, 2007 the Company had gross tax
affected unrecognized tax benefits of approximately $175,000, all of
which, if recognized would affect the Company’s effective tax
rate. There have been no material changes to these amounts
during the nine months ended September 30, 2008. |
| --- |
| 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
2005 through 2008 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 September 30, 2008 and
2007. |
| For
the third quarter of 2008, the income tax provision reflects an effective
tax rate of 58.3 percent, compared to 40.0 percent for the comparable
period in the prior year. The increase in the effective rate
was due primarily to recent unanticipated losses on non-qualified plan
assets that are not deductible for tax purposes. For the nine
months ended September 30, 2008, the income tax provision reflects an
effective tax rate of 30.0 percent, compared to 35.6 percent for the
comparable period in the prior year. The decrease in the
effective rate was due primarily to the impact of tax
credits. |

16

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 11. |
| --- |
| The
Company participates in a multiple employer pension plan. The
following represents the net periodic benefit credit and related
components for the plan: |

| (in
thousands) | Three months
ended September
30, — 2008 | | 2007 | | Nine
months ended September
30, — 2008 | | 2007 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Service
cost | $ - | | $ - | | $ - | | $ - | |
| Interest
cost | 70 | | 64 | | 210 | | 192 | |
| Expected
return on plan assets | (109 | ) | (99 | ) | (327 | ) | (298 | ) |
| Amortization
of net losses | - | | 21 | | - | | 61 | |
| Net
periodic benefit credit | $ (39 | ) | $ (14 | ) | $ (117 | ) | $ (45 | ) |

| | The
Company does not currently expect to make any contributions to this plan
in 2008. |
| --- | --- |
| 12. | FAIR
VALUE MEASUREMENTS |
| | The
Company adopted SFAS 157, “Fair Value Measurements,” and FSP 157-2,
“Effective Date of FASB Statement No. 157,” in the first quarter of
2008. SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about items
measured at fair value. SFAS 157 does not require any new fair
value measurements. It applies to accounting pronouncements
that already require or permit fair value measures. As a
result, the Company will not be required to recognize any new assets or
liabilities at fair value. FSP 157-2 delays the effective date of SFAS 157
for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements
on a recurring basis. |
| | SFAS
157 establishes a fair value hierarchy that distinguishes between
assumptions based on market data (observable inputs) and the Company’s
assumptions (unobservable inputs). The hierarchy consists of
three broad levels as follows: |

Level 1 – Quoted market prices in active markets for identical assets or liabilities

Level 2 – Inputs other than level 1 that are either directly or indirectly observable

Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

| Securities: |
| --- |
| The
Company determines the fair value of marketable securities that are
available for sale and of investments in the non-qualified plan that are
trading using quoted market prices. The adoption of SFAS 157
had no effect on the Company’s valuation of these marketable securities or
investments. |

17

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheet as of September 30, 2008:

| (in
thousands) | Fair
value Measurements at September 30, 2008 with — Quoted
prices in active markets for identical assets (Level
1) | Significant
other observable inputs (Level
2) | Significant
unobservable inputs (Level
3) |
| --- | --- | --- | --- |
| Assets: | | | |
| Trading
securities | $ 4,585 | $ - | $ - |
| Available
for sale securities | $ 52,521 | $ - | $ - |

| | In
February 2007, the FASB issued SFAS No. 159, “ The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment of
FASB Statement No. 115 .” This statement permits entities to
choose to measure many financial instruments and certain other items at
fair value. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, including interim
periods within that fiscal year. The Company did not elect the fair value
option for any of its existing financial instruments and the Company has
not determined whether or not it will elect this option for financial
instruments it may acquire in the future. |
| --- | --- |
| 13. | SUBSEQUENT
EVENT |
| | During
the fourth quarter of 2008, the Company received notification of
repurchase obligations in accordance with third party floor plan financing
agreements totaling approximately $2.6 million resulting from defaults by
two dealers. The Company re-evaluated the fair value of the
Company’s guarantee liability under the foregoing circumstances and
estimates a liability of approximately $177,000 as of September 30,
2008. The Company estimates that proceeds from the sale of the
repossessed boats will approximate the repurchase cost less the fair value
of the guarantee liability. Management will continue to monitor
the risk of additional defaults and resulting repurchase obligations and
will adjust the guarantee liability accordingly. |
| | In
accordance with these agreements, the Company is also required to assist
the lenders in remarketing additional boats with a resale value of
approximately $1.5 million. See additional information
regarding repurchase obligation and estimated fair value of guarantee
liability under Note 7- “Warranty Costs and Other
Contingencies.” |

