NOTE 6: INCOME TAXES

The following table lists the components of the provision for income taxes:


Years ended December 31,	2011			2010			2009
(in thousands)
Current provision (benefit):
Federal	$	1,757		$	989		$	(5,892	)
State		(14	)		182			(61	)
Deferred provision (benefit):
Federal		(90	)		165			(802	)
State		14			(297	)		(52	)
Total income tax provision (benefit)	$	1,667		$	1,039		$	(6,807	)

A reconciliation between the federal statutory rate and Marine Products’ effective tax rate is as follows:


Years ended December 31,	2011			2010			2009
Federal statutory rate		34.0	%		34.0	%		35.0	%
State income taxes, net of federal benefit		0.8			1.4			0.3
Tax-exempt interest		(3.0	)		(6.6	)		3.1
Tax-exempt gain/loss on SERP assets		0.2			—			1.2
Tax-exempt gain – benefit plan financing		(8.4	)		—			—
Manufacturing deduction		(2.0	)		(3.2	)		—
Change in state credits		—			(10.5	)		1.2
Change in valuation allowance		—			4.5			(1.6	)
Other		(1.7	)		1.6			(0.3	)
Effective tax rate		19.9	%		21.2	%		38.9	%

Significant components of the Company’s deferred tax assets and liabilities are as follows:


December 31,	2011			2010
(in thousands)
Deferred tax assets:
Warranty costs	$	701		$	905
Sales incentives and discounts		750			671
Stock-based compensation		755			820
Pension		2,242			1,981
All others		267			336
State credits		4,099			4,003
Valuation allowance		(3,783	)		(3,677	)
Total deferred tax assets		5,031			5,039
Deferred tax liabilities:
Depreciation and amortization expense		(673	)		(876	)
Net deferred tax assets	$	4,358		$	4,163

Total net income tax payments (refunds) were $880,000 in 2011, $(4,743,000) in 2010 and $(2,406,000) in 2009. The Company includes a valuation allowance against certain state credits based on an examination of these deferred tax assets and the expectation that they will not be realized based on future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which the Company operates and prudent and feasible tax planning strategies.

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 December 31, 2011 and 2010.

In accordance with the accounting guidance relating to the accounting for uncertainty in income tax reporting, which provides criteria for the recognition, measurement, presentation and disclosure f uncertain tax positions, the Company did not recognize a material adjustment in the liability for unrecognized income tax benefits.

As of December 31, 2011 and 2010, our liability for unrecognized tax benefits was $23,000 and $44,000, respectively, all of which would affect our effective rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2011 and 2010 are as follows:

	December 31,
(in thousands)	2011			2010
Balance at the beginning of the year	$	44		$	23
Additions based on tax positions related to current year		-			12
Additions for tax positions of prior years		-			20
Reductions for tax positions of prior years		(21	)		(11	)
Balance at the end of the year	$	23		$	44

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 2008 through 2011 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.