MARINE PRODUCTS CORP - Quarter Report: 2005 September (Form 10-Q)

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2005

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

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)

2170 Piedmont Road, NE, Atlanta, Georgia 30324

(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 shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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

As of October 25, 2005 Marine Products Corporation had 37,780,814 shares of common stock outstanding.

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Marine Products Corporation.

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Part I. Financial Information		Page No.

Item 1.	Financial Statements (Unaudited)
	Consolidated balance sheets - As of September 30, 2005 and December 31, 2004	3

	Consolidated statements of income - for the three and nine months ended September 30, 2005 and 2004	4

	Consolidated statements of cash flows - for the nine months ended September 30, 2005 and 2004	5

	Notes to consolidated financial statements	6-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

Part II. Other Information
Item 1.	Legal Proceedings	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits	25

Signatures		26

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
(In thousands)
(Unaudited)


	September 30,			December 31,
	2005			2004
ASSETS

Cash and cash equivalents	$	35,389		$	46,615
Marketable securities		217			132
Accounts receivable, net		6,120			1,082
Inventories		32,431			25,869
Income taxes receivable		634			1,160
Deferred income taxes		3,238			3,006
Prepaid expenses and other current assets		1,390			876
Total current assets		79,419			78,740
Property, plant and equipment, net		17,340			18,362
Goodwill and other intangibles, net		3,748			3,778
Marketable securities		5,806			6,202
Deferred income taxes		866			-
Other assets		4,150			2,652
Total assets	$	111,329		$	109,734



LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable	$	8,549		$	6,224
Accrued expenses		10,762			10,527
Total current liabilities		19,311			16,751
Pension liabilities		4,339			2,977
Deferred income taxes		-			925
Other long-term liabilities		1,604			1,709
Total liabilities		25,254			22,362
Common stock		3,781			3,894
Capital in excess of par value		17,522			34,239
Retained earnings		69,490			52,042
Deferred compensation		(3,795	)		(1,899	)
Accumulated other comprehensive loss		(923	)		(904	)
Total stockholders' equity		86,075			87,372
Total liabilities and stockholders' equity	$	111,329		$	109,734

The accompanying notes are an integral part of these consolidated statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(In thousands except per share data)
(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004

Net sales	$	65,032	$	63,129	$	215,184	$	189,734
Cost of goods sold		47,887		46,012		159,216		139,923
Gross profit		17,145		17,117		55,968		49,811
Selling, general and administrative expenses		7,825		7,475		25,703		22,130
Operating income		9,320		9,642		30,265		27,681
Interest income		350		139		1,053		375
Income before income taxes		9,670		9,781		31,318		28,056
Income tax provision		2,405		3,537		9,280		9,770
Net income	$	7,265	$	6,244	$	22,038	$	18,286


Earnings per share
Basic	$	0.19	$	0.16	$	0.58	$	0.48
Diluted	$	0.18	$	0.15	$	0.54	$	0.45


Dividends per share	$	0.040	$	0.027	$	0.120	$	0.081


Average shares outstanding
Basic		37,756		38,549		38,293		38,427
Diluted		39,757		40,803		40,459		40,748

The accompanying notes are an integral part of these consolidated statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(In thousands)
(Unaudited)


	Nine months ended September 30,
	2005			2004
OPERATING ACTIVITES
Net income	$	22,038		$	18,286
Noncash charges (credits) to earnings:
Depreciation and amortization and other non-cash charges		2,266			1,921
Deferred income tax benefit		(1,147	)		(562	)
(Increase) decrease in assets:
Accounts receivable		(5,038	)		(792	)
Inventories		(6,562	)		(4,138	)
Prepaid expenses and other current assets		(514	)		(358	)
Income taxes receivable		418			1,002
Other non-current assets		(2,364	)		(979	)
Increase (decrease) in liabilities:
Accounts payable		2,325			5,094
Other accrued expenses		235			532
Other long-term liabilities		1,257			225
Net cash provided by operating activities		12,914			20,231

INVESTING ACTIVITIES
Capital expenditures		(645	)		(2,146	)
Net sales (purchases) of marketable securities		283			(3,774	)
Net cash used for investing activities		(362	)		(5,920	)

FINANCING ACTIVITIES
Payment of dividends		(4,590	)		(3,086	)
Cash paid for common stock purchased and retired		(19,514	)		(3,544	)
Proceeds received upon exercise of stock options		326			832
Net cash used for financing activities		(23,778	)		(5,798	)

Net (decrease) increase in cash and cash equivalents		(11,226	)		8,513
Cash and cash equivalents at beginning of period		46,615			26,244
Cash and cash equivalents at end of period	$	35,389		$	34,757


The accompanying notes are an integral part of these consolidated statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The balance sheet at December 31, 2004 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, 2004.