18

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, 2007 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 at various times during the nine months ended September 30, 2008 in response to our concerns about dealer and consumer demand for products in our industry, which resulted from continued problems in the housing market, high fuel prices and concern regarding a general economic slowdown. In the third quarter of 2008, our production levels were significantly lower than the levels during the third quarter of 2007. Despite significant cost reduction efforts, gross profit as a percentage of net sales declined significantly primarily due to manufacturing cost inefficiencies as a result of lower production levels. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be relatively strong during the quarter and an improved model mix among the Robalo sport fishing boats accounted for the increase in the average selling price per boat. Consistent with the overall reduction in demand for recreational products, including fiberglass boats, our unit backlog at the end of the quarter was approximately half of what it was at this time last year.

19

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

OUTLOOK

The discussion on the outlook for 2008 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2007.

The weak dealer and customer demand that began three years ago accelerated during the third quarter of 2008. The same macroeconomic and industry-specific factors that have been issues for our business continued, and during the third quarter, retail boat sales were also affected by the credit crisis and turmoil in global financial markets. This crisis has made consumers more reluctant to buy large discretionary items such as pleasure boats. Also, the recent curtailment of consumer and business lending has made it difficult for consumers and dealers to secure financing for retail purchases and for inventory financing. The Company does not believe that there are any near-term catalysts which will improve the retail selling environment for our products, and as a result, we have continued to reduce production in order to manage dealer inventory levels. The tight credit markets have increased the cost and reduced the availability of floor plan credit to our dealers, and have caused some dealer order cancellations during the fourth quarter of 2008. This factor, along with order cancellations resulting from a continued weak retail selling environment and the recent notification of repurchase obligations resulting from dealer defaults, have required us to consolidate several plants in the fourth quarter, reduce production further from third quarter 2008 levels, and undertake additional workforce reductions. We anticipate that there will be some costs associated with these actions which are not expected to be material. In addition, the weak selling environment and dealer inventory levels may require us to implement additional sales incentive programs designed to sell inventory. Management will continue to monitor the risk of additional dealer defaults and resulting repurchase obligations.

The Company has started its 2009 model year, and recently held its annual dealer conference. While we are pleased with the dealer reaction to our redesigned Sunesta and SSi Wide Techs, and the new Chaparral 400 Premiere Sport Yacht, our dealers are concerned about retail demand for the foreseeable future. We anticipate that the Company will continue to experience the effect of reduced consumer demand for the remainder of 2008 and into at least early 2009, which will adversely affect net sales, net income, operating margins and cash flows.

20

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

Key operating and financial statistics for the nine months ended September 30, 2008 and 2007 follow:

| ($
in thousands) | Three
months ended September
30 — 2008 | 2007 | Nine
months ended September
30 — 2008 | 2007 |
| --- | --- | --- | --- | --- |
| Total
number of boats sold | 610 | 1,167 | 3,130 | 4,189 |
| Average
gross selling price per boat | $ 48.5 | $ 43.4 | $ 46.33 | $ 42.8 |
| Net
sales | $ 31,582 | $ 52,481 | $ 152,858 | $ 185,326 |
| Percentage
of cost of goods sold to net sales | 83.8 % | 78.5 % | 80.6 % | 78.3 % |
| Gross
profit margin percent | 16.2 % | 21.5 % | 19.4 % | 21.7 % |
| Percentage
of selling, general and administrative expenses to net
sales | 12.9 % | 12.3 % | 12.4 % | 12.3 % |
| Operating
income | $ 1,018 | $ 4,795 | $ 10,630 | $ 17,330 |
| Warranty
expense | $ 545 | $ 1,120 | $ 2,719 | $ 3,793 |

THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007

Net sales for the three months ended September 30, 2008 decreased $20.1 million or 39.8 percent compared to the comparable period in 2007. The change in net sales was comprised of a 47.7 percent decrease in the number of boats sold partially offset by an 11.8 percent increase in average gross selling price per boat. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be relatively strong during the quarter, and accounted for the increase in the average selling price per boat, coupled with an improved model mix for the Robalo sport fishing boats. In the third quarter of 2008, sales outside of the United States accounted for approximately 27 percent of net sales compared to approximately 18 percent of net sales in the prior year.

