2801
Buford Highway, Suite 520
Atlanta,
Georgia 30329
Phone:
404.321.2140
Fax:
404.321.5483
VIA
EDGAR
March 31,
2008
Ms. Linda
Cvrkel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
DC 20549-7010
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Re:
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Marine
Products Corporation
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Form
10-K for the Fiscal Year ended December 31, 2007
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Filed
March 4, 2008
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File
No. 001-16263
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Your
comment letter dated March 17, 2008
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Dear Ms.
Cvrkel:
This
letter provides the Company’s responses to your comments about the above
referenced filing. In an effort to facilitate the Staff’s review, we
have repeated each of the comments prior to setting forth the Company’s response
thereto in the same order that they appeared in your letter.
Form 10-K for the year ended
December 31, 2007
Consolidated Statements of
Cash Flows, page 36
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1.
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Please
revise your consolidated statements of cash flows in future filings to
provide separate disclosure of cash flows from sales and maturities of
marketable securities available for sale. Refer to the guidance
outlined in paragraph 18 of SFAS No.
115.
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RESPONSE
In future
filings the Company’s consolidated statements of cash flows will provide
separate disclosure of cash flows from sales of marketable securities available
for sale and cash flows from maturities of marketable securities available for
sale.
Division
of Corporation Finance
Securities
and Exchange Commission
March 31,
2008
Page
2
Notes to the Consolidated
Financial Statements
General
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2.
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We
note from your disclosure on page 15 that the Company’s Chairman of the
Board, and his brother, who is also a director of the Company, and certain
companies under their control, control in excess of 50% of the Company’s
voting power. In this regard, please revise your notes to the consolidated
financial statements to disclose the nature and existence of this control
relationship. Refer to the requirements of paragraph 4 of SFAS No.
57.
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RESPONSE
In future
filings, the Company will provide the following additional
disclosure:
A group
that includes the Company’s Chairman of the Board, R. Randall Rollins and his
brother Gary W. Rollins, who is also a director of the Company, and certain
companies under their control, controls in excess of fifty percent of the
Company’s voting power.
Note 1: Significant
Accounting Policies, page 37
- Warranty Costs, page
40
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3.
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We
note that you recognized “Changes to warranty provision for prior years”
in the amount of $239,000 and $1,985,000 during fiscals 2007 and 2006,
respectively. We note that you indicate in MD&A on page 24
that the increase in fiscal 2006 was related to adjustments based on a
review of recent claims experience to reflect the change in estimated
costs per claim, due primarily to higher labor rates and parts costs.
Please explain to us in greater detail the nature and underlying reason(s)
for the significant increase during fiscal 2006 of the warranty provision
related to prior years and why such factors were not considered as part of
the original estimate. Your response should address why you believe it is
appropriate to account for the changes to provisions for prior years as a
change in accounting estimate rather than as an error in the financial
statements. Please note that changes in accounting estimates result from
new information where as an error in previously issued financial
statements results from mathematical mistakes, mistakes in the application
of GAAP, or oversight or misuse of facts that existed at the time the
financial statement were prepared. We may have further comment upon
receipt of your response.
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RESPONSE
The 2006
change in the warranty provision related to prior years of $1,985,000 was
recorded as a change in accounting estimate because it resulted from new
information. This change in the warranty provision was not treated as
an error in previously issued financial statements because it did not result
from mathematical mistakes, mistakes in the application of GAAP, or oversight or
misuse of facts that existed at the time the financial statements were
prepared.
Division
of Corporation Finance
Securities
and Exchange Commission
March 31,
2008
Page
3
It is
important to note that depending upon dealer inventory turns, sales from dealer
inventory to retail customers typically occur several months after our sale of
the boat to the dealer. Warranty claims generally arise after the
boat is sold to the retail customer for up to one to two years for specified
components and within approximately three years for structural
defects. Accordingly, there is an extended time delay between the
Company recording the sales and estimated warranty provision, and the warranty
claim being reported to the dealer by the retail customer and the eventual
receipt of the claim by the Company. Factors used in estimating the
Company’s warranty provision include, among other variables, warranty terms in
effect, the Company’s decisions about enforcement of those terms and
qualification of claim types over time, defects in parts and materials, the
volume and mix of boat sales, and the ultimate cost of labor and parts at the
time warranty work is expected to be completed.
Two
factors resulted in the 2006 change in the warranty provision related to prior
years; (1) the decline in industry sales and profitability for manufacturers and
dealers and, (2) the continuing higher cost of worldwide commodity prices
impacting our component costs, and therefore, warranty replacement
parts.
During
2005, industry unit sales began to decline impacting the profitability of both
manufacturers and dealers. We believe this had an impact on the
frequency and size of warranty claims processed by dealers because warranty work
was viewed as an additional source of revenues. To remain competitive
during the decline in industry sales and respond to the negative impact on
warranty claims experience, the Company considered various business alternatives
to control our warranty claims while improving dealer and customer
satisfaction. As a result, we developed incentive programs providing
dealers the opportunity to qualify for higher tiered warranty-related labor
rates if, among other things, they achieved specified future customer service
levels. The number of dealers expected to qualify for this incentive
and the related cost impact were considered in 2005 when estimating both the
current period warranty provision and the change in the warranty provision
related to prior years. However, in 2006 the timing of dealers
qualifying for increased labor rates and their level of achievement was higher
than expected. This was confirmed through review of the claims
received in 2006. The incentive program was highly successful in that
improved customer satisfaction was achieved, but it resulted in a higher than
expected warranty claims cost related to labor. Therefore, we
recognized the additional estimated cost of these higher labor rates during
2006.
Historically,
prices for commodities critical to our business, such as steel and petroleum,
have been cyclical and based on domestic levels of demand. Commodity
prices were increasing in 2005. With the slowdown in domestic
consumer discretionary spending which was also impacting our industry and other
recreational product industries, we expected a corresponding decline in
commodity prices that are critical to the cost of our components and warranty
replacement parts. In 2006, however, with continued strong economic
growth from other world economies, notably China and India, we expected the
costs to remain at these higher levels, and accordingly, the Company recognized
this additional estimated cost of warranty replacement costs during
2006.
Division
of Corporation Finance
Securities
and Exchange Commission
March 31,
2008
Page
4
In
summary, during 2006 the warranty provision related to prior years (noted as a
percentage of net sales) was recorded to reflect a new estimate of approximately
2.0% for 2004 and 2.0% for 2005 compared to initial estimates recorded of
approximately 1.7% in 2004 and 1.6% in 2005.
Please
note that the Company considered this new information regarding higher warranty
cost trends together with its quality initiatives in estimating the warranty
provision as a percentage of net sales occurring in 2006 of 1.8% and in 2007 of
1.9%.
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4.
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Notwithstanding
the above, please explain why you believe you are still able to make
reliable estimates in light of the significant increase in the warranty
provisions for prior years made during fiscal
2006.
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RESPONSE
As part
of the Company’s focus on quality, the Company regularly reviews warranty claims
data and other related information. We use this information to make
business decisions about improvements in our manufacturing process, management
of its warranty claims and related payments, and to make management judgments
about accounting for warranty. We believe the knowledge obtained from
these reviews provides a solid basis for making reasonable estimates of the cost
of future warranty claims.
The
Company acknowledges the following:
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·
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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·
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the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Very
truly yours,
/s/
Ben M. Palmer
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Ben
M. Palmer
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cc: Ms.
Jean Yu