The Board of Directors at their quarterly meeting on January 25, 2005, authorized a three-for-two stock split by the issuance on March 10, 2005 of one additional common share for every two common shares held of record as of February 10, 2005. Accordingly, the par value of additional shares issued has been adjusted between common stock and capital in excess of par value, and fractional shares resulting from the split were settled in cash. All share and per share data appearing throughout this Form 10-Q have been retroactively adjusted to reflect the impact of this stock split.

2.	EARNINGS PER SHARE

Statement of Financial Accounting Standard (“SFAS”) No. 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:

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except per share data amounts)	Three months ended September 30				Nine months ended September 30
	2005		2004		2005		2004

Net income	$	7,265	$	6,244	$	22,038	$	18,286
(numerator for basic and diluted earnings per share)
Shares (denominator):		37,756		38,549		38,293		38,427
Weighted average shares outstanding
(denominator for basic earnings per share)
Dilutive effect of stock options and restricted shares		2,001		2,254		2,166		2,321
Adjusted weighted average shares outstanding		39,757		40,803		40,459		40,748
(denominator for diluted earnings per share)

Earnings Per Share:
Basic	$	0.19	$	0.16	$	0.58	$	0.48
Diluted	$	0.18	$	0.15	$	0.54	$	0.45

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include the modified prospective application and the modified retrospective application. Under the modified retrospective application, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective application requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the modified retrospective application would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. SFAS No. 123R states that the requirement is to adopt the provisions in the first interim or annual period beginning after June 15, 2005. However, the Securities and Exchange Commission issued a new rule that allows companies to implement Statement No. 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. The Company will implement the provisions of SFAS 123R in the first quarter of 2006 pursuant to this rule. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") regarding the SEC's interpretation of SFAS 123R and the valuation of shared-based payments for public companies. The Company is currently evaluating the impact of applying the various provisions of SFAS 123R and SAB 107.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. By focusing the exception on exchanges that lack commercial substance, SFAS 153 intends to produce financial reporting that more faithfully represents the economics of the transaction. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 with earlier application permitted for nonmonetary exchanges occurring in fiscal periods beginning after the date of issuance. The provisions are to be applied prospectively. The adoption of SFAS 153 did not have a material impact on the Company’s consolidated results of operations and financial condition.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FASB Staff Position (“FSP”) No. 109-1, “Application of FAS 109 to Tax Deduction on Qualified Production Activities,” issued in December 2004 (“FSP 109-1”), provides guidance on the application of FASB Statement No. 109, “Accounting for Income Taxes,” (“SFAS 109”), to the tax deduction on qualified production activities provided by the American Jobs Creation Act of 2004 (the “Jobs Act”). The Jobs Act was enacted on October 22, 2004. FSP 109-1 is intended to clarify that the domestic manufacturing deduction should be accounted for as a special deduction (rather than a rate reduction) under SFAS 109. A special deduction is recognized under SFAS 109 as it is earned. Marine Products has completed a preliminary evaluation to determine applicability and potential impact, if any, regarding the applicability of FSP 109-1. The Company currently estimates that the provisions of FSP 109-1 will generate an after-tax benefit of approximately $500,000 during 2005.