Cost of goods sold for the three months ended September 30, 2008 was $26.5 million compared to $41.2 million for the comparable period in 2007, a decrease of $14.7 million or 35.8 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of manufacturing cost inefficiencies due to lower production volumes.

Selling, general and administrative expenses for the three months ended September 30, 2008 were $4.1 million compared to $6.5 million for the comparable period in 2007, a decrease of $2.4 million or 36.9 percent. The decrease in selling, general and administrative expenses was primarily due to the variable nature of many of these expenses, including incentive compensation, which declined as a percentage of sales consistent with lower sales and profitability, and warranty expense. Warranty expense was 1.7 percent of net sales for the three months ended September 30, 2008 compared to 2.1 percent in the prior year, primarily due to improved claims experience and our quality initiatives.

21

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

Operating income for the three months ended September 30, 2008 decreased $3.8 million or 78.8 percent compared to the comparable period in 2007. Operating income was lower primarily due to lower gross profit partially offset by a decrease in selling, general and administrative expenses.

Interest income was $0.6 million during the three months ended September 30, 2008 and 2007.

Income tax provision for the three months ended September 30, 2008 of $1.0 million was $1.2 million or 55.5 percent lower than the income tax provision of $2.2 million for the comparable period in 2007. The income tax provision reflects an effective tax rate of 58.3 percent, compared to 40.0 percent for the comparable period in the prior year. The increase in the effective rate was due primarily to recent unanticipated losses on non-qualified plan assets that are not deductible for tax purposes.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007

Net sales for the nine months ended September 30, 2008 decreased $32.5 million or 17.5 percent compared to the comparable period in 2007. The change in net sales was comprised of a 25.3 percent decrease in the number of boats sold offset by an 8.2 percent increase in average gross selling price per boat. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be strong during the first nine months of 2008, and accounted for the increase in the average selling price per boat. The decrease in net sales in the domestic market was partially offset by strong growth outside of the United States due to the weakness of the U.S. dollar. For the first nine months of 2008, sales outside of the United States accounted for approximately 33 percent of net sales compared to approximately 24 percent of net sales for the prior year.

Cost of goods sold for the nine months ended September 30, 2008 was $123.3 million compared to $145.2 million for the comparable period in 2007, a decrease of $21.9 million or 15.1 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of manufacturing cost inefficiencies due to lower production volumes and the cost of our retail incentive program associated with boats already sold to dealers.

Selling, general and administrative expenses for the nine months ended September 30, 2008 were $19.0 million compared to $22.8 million for the comparable period in 2007, a decrease of $3.9 million or 16.9 percent. The decrease in selling, general and administrative expenses was primarily due to the variable nature of these expenses, including incentive compensation which is consistent with lower sales and profitability. Warranty expense was 1.8 percent of net sales for the nine months ended September 30, 2008 compared to 2.0 percent in the prior year, primarily due to improved claims experience and our quality initiatives.

22

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

Operating income for the nine months ended September 30, 2008 decreased $6.7 million or 38.7 percent compared to the comparable period in 2007. Operating income was lower primarily due to lower gross profit partially offset by lower selling, general and administrative expenses.

Interest income was $1.8 million during the nine months ended September 30, 2008 compared to $1.9 million for the comparable period in 2007. This decrease resulted primarily from lower returns on our short term maturities due to an increase, which began in the second quarter of 2007, in balances invested in municipal bonds, which carry a lower nominal yield.

