UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June 30, 2002

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)

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  ý No  o

As of June 30, 2002, Marine Products Corporation had 17,149,564 shares of common stock outstanding.

MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2002 AND DECEMBER 31, 2001

(In thousands)

The accompanying notes are an integral part of these statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS  OF  INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(In thousands except per share data)

(Unaudited)

*  Average shares outstanding for all periods presented are actual except

    for the six months ended June 30, 2001 which are pro forma.

The accompanying notes are an integral part of these statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these statements.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.                                       GENERAL

                                                The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2001.

                                                In the opinion of management, the consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2002 and the results of operations for the three and six months ended June 30, 2002 and 2001, and the cash flows for the six months ended June 30, 2002 and 2001.

                                                The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

Certain prior year balances have been reclassified to conform to the current year presentation.

2.                                       SPIN - OFF TRANSACTION

                                                In January 2000, the Board of Directors of RPC, Inc. (“RPC”) announced that it planned to spin off to RPC stockholders the business conducted through Chaparral Boats, Inc. (“Chaparral”), RPC’s former Powerboat Manufacturing Segment (the “spin-off”).  RPC’s Board of Directors subsequently approved the spin-off on February 12, 2001.  RPC accomplished the spin-off on February 28, 2001 by contributing 100 percent of the issued and outstanding stock of Chaparral to Marine Products Corporation (a Delaware corporation) (“Marine Products” or the “Company”), a newly formed wholly-owned subsidiary of RPC, and then distributing the common stock of Marine Products to RPC stockholders. RPC stockholders received 0.6 shares of Marine Products common stock for each share of RPC common stock owned as of the record date.  Immediately after the spin-off was completed, RPC owned no shares of Marine Products common stock and Marine Products became an independent public company. A total of 17,012,277 shares of Marine Products common stock were distributed in connection with the

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                                                spin-off. As part of the spin-off, RPC transferred $13,833,000 in cash and marketable securities to Marine Products. Also as part of the spin-off, the $53,829,000 receivable from RPC was cancelled.

3.                                       EARNINGS PER SHARE

                                                Basic and diluted earnings per share are computed by dividing net income by the respective weighted average number of shares outstanding during the respective periods.

                                                A reconciliation of weighted shares outstanding is as follows:

* Average shares outstanding for all periods presented are actual except for the six months ended June 30, 2001

   which are pro forma.

4.                                       RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (“FASB”) approved Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interests method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed on June 30, 2001 after December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 has not been amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis

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or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The Company has determined that the initial adoption of this statement did not require an adjustment to the carrying value of its intangibles, and therefore, it did not have a material effect on the results of operations or financial position of the Company. If the Company had adopted SFAS No.142 at the beginning of 2001, there would be no impact on 2002 and an increase of $106,000 and $212,000 in net income and an additional earnings of $0.01 per basic and diluted shares outstanding for the three and six months ended June 30, 2001, respectively.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses accounting and reporting for asset retirement costs of long-lived assets resulting from legal obligations associated with acquisition, construction, or development transactions.  The Company is required to adopt SFAS No. 143 in January 2003.  Management does not believe the adoption of this statement will have a material effect on the results of operations or financial position of the Company.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. The Company adopted SFAS No. 144 in January 2002. The adoption of this statement did not have a material effect on the results of operations or financial position of the Company.

In April 2002, the FASB issued SFAS No. 145, “Rescission of  FASB statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections,”  which clarifies the criteria under which extinguishment of debt can be considered as extraordinary and rescinds the related SFAS Nos. 4 and 64 in addition to SFAS No. 44 and also makes technical corrections to other Statements of Financial Standards. The Company plans to adopt SFAS No. 145 in January 2003.  Management believes that the adoption of this statement will not have a material effect on the Company’s future results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and nullifies EITF 94-3.  The Company plans to adopt SFAS No. 146 in January 2003.  Management believes that the adoption of this statement will not have a material effect on the Company’s future results of operations.

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5.                                       ACQUISITION

Effective June 2001, Marine Products purchased certain operating and intangible assets of the Robalo Marine (“Robalo”) segment of the U.S. Marine division of Brunswick Corporation for total consideration of $1,037,000.  Robalo is a leading manufacturer of offshore sport fishing boats.  The purchase was funded by cash and has been accounted for using the purchase method of accounting. Proforma results of operations have not been presented for the acquisition because the effect of this acquisition was not material to the Company.  The results of operations of the acquisition are included in the Company’s consolidated statements of income from the date of acquisition.