In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" ("FIN 47"), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005 and therefore is required to be adopted by the Company in the fiscal year ended December 31, 2005. The Company is currently evaluating the effect that the adoption of FIN 47 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

In May 2005, the FASB has issued FASB Statement No. 154, "Accounting Changes and Error Corrections" (“SFAS 154”) which replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements." Among other changes, SFAS 154 requires that a voluntary change in accounting principle or a change required by a new accounting pronouncement that does not include specific transition provisions be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a "restatement." SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 with early adoption permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. Accordingly, the Company is required to adopt the provisions of SFAS 154 in the first quarter of fiscal 2006, beginning on January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition but does not expect SFAS 154 to have a material impact.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

(in thousands)	Three months ended September 30					Nine months ended September 30
	2005			2004		2005			2004

Net income as reported	$	7,265		$	6,244	$	22,038		$	18,286
Change in unrealized gain (loss) on marketable securities, net of taxes		(45	)		35		(19	)		(6	)
Comprehensive income	$	7,220		$	6,279	$	22,019		$	18,280

STOCK-BASED COMPENSATION

Marine Products accounts for its stock incentive plans using the intrinsic value method prescribed by Accounting Principles Board (”APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” If Marine Products had accounted for the stock incentive plans in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” reported net income per share would have been as follows:

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2005			2004			2005			2004

Net income - as reported	$	7,265		$	6,244		$	22,038		$	18,286
Add: Stock-based employee compensation cost, included in reported net income, net of related tax effect
		173			65			401			127
Deduct: Stock-based employee compensation cost, computed using the fair value method for all awards, net of related tax effect		(263	)		(149	)		(671	)		(374	)
Pro forma net income	$	7,175		$	6,160		$	21,768		$	18,039

Earnings per share - as reported
Basic	$	0.19		$	0.16		$	0.58		$	0.48
Diluted	$	0.18		$	0.15		$	0.54		$	0.45

Earnings per share - Pro forma
Basic	$	0.19		$	0.16		$	0.57		$	0.47
Diluted	$	0.18		$	0.15		$	0.54		$	0.44

WARRANTY COSTS AND OTHER CONTINGENCIES

Warranty Costs

An analysis of the warranty accruals for the nine months ended September 30, 2005 and 2004 is as follows:

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)	2005			2004
Balances at beginning of year	$	3,796		$	2,846
Less: Payments made during the period		(3,510	)		(2,977	)
Add: Warranty accruals during the period		3,492			2,852
Changes to warranty accruals issued in prior periods		154			380
Balances at September 30	$	3,932		$	3,101

Repurchase Obligations

The Company is also 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. The maximum contractual obligation under these agreements is $3.6 million and as of September 30, 2005 the amount outstanding under these agreements, which expire in 2005 and 2006, totaled approximately $3.3 million. The Company records the estimated fair value of the guarantee; at September 30, 2005, this amount was immaterial.

BUSINESS SEGMENT INFORMATION

The Company has only one reportable segment, its powerboat manufacturing business; therefore, the majority of the disclosures required by SFAS No. 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.

INVENTORIES

Inventories consist of the following:

(in thousands)	September 30, 2005		December 31, 2004
Raw materials and supplies	$	16,887	$	12,768
Work in process		8,098		6,721
Finished goods		7,446		6,380
Total inventories	$	32,431	$	25,869

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES

The Company determines its periodic income tax expense based upon the current period income and the annual estimated tax rate for the Company adjusted for any change to prior year estimates. The estimated tax rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company's current annual estimated tax rate.

During the third quarter of 2005, the Company recorded a reduction of $490,000 in the tax provision resulting from tax planning strategies that were established during 2005 and reflected in the 2004 tax returns which were filed during the quarter.

10.

EMPLOYEE BENEFIT PLAN

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

(in thousands)	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004
Service cost	$	-		$	-		$	-		$	-
Interest cost		95			60			189			180
Expected return on plan assets		(107	)		(57	)		(213	)		(173	)
Amortization of:
Unrecognized net (gains) and losses		45			20			90			64
Net periodic benefit cost	$	33		$	23		$	66		$	71

During the quarter ended March 31, 2005, the Company contributed $300,000 to the multiple employer pension plan. The Company does not currently expect to make any additional contribution to this plan in 2005.

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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, 2004 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.

In the third quarter of 2005, our production levels were slightly lower than the levels during the first two quarters of 2005. Gross profit margin as a percentage of net sales decreased approximately seven-tenths of one percent compared to the third quarter of 2004. This decline was primarily due to higher raw material costs, primarily petroleum based products such as resin and foam, and higher component costs such as engines. At the end of the quarter, our unit backlog was lower than at this time last year due to higher production levels over the last couple of quarters and higher dealer inventories.