Income tax provision for the nine months ended September 30, 2008 of $3.7 million was $3.1 million or 45.6 percent lower than the income tax provision of $6.9 million for the comparable period in 2007. The income tax provision reflects an effective tax rate of 30.0 percent, compared to 35.6 percent for the comparable period in the prior year. The decrease in the effective rate was due primarily to the impact of tax credits.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company’s cash and cash equivalents at September 30, 2008 were $5.0 million. The following table sets forth the historical cash flows for:

| ( in
thousands ) | Nine
months ended September 30, — 2008 | | 2007 | |
| --- | --- | --- | --- | --- |
| Net
cash provided by operating activities | $ 18,050 | | $ 12,938 | |
| Net
cash used for investing activities | (8,190 | ) | (46,949 | ) |
| Net
cash used for financing activities | $ (8,048 | ) | $ (14,195 | ) |

Cash provided by operating activities for the nine months ended September 30, 2008 increased approximately $5.1 million compared to the comparable period in 2007. This increase is primarily the result of a decrease in working capital requirements for inventory and accounts receivables consistent with lower sales in 2008 compared to 2007.

Cash used for investing activities for the nine months ended September 30, 2008 decreased approximately $38.8 million compared to the comparable period in 2007, resulting primarily from the purchases of long-term marketable securities in 2007 that did not occur in 2008.

Cash used for financing activities for the nine months ended September 30, 2008 decreased approximately $6.1 million primarily due to a decrease in the cash paid for repurchases of common stock on the open market.

23

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

Financial Condition and Liquidity

The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization, and cash generated 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 2008 will be approximately $0.6 million, of which $0.3 million has been spent through September 30, 2008.

The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. (“RPC”). The Company does not currently expect to make any contributions to this plan during 2008.

On October 28, 2008, the Board of Directors approved a quarterly cash dividend per common share of $0.065. 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 4,925,157 shares in the open market pursuant to April 2001, September 2005, and January 2008 resolutions of the Board of Directors that authorized in the aggregate the repurchase of up to 8,250,000 shares. As of September 30, 2008, the Company can purchase 3,324,843 additional shares under these programs. The Company did not repurchase any shares under this program during the third quarter of 2008.

During the fourth quarter of 2008, the Company received notification of repurchase obligations totaling approximately $2.6 million resulting from dealer floor plan financing defaults. There are additional dealers experiencing financial difficulty as a result of the current market conditions and the Company may in the future incur additional repurchase obligations. See further information regarding repurchase obligations in Note 7 of the Consolidated Financial Statements and in the section below titled “Off Balance Sheet Arrangements.”

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 7 to the Consolidated Financial Statements for a detail of activity in the warranty accruals during the nine months ended September 30, 2008 and 2007.

24

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

OFF BALANCE SHEET ARRANGEMENTS

To assist dealers in obtaining financing for the purchase of its boats for inventory, the Company has entered into agreements with various third party lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company’s obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third party lender. The agreements provide for the return of all repossessed boats in “like new” condition to the Company, in exchange for the Company’s assumption of specified percentages of the debt obligation on those boats, up to certain contractually determined dollar limits by lender. Based on the amounts outstanding as of September 30, 2008, the maximum contractual obligation to these lenders totaled approximately $6.7 million. Our obligation relating to a maximum of $4.0 million of this total expire one year after the July 1, 2008 effective date of these agreements and resets to the same maximum for one additional year thereafter. Our obligation related to the remaining $2.7 million of this total varies based on dealer floor plan debt outstanding, decline over time based on the age of the inventory, and remain in force for periods ranging up to 24 months from the end of the third quarter of 2008. The Company records an estimate of the fair value of the guarantee liability at the end of each reporting period.

During the fourth quarter of 2008, the Company received notification of repurchase obligations totaling approximately $2.6 million resulting from defaults by two dealers. The Company re-evaluated the fair value of the Company’s guarantee liability under the foregoing circumstances and estimates a liability of approximately $177,000 as of September 30, 2008. In accordance with these agreements, the Company is also required to assist the lenders in remarketing additional boats with a resale value of approximately $1.5 million. There are additional dealers experiencing financial difficulty as a result of the current market conditions and the Company may incur additional repurchase obligations totaling up to $4.1 million in accordance with the repurchase agreements. Management will monitor the risk of additional defaults and resulting repurchase obligations and will adjust the guarantee liability accordingly. See further information regarding repurchase obligations in Note 13 of the Consolidated Financial Statements.