6.             BUSINESS SEGMENT INFORMATION

                                                As the Company has only one reportable segment—its powerboat manufacturing business—the majority of the disclosures required by SFAS No. 131 do not apply to the Company.  In addition, the Company’s results of operations and its financial condition are not significantly reliant upon any single customer or the Company’s foreign operations.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

Marine Products’ mission is to maximize the boating experience by providing its customers with high-quality, innovative powerboats and related products and services.  Marine Products, through its wholly-owned subsidiaries Chaparral and Robalo, is a leading manufacturer of recreational fiberglass powerboats.  Chaparral competes in the sterndrive engine-powered sportboat, deckboat and cruiser markets.  Robalo, acquired in June 2001, competes in the outboard engine powered offshore sport fishing boat market. Robalo sales were approximately 5% of sales in the second quarter of 2002.  This percentage is expected to grow as more models are introduced and production and distribution are increased.

CRITICAL ACCOUNTING POLICIES

The discussion on Critical Accounting Policies is incorporated herein by reference to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2001.  There have been no significant changes in the critical accounting policies since year end.

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

Net sales for the three months ended June 30, 2002 increased $7,767,000 or 20% to $47,193,000 compared with $39,426,000 for the three months ended June 30, 2001. The increase in net sales was due to an increase in the number of boats sold as well as a slight increase in the average sales price per boat.

Cost of goods soldfor the three months ended June 30, 2002 was $36,752,000 compared to $30,501,000 for three months ended June 30, 2001, an increase of $6,251,000 or 21%.  Cost of goods sold, as a percentage of net sales, increased from 77% in 2001 to 78% in 2002.  The increase in cost of goods sold as a percentage of net sales was due to an unfavorable model mix, coupled with the continued effect of initiating production of the Robalo product line.  Robalo’s margins have been negatively impacted by low production volumes. Preparation is being made for higher production volumes later in the year.

Selling, general and administrative expenses for the three months ended June 30, 2002 were $4,781,000 compared to $4,648,000 for the three months ended June 30, 2001,

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an increase of $133,000. The increase in selling, general and administrative expenses was due to higher bonus and advertising costs. Selling, general and administrative expenses as a percentage of net sales decreased from 12% in 2001 to 10% in 2002.

The decrease in selling, general and administrative expenses as a percentage of net sales was due to decreased research and development costs and the cessation of goodwill amortization in 2002.

Operating incomefor the three months ended June 30, 2002 was $5,660,000, an increase of $1,383,000 compared to operating income of $4,277,000 for the comparable period in 2001. Operating income was higher due to higher gross profit.

Interest incomewas $165,000 in the second quarter of 2002 compared to $324,000 in the second quarter of 2001, a decrease of $159,000 resulting from lower investment yields consistent with the decline in interest rates. Marine Products generates interest income from investment of its available cash primarily in overnight securities, and selected intermediate term interest-bearing securities.

Net incomefor the quarter ended June 30, 2002 was $3,611,000 or $0.20 diluted earnings per share compared to $2,852,000 or $0.16 diluted earnings per share for the quarter ended June 30, 2001.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

Net sales for the six months ended June 30, 2002 increased $9,772,000 or 13% to $85,516,000 compared with $75,744,000 for the six months ended June 30, 2001.  The increase in net sales was due to an increase in the number of boats sold as well as a slight increase in the average sales price per boat.

Cost of goods soldfor the six months ended June 30, 2002 was $66,937,000 compared to $58,334,000 for the six months ended June 30, 2001, an increase of $8,603,000 or 15%.  Cost of goods sold, as a percentage of net sales, increased from 77% in 2001 to 78% in 2002.  The increase in cost of goods sold as a percentage of net sales was due to an unfavorable model mix , coupled with the continued effect of initiating production of the Robalo product line.  Robalo’s margins have been negatively impacted by low production volumes.

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Selling, general and administrative expenses for the six months ended June 30, 2002 were $9,064,000 compared to $9,274,000 for the six months ended June 30, 2001, a decrease of $210,000.  Selling, general and administrative expenses as a percentage of net sales decreased from 12% in 2001 to 11% in 2002. The decrease in both comparisons were attributable to decreased research and development costs and the cessation of goodwill amortization in 2002.

Operating incomefor the six months ended June 30, 2002 was $9,515,000, an increase of $1,379,000 compared to operating income of $8,136,000 for the comparable period in 2001. The results were driven by higher gross profits coupled with a decrease in selling, general and administrative expenses.

Interest incomewas $321,000 for the six months ended June 30, 2002 compared to $440,000 for the comparable period in 2001, a decrease of $119,000 resulting from lower investment yields consistent with the decline in interest rates. Marine Products generates interest income from investment of its available cash primarily in overnight securities, and selected intermediate term interest-bearing securities.