Beginning October 2005, the Company reduced its production volumes due to near term retail demand uncertainties caused by declining consumer confidence, high fuel prices and the recent hurricanes. The impact on results due to the production decrease will be partially offset by an increase in average selling prices due to the change in model mix to more of the larger models based on dealer orders. The production decrease is concentrated in the smaller Chaparral sportboats and selected deck boat models, which tend to generate lower margins. In addition, the Company is undertaking other cost reduction measures.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

OUTLOOK

The discussion on the outlook for 2005 is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2004.

In addition, the Company is reducing its production levels as discussed above. The Company closely monitors its dealer inventories and believes that it is better to possibly forgo future sales opportunities due to less than optimal levels of inventory rather than risk selling excessive inventory into the dealer network. The winter boat show season begins in late December and the Company will be closely monitoring consumer traffic and orders relative to inventory levels and may re-assess production volumes and model mix.

The Company had an enthusiastic dealer meeting in September with the highest attendance in its history and positive response towards the nine new models that are being offered for the 2006 model year. The Company is also monitoring indications of demand as boat owners whose boats were destroyed in Hurricanes Katrina, Rita and Wilma may file insurance claims and purchase replacement boats in the future.

RESULTS OF OPERATIONS

Key operating and financial statistics for the three and nine months ended September 30, 2005 and 2004 follow:


*($ in thousands)*		Three months ended September 30						Nine months ended September 30
		2005			2004			2005			2004

Total number of boats sold		1,771			1,804			5,903			5,546
Average gross selling price per boat	$	36.3		$	35.2		$	36.5		$	34.5
Net sales	$	65,032		$	63,129		$	215,184		$	189,734
Percentage of cost of goods sold to net sales		73.6	%		72.9	%		74.0	%		73.7	%
Gross profit margin percent		26.4	%		27.1	%		26.0	%		26.3	%
Percentage of selling, general and administrative expense to net sales		12.0	%		11.8	%		11.9	%		11.7	%
Operating income	$	9,320		$	9,642		$	30,265		$	27,681
Warranty expense	$	1,087		$	1,073		$	3,646		$	3,232

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004

Net sales for the three months ended September 30, 2005 increased $1.9 million or 3.0 percent compared to the comparable period in 2004. The increase in net sales was due to a 3.1 percent increase in average gross selling price per boat and an increase in parts and accessories sales partially offset by a slight decrease in the number of boats sold. The increase in average selling price per boat was due to higher sales of larger boats, in addition to overall price increases that were implemented for the 2006 model year, which began in July 2005, as well as a price increase of approximately one percent that took effect in January 2005 to offset the higher cost of materials.

Cost of goods sold for the three months ended September 30, 2005 was $47.9 million compared to $46.0 million for the comparable period in 2004, an increase of $1.9 million or 4.1 percent. The increase in cost of goods sold was primarily due to increases in sales. Cost of goods sold, as a percentage of net sales, increased primarily due to increases in the cost of certain materials and components.

Selling, general and administrative expenses for the three months ended September 30, 2005 were $7.8 million compared to $7.5 million for the comparable period in 2004, an increase of $0.3 million or 4 percent. The increase in selling, general and administrative expenses was primarily due to public company compliance costs. Warranty expense was 1.7 percent of net sales for the three months ended September 30, 2005 and 2004.

Operating income for the three months ended September 30, 2005 decreased $0.3 million or 3.3 percent compared to the comparable period in 2004. Operating income was lower due to higher cost of goods sold together with higher selling, general and administrative expenses during the period, as discussed above.

Interest income was $0.4 million during the three months ended September 30, 2005 compared to $0.1 million for the comparable period in 2004, an increase of $0.3 million. 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 third quarter of 2004. The higher interest income during the quarter also resulted from increased balances of investable cash during the period compared to the third quarter of 2004.

Income tax provision for the three months ended September 30, 2005 reflects an effective tax rate of 24.9 percent, compared to 36.2 percent for the three months ended September 30, 2004. The income tax provision of $2.4 million was $1.1 million or 31.4 percent lower than the income tax provision of $3.5 million for the comparable period in 2004. The decrease in effective tax rate is due to the effect of the new manufacturing deduction created by the American Jobs Creation Act of 2004 and certain tax planning strategies implemented during 2005. The decrease was also attributable to a reduction of $490,000 in the tax provision resulting from the effect of these strategies reflected in the 2004 tax returns filed during the quarter.