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, 2007. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.6 million in the nine months ended September 30, 2008 and 2007.

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, 2007. There have been no significant changes in the critical accounting policies since year-end.

25

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Notes 3 and 12 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

SEASONALITY

Marine Products’ quarterly operating results are affected by weather and general economic conditions. Quarterly operating results for the second quarter historically have reflected the highest quarterly sales volume during the year with the first quarter being the next highest sales quarter. However, the results for any quarter are not necessarily indicative of results to be expected in any future period.

INFLATION

During the past several years the Company has experienced an increase in certain material and component costs due to increases in the price of many of the commodities used as raw materials for our manufacturing processes. The Company responded to these increases in costs by instituting price increases to its dealers during previous model years. However, these price increases did not fully absorb the increased material costs during the past two years and therefore negatively impacted the Company’s gross margin. During the third quarter of 2008, the prices of many of these commodities fell dramatically. This fall in prices may lead to lower materials costs during the remainder of 2008 and 2009. Given the volatility in many commodities markets right now, no assurance can be given that commodities prices will continue to fall or at what prices they can be purchased in the future.

New boat buyers typically finance their purchases. To the extent that credit is available for purchasing boats, interest rates have fallen recently due to Federal Reserve actions. Given the volatility of interest rates, no assurance can be given that interest rates will remain low or that they will not rise in the future.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, the expected effect of recent accounting pronouncements on the Company’s consolidated financial statements; the Company’s expectation that it will not make any contributions to its pension plan in 2008; the Company’s belief that there are not any near-term catalysts which will improve their retail selling environment for our products; the Company’s b elief that additional costs associated with consolidating plants, reducing production from current levels, and additional work force reductions will not be material ; the Company’s belief that it may be required to implement additional sales incentive programs designed to sell inventory; the Company’s belief it will continue to experience the effect of reduced consumer demand for the remainder of 2008 and into at least early 2009, which will adversely effect net sales, net income, operating margins and cash flows; the Company’s belief that its liquidity, capitalization and cash expected to be generated from operations will provide sufficient capital to meet the Company’s requirements for the next twelve months; the Company’s expectations about capital expenditures during 2008; the Company’s expectations about dividends; that the Company may in the future incur additional repurchase obligations as a result of dealer floor plan financing defaults; the Company’s belief that the fall in prices of many commodities used as raw materials for its manufacturing processes in the third quarter may lead to lower material costs during the remainder of 2008 and 2009; the Company’s expectations regarding market risk of its investment portfolio; and the Company’s expectation about the effect of litigation on the Company’s financial position or results of operations. The words “may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “project,” “estimate,” and similar expressions used in this document that do not relate to historical facts are intended to identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, competition from other boat manufacturers and dealers, and insurance companies that insure a number of Marine Products’ marketable securities have recently been downgraded, which may cause volatility in the market price of Marine Products’ marketable securities. Additional discussion of factors that could cause the actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in Marine Products’ Form 10-K, filed with the Securities and Exchange Commission for the year ended December 31, 2007. The Company does not undertake to update its forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Marine Products does not utilize financial instruments for trading purposes and, as of September 30, 2008, did not hold derivative financial instruments that could expose the Company to significant market risk. Also, as of September 30, 2008, the Company’s investment portfolio, totaling approximately $52.5 million and comprised primarily of 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. Because Marine Products’ investment portfolio mix has been allocated towards securities with similar term maturities compared to the end of fiscal year 2007, the risk of material market value fluctuations is not expected to be significantly different from the end of fiscal year 2007 and the Company currently expects no such changes through the remainder of the current year.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

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, September 30, 2008 (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, 2007.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

| ITEM
6. | |
| --- | --- |
| 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 | Amended
and Restated By-laws of Marine Products Corporation (incorporated herein
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed on October 25, 2007). |
| 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). |
| 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 |

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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:
November 6, 2008 | Richard
A. Hubbell |
| | President
and Chief Executive Officer |
| | (Principal
Executive Officer) |
| | /s/
Ben M. Palmer |
| Date:
November 6, 2008 | Ben
M. Palmer |
| | Vice
President, Chief Financial Officer and Treasurer |
| | (Principal
Financial and Accounting
Officer) |

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