Net incomefor the six months ended June 30, 2002 was $6,098,000 or $0.34 diluted earnings per share compared to $5,317,000 or $0.31 diluted earnings per share for the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

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.  As the result of the spin-off in February 2001, the Company became a separate publicly traded company.  The Company’s operations historically have generated sufficient cash for its operations, and the excess was transferred to RPC. In connection with the spin-off, the Company received approximately $13,833,000 in cash and marketable securities from RPC.  The Company is now able to retain any excess cash it generates; however, in the event capital is needed to fund operations, capital expenditures or acquisitions, it may no longer be able to rely upon the capital resources of RPC. For the six months ended June 30, 2002, cash and cash equivalents and marketable securities increased $7,811,000 from December 31, 2001.

Cash provided by operating activities for the six months ended June 30, 2002 was $9,610,000 compared to $7,032,000 for the six months ended June 30, 2001, a

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$2,578,000 or 37% increase. The increase resulted from increased net income coupled with a reduction in working capital during the first six months of 2002.

Cash provided by investing activities for the six months ended June 30, 2002 was $3,662,000 compared to $650,000 for the six months ended June 30, 2001. The $3,012,000 increase results from the decrease in capital expenditures and cash paid for acquisitions. See Note 2 to the consolidated financial statements where the transfer of cash and marketable securities from RPC in connection with the spin-off is discussed.

Cash used for financing activities for the six months ended June 30, 2002 was $883,000 compared to cash provided by financing activities of $250,000 for the six months ended June 30, 2001, an increase in cash used of $1,133,000.  The increase in cash used relates primarily to higher stock repurchases and dividends in 2002 compared to 2001 and the elimination of the receivable owed to the Company by RPC. See Note 2 to the consolidated financial statements where the elimination of the Receivable from RPC in connection with the spin-off is discussed.

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 at least the next twelve months. The Company believes that the liquidity will allow it the ability to continue to grow and provide the opportunity to take advantage of business opportunities that may arise.

The Company has an insignificant amount of obligations and commitments that require future payments. Consistent with customary industry practices, the Company has agreements with third-party dealer floor plan lenders to repurchase any of its boats that are repossessed by the lender.  The Company maintains a reserve for estimated losses on boats repurchased.  The Company’s obligation under its guarantee becomes effective in the case of default in payments by the dealer. The agreements provide for the return of all repossessed boats to the Company in new condition, in exchange for the Company’s assumption of the unpaid debt obligation on those boats.

SEASONALITY

Marine Products’ quarterly operating results are affected by weather and the general economic conditions in the United States.  Although quarterly operating results for the second quarter have historically recorded the highest sales volume for the year, our quarterly operating results are generally distributed evenly throughout the year. However,

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the results for any quarter are not necessarily indicative of results to be expected in any future period.

INFLATION

Inflation has not had a material effect on Marine Product’s operations.  If inflation increases, Marine Products will attempt to increase its prices to offset its increased costs. No assurance can be given, however, that the Company will be able to adequately increase its prices in response to inflation.  Inflation can also impact Marine Products’ sales and profitability.  New boat buyers typically finance their purchases.  Because higher inflation results in higher interest rates, the cost of boat ownership increases.  Prospective buyers may choose to delay their purchases or buy a less expensive boat.

FORWARD-LOOKING STATEMENTS

Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, market risk exposure and the impact of SFAS No. 142, and our beliefs and expectations regarding future demand for our products and services and other events and conditions that may influence our 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  the following: Marine Products’ dependence on its network of independent boat dealers may affect its growth plans and revenues, weather conditions, personal injury or property damage claims, inability to obtain adequate raw materials, inability to increase the production of the Robalo product line, the effects of the economy on the demand for power boats, competitive nature of the recreational boat industry, inability to complete acquisitions, loss of key personnel, or ability to attract and retain qualified personnel.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Marine Products does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose Marine Products to significant market risk.  Marine Products maintains an investment portfolio, comprised of United States Government, corporate and municipal debt securities, which is subject to interest rate risk exposure.  This risk is managed through conservative policies to invest in high-quality obligations.  Marine Products has performed an interest rate sensitivity analysis using a duration model over the near term with a 10 percent change in interest rates.  Marine Products’ portfolio is not subject to material interest rate risk exposure based on this analysis.  Marine Products does not expect any material changes in market risk exposures or how those risks are managed.

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None

ITEM 2.   CHANGES IN SECURITIES

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

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

The Company’s Annual Meeting of Stockholders was held on April 23, 2002.  At the meeting, stockholders (1) elected three Class I directors to the Board of Directors for the terms expiring in 2005; (2) approved the performance based compensation agreement.  Results of the voting were as follows:

(1)

(2)          

ITEM 5.  OTHER INFORMATION

None

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MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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