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NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004

Net sales for the nine months ended September 30, 2005 increased $25.5 million or 13.4 percent compared to the comparable period in 2004. The increase in net sales was due to a 6.4 percent increase in the number of boats sold and a 5.8 percent increase in the average gross selling price per boat, and an increase in parts and accessories sales. The increase in unit sales was primarily due to increased sales of SSi sportboats and Robalo sport fishing boats, although all product lines experienced higher unit sales. The increase in average selling price per boat was due to higher sales of larger boats, in addition to overall price increases that were implemented for the 2006 model year, which began in July 2005, as well as a price increase of approximately one percent that took effect in January 2005 to offset the higher cost of materials.

Cost of goods sold for the nine months ended September 30, 2005 was $159.2 million compared to $139.9 million for the comparable period in 2004, an increase of $19.3 million or 13.8 percent. The increase in cost of goods sold was primarily due to increases in sales. Cost of goods sold, as a percentage of net sales, was slightly lower in 2005 than the comparable period in 2004, primarily due to production efficiencies because of higher production volumes, but also because of higher average selling prices due to a favorable model mix and the price increases discussed above. These factors were offset by higher materials and component costs.

Selling, general and administrative expenses for the nine months ended September 30, 2005 were $25.7 million compared to $22.1 million for the comparable period in 2004, an increase of $3.6 million or 16.3 percent. The increase in selling, general and administrative expenses was primarily due to incremental costs that vary with sales and profitability, such as incentive compensation and warranty expense, as well as higher public company compliance costs including costs associated with listing the company shares for trading on the New York Stock Exchange, which took place in the second quarter of 2005. Warranty expense was 1.7 percent of net sales for both the nine months ended September 30, 2005 and the comparable prior year period.

Operating income for the nine months ended September 30, 2005 increased $2.6 million or 9.3 percent compared to the comparable period in 2004. Operating income was higher due to higher gross profit, partially offset by higher selling, general and administrative expenses during the period, as discussed above.

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Interest income was $1.1 million during the nine months ended September 30, 2005 compared to $0.4 million for the comparable period in 2004, an increase of $0.7 million or 175 percent. This increase resulted primarily from higher returns during the period on the overnight and marketable securities in which Marine Products invests its available cash balances compared to the comparable period in 2004. The higher interest income during 2005 also resulted from increased balances of investable cash and higher yields during the period compared to the prior year.

Income tax provision for the nine months ended September 30, 2005 reflects an effective tax rate of 29.6 percent, compared to 34.8 percent for the nine months ended September 30, 2004. The decrease in effective tax rate is due to the effect of the new manufacturing deduction created by the American Jobs Creation Act of 2004 and certain tax planning strategies implemented during 2005. The decrease was also attributable to certain reductions in the tax provision resulting from the effect of these strategies reflected on prior year returns filed during 2005. The income tax provision of $9.3 million was $0.5 million or 5.0 percent lower than the income tax provision of $9.8 million for the comparable period in 2004. This decrease was the result of lower operating income partially offset by higher interest income and the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table sets forth the historical cash flows for:

(*in thousands*)		Nine months ended September 30,
		2005			2004

Net cash provided by operating activities	$	12,914		$	20,231
Net cash used for investing activities		(362	)		(5,920	)
Net cash used for financing activities	$	(23,778	)	$	(5,798	)

Cash provided by operating activities for the nine months ended September 30, 2005 decreased approximately $7.3 million compared to the comparable period in 2004. Despite higher net income in the first nine months of 2005 compared to the comparable period in 2004, cash provided by operating activities decreased due to higher working capital, primarily increased accounts receivable due to timing of payments, and higher inventories. The increase in inventories was primarily due to delays in shipments to certain dealers affected by the recent hurricanes and due to higher requirements for raw materials and supplies and unusually low inventories in the prior year.

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Cash used for investing activities for the nine months ended September 30, 2005 decreased approximately $5.6 million compared to the comparable period in 2004, resulting from sale of non-current marketable securities together with lower capital expenditure requirements.

Cash used for financing activities for the nine months ended September 30, 2005 increased approximately $18.0 million primarily due to the repurchase of shares on the open market coupled with an increase in common stock dividends.

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 2005 will be approximately $1.0 million, of which $0.6 million has been spent through September 30, 2005.

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 2005. The Company does not currently expect to make any additional contribution to this plan in 2005.

On January 25, 2005, the Board of Directors approved a 500 percent increase in the quarterly cash dividend per common share, from $0.027 to $0.040. Based on the shares outstanding on September 30, 2005, the aggregate annual amount would be approximately $6.0 million of which $4.6 million was paid as of September 30, 2005. 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 2,433,903 shares in the open market pursuant to an April 2001 resolution of the Board of Directors that authorized the repurchase of up to 2,250,000 shares and a resolution in September 2005 that authorized the repurchase of an additional 3,000,000 shares. As of September 30, 2005, the Company can buy back 2,816,097 additional shares under these programs. Details regarding the shares repurchased during the third quarter of 2005 have been disclosed in Part II, Item 2 of this document

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The Company has an immaterial amount of obligations and commitments that require future payments. See the section 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 nine months ended September 30, 2005 and 2004.

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. The maximum contractual obligation to the lenders under these agreements is $3.6 million and as of September 30, 2005 the amount outstanding under these agreements, which expire in 2005 and 2006, totaled approximately $3.3 million. The Company has recorded the estimated fair value of this guarantee; at September 30, 2005, this amount is immaterial and did not change from the prior year.

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, 2004. The Company reimbursed RPC for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.4 million in the nine months ended September 30, 2005 and approximately $0.4 million in the nine months ended September 30, 2004.

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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, 2004. 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 to its dealers effective January 1, 2005, and instituting an additional price increase for the 2006 model year which began on July 1, 2005. These price increases did not fully absorb the increased material costs for the quarter ended September 30, 2005 and therefore negatively impacted the gross margin percent. We anticipate, with continued high commodity prices, energy prices and petroleum based products 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.

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.

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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, statements that relate to the Company’s business strategy, plans and objectives, market risk exposure, adequacy of capital resources and funds, opportunity for continued growth, ability to effect future price increases, estimates regarding boat repurchase obligations, estimated pension contributions, the impact of SFAS 151, SFAS 123R, SAB 107, SFAS 153, FSP 109-1, FIN 47 and SFAS 154 and the Company's beliefs and expectations regarding future demand for the Company's products and services and other events and conditions that may influence the Company's performance in the future. 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 those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and the following: possible decreases in the level of consumer confidence impacting discretionary spending, the possibility that boat owners will not buy replacement boats as expected, increased interest rates, continued increases in fuel prices, the Company's inability to offset anticipated production decreases with increased average selling prices and cost reductions, changes in consumer preferences, deterioration in the quality of Marine Products’ network of independent boat dealers or availability of financing of their inventory, 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 ending December 31, 2004.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Marine Products does not utilize financial instruments for trading purposes and, as of September 30, 2005, did not hold derivative financial instruments that could expose the Company to significant market risk. Also, as of September 30, 2005, the Company’s investment portfolio, totaling approximately $41.4 million and comprised of United States Government, corporate 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 2004, and currently expects no such changes through the end of the year.

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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, 2005 (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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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 outcomes of such litigation will have a material adverse effect on the financial position or results of operations of Marine Products.

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 September 30, 2005 were as follows:

Period	Total Number of Shares (or Units) Purchased			Average Price Paid Per Share (or Unit)		Total number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
Month #1 July 1, 2005 to July 31, 2005		355,636		$	13.59		355,636		446,160

Month #2 August 1, 2005 to August 31, 2005		152,572		$	14.39		152,572		293,588

Month #3 September 1, 2005 to September 30, 2005		479,553 (2	)	$	10.82		477,491		2,816,097(1	)

Totals		987,761		$	12.37		985,699		2,816,097

(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 2,433,903 shares have been repurchased through September 30, 2005. The programs do not have predetermined expiration dates.

(2)

Includes 2,062 shares tendered at an average price of $10.90 for withholding taxes related to the release of restricted shares.

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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).

	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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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 4, 2005	Richard A. Hubbell President and Chief Executive Officer (Principal Executive Officer)


	/s/ Ben M. Palmer
Date: November 4, 2005	Ben M. Palmer